Barilla SPA currently must decide the logistic planning of its future production and distribution systems. The company is suffering from issues dealing with fluctuating demand from distributors, and the lack of end user sales and demand Information. Brandon Vital, the former director of logistics for Barilla, suggested the use of a Just- In-Time Distribution DITTO) system in order to fix these issues. After much resistance from distributors and Barilla employees itself, a decision as to whether to implement the CITED system or other alternatives much be chosen.
Causes for the Bullwhip Effect and other Issues Promotion The largest Issue effecting distributor demand Is promotion offerings. The year Is broken down Into 10 to 12 canvas periods, where distributors could gain a discount anywhere from 1. 4% to 10%, dependent on the product category. Promotions are offered in the forms of transportation, price, or volume discounts. Selection as to what product will be discounted does not seem to be based on any statistical basis seeing as how no end user information is available.
Fluctuation of demand arises when distributors purchase high amounts during rumination periods whether that particular product Is needed or not. This creates overstock In distributor warehouses f demand Is low, causing a decrease in sales order for the next purchase period. Minimum and Maximum Requirements Barilla does not require minimum or maximum sales orders. The lack of a minimum requirement increase productions costs by not allowing Barilla to achieve economies of scale. The absence of the maximum requirement