Barilla SpA: Demand Fluctuations Problem

CASE ANALYSIS OF BARILLA SPA Problem seen in Barilla SpA by Giorgio Maggiali-Director of logistics is the demand fluctuations imposed on the company manufacturing & distribution system. Brando Vitali which was an earlier Director of logistics in Barilla SpA proposed an idea of Just- in- time distribution (JITD) for this problem. Instead of Distributors giving orders according to them, company should deliver its products on time by its own logistics system on the basis of end consumer needs. By implementing this idea of JITD, company faces many problems like —– Barilla customers are unwilling to share their business data with company due to which company is unable to predict forecast demand & delivery decisions.

-Company own sales & marketing people feel that if this idea is successful they will be out of the company as their will be no need of sales & marketing team after this JITD implementation. Now scenario was that no one except this idea neither internally by company own employees especially sales & marketing people & nor externally by its own distributors & retailers.

In 1875 Pietro barilla started Barilla SpA in Italy . Pietro passed company to his son Ricardo which in 1940, further passed to his sons-Pietro & Gianni which were far more successful than their ancestors. Core competency of a company —- High quality products supported by innovative marketing programmes. -Marketing practices— creating a strong brand name & image for its pasta. -Selling pasta in a sealed cardboard box with a recognizable color pattern Pietro & Gianni barilla made a pasta plant of 1. 25 million sq. etre which was the world largest & most technologically advanced pasta plant in the world which put them deeply into the debt & they have to sell this plant to American MNC, W.

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R. Grace. Now according to me this situation was due to the following factors -Demand was not forecasted as market needed pastas in such a great quantity or not -Logistics system of distribution was also not discussed while making a plant outside Parma city in a rural town which is 5 km away Gurjeet Bhatia -Indore -Such a highly technological plant will definitely be highly costlier & may misbalance the financial situation of a company.

American MNC was also failed in spite of additional capital investment & professional management practices to the company due to difficult economic conditions & new Italian legislation at that time. American MNC again sold the company to Pietro Barilla. As crucial time of difficult economic condition passed on & new legislation was also been stabilized, the capital investments& organizational changes that Grace had brought to Barilla became a powerful tool for a company & company now progress a lot through expansion of existing businesses, both in Italy and other European countries. By this we learn that – External factors like economic condition of a country & new legislation system plays an important role in a success or failure of a company. -Internal factors like capital investment & organizational changes also play an important role in a success or failure of a company Amongst the 35 % of all pasta sold in Italy the traditional barilla brand represented 32 % of the market. It shows that -People like traditional Pasta products as these products satisfies their taste most -People of Italy were of traditional culture Half of barilla’s pasta was sold in Southern Italy and half in Northern Italy .

Northern Italy has more market share than Southern Italy due to its larger size. Barillas also have a 29 % share of the Italian bakery products market. Manufacturing & Distribution system of Barilla SpA (Seven Divisions) -Three pasta divisions —-barilla,voiello & braibanti -Bakery product division—-manufacture medium to long shelf life bakery products -Fresh bread division —-manufacture very short life bakery product -Catering division —-distributes cakes & frozen croissants to bars & pastry shops -International division

Corporate headquarters were located adjacent to the Pedrignano plant It shows that -Barilla SpA was organized in a systematic way as every different product has their different divisions -To have full control over an organizational structure of a company, company located its headquarters near to the plant. Gurjeet Bhatia -Indore Per capita pasta consumption in Italy averaged nearly 18 kg per year which was far more than Western European countries -This means that Pasta was a highly demandable & consumable product in Italy & also used for regular meal product People of Italy may like Pasta so much due to Pasta historical picture of being “Since time immemorial, Italians have adored pasta” -Pasta has a regular or smooth demand round the year because of its use in summer as well as in winter Italian pasta market growth in Italy was only 1 % per year in 1980 & by 1990’s only some pasta products like Semolina & Fresh pasta shows some growth but the real factor of growth for the company was due to Eastern European countries seeking low priced basic food products like Pasta Products.

It shows that consumer in Eastern European countries needs a low priced basic food products & Italian Pasta fulfills this need & therefore be the big hit in Eastern European countries. “RIGHT PRODUCT AT RIGHT TIME IN RIGHT PLACE” Barilla plant network is strong as spreaded throughout Italy & also seems cost conscious. -Barilla invested in R & D facilities for developing & testing new products & production processes. – In Barilla Pasta plants set up cost is low & product quality is high as a single product was maintained with high quality. Big lot sizes were manufactured which helps in keeping products price competitive. -Barilla employees used bicycles in big plants due to which there is no wastage of time & money by not using fuel consuming vehicles which may also pollute an environment in a plant & can ultimately change the product tastes. -Due to the company investments in R & D facilities, it became a master in producing specialized products & finally results in good tastes, due to which product consumption increases & hence company got good sales figures. Even according to the size of the product, particular plant was used to take 100 % output from production facilities. -Even products have been divided into fresh products & dry products categories according to their short & long shelf lives which may help a product to be sold in its limited time horizon. -As per consumer needs of 5 kg,2 kg,1 kg&1/2 kg packing, the most popular pastas being made & sold . This may give a full grip to a company over its customers. Barilla has two central distribution centers (CDC) in Northern & Southern part of a country which helps a company in controlling & monitoring inventories. Fresh products not became obsolescence or wastage, hence distributed quickly & within time. Gurjeet Bhatia -Indore -Inventory management is also strong by keeping 3 days of fresh products inventory & a 30 days of dry products inventory in CDCs. The entire channel management from plant to warehouses through independent agents helps the company in the way that the fresh products to be reached on time through 70 regional warehouses. The main consumption i. e. 2/3 part of barilla dry products was through distributors which supply to the supermarkets.

Balance part was distributed through own companies warehouses to small shops. Earlier logistics Director Vitali wants to implement JITD system in this major 2/3 part to get maximum outputs but was not successful. It shows that – Barilla wants to make its distribution system stronger. -Small shop owners are directly not linked with the company . Brokers play an intermediary role as numbers of small shops are largely high. For Supermarket chains, the chain’s own Grand Distributors (GD) plays an intermediary role & for Independent Supermarkets intermediary are organized distributors (DO).

The purchase decision of Barilla product was fully in hands of these GDs & DOs as they buy SKUs according to their needs & does not prefer pasta products in multiple packing. To replenish orders in supermarket 1-2 days time was taken by distribution centers. Till now, it seems that -Manufacturing & Distribution of fresh & dry products of the Barilla was fine but Barilla has no control on Sales as major products were sold through GDs and DOs. Barilla advertises strongly its premium products through athletes and celebrities in their respective countries.

Barilla wants to make loyal relationship with Italian families. By trade promotions retailers buys in bulk for trade discounts and their future needs. Incentives for Barilla sales representatives were also based on their sales targets It shows that – Demand for Barilla products was not stable since Barilla applied push strategy, company want to sell what it makes whether it is demanded or not. Company does not know the actual demand of end consumer. -By giving discounts, incentives, FTL discounts barilla want to maintain its production smooth. Due to sales strategy based on incentives, salesman of the company gives its full attention to stores & not towards supermarkets. -Lead time was not constant as Barilla fulfills orders between 8-14 days. -ROP can’t be maintained by distributors as demand rate ‘d’ seems constant but Lead time ’LT’ is not constant(The major fault for uncertain lead time is the delivery schedule of the Barilla which is between 8-14 days) -Company faces fluctuating demand due to its distributor’s unstable demand. To cope up with this problem manufacturing & logistics managers want to push more inventories as safety stock to distributors but due to distributor limitations of space or enough regular stock they discarded this idea. Gurjeet Bhatia -Indore Vitali clearly argued that the demand can be stable by knowing distributors sales data & replenish orders on behalf on these sales data & distribute products on time to keep stock out levels low. This will give more profits to distributors, retailers & also to the company -By knowing end-consumers inputs only, the entire supply chain should work on behalf of it.

To stream line the entire supply chain small shops are well technologically equipped & the retailers & distributors should share their current SKUs & sales data every day -The entire manufacturing strategy, selling & distribution strategy should be on behalf of actual demand of end consumer. Logistics manager Maggiali faces arguments from its company sales representatives & also from its distributors. They show no interest in changing their strategies The only distributor Marconi was responsive but its further retailers don’t want to share their sales data & does not want to become a part of an entire supply chain. -The top management like sales executives vice president & general manager also take interest in JITD but distributors are not ready to be the part of JITD. Now barilla applied JITD in its own Florence depot & successful in reducing inventories & increasing fill rate & also successful in keeping depot manager satisfied with current inventories. -JITD also shows good result in another depot.

Now it seems that company got success in JITD within its depot till now. But distributors are not yet ready to apply this JITD -Maggiali was successful to bring all its company top management people like Sales Director, Managing Director ,Logistics Managers, Service Managers, JITD Implementation managers & of course the large DO (cortese) closure in implementing JITD in cortese warehouses. – In JITD programmes in cortese warehouses company collects its 6 months historical data & on basis of it set its shipments. Sales data information was also sent through fax & afterwards through EDI.

In this way by correct shipments & Information, Inventories were reduced & Customer & retailer service level increases. Now Barilla maintained its customer records through current SKUs, forecast sales, watch carefully stock outs via EDI . Barilla used this information in shipments -Each truck load was cleverly handled on behalf of customer stock-out level & loaded truck according to the customer needs. -Heavy products are loaded first & than lighter products to maximize truck loading space -Various weighted average are used for forecasting future sales. Gurjeet Bhatia -Indore SOME FINDINGS & LESSONS LEARNED It is clear from barilla spa case that to be successful for any project implementation, all the top management should be involved . no project can be successful without top management interest. Though middle level like store managers & sales representative also played an important role. ?Technology also play a critical role like EDI, fax etc. in this case in success or failure of any project. ?Transparency and Proof is must like How to handle the project, what benefits we all gain, what effort we have to put & ultimately the stream line of Manufacturer, Distributor, and Retailers & Employees is strongly required. ? Head of the project like Maggiali in this case should clearly know that what steps should be taken at what time . As Maggiali when unsuccessful in assuring JITD results to its Distributors, Implement JITD in its own depot and successful in reducing inventories and increasing fill rates . Thus gain confidence from its top management and its distributors. ?“WHERE THERE IS THE WILL THERE IS THE WAY” Maggiali prove this saying & never rest until got success. According to me the name of case should be Success story of Maggiali in Barilla SpA. ?Relationship (like with Cortese) +Concept (like JITD) +Technology (like EDI) =Success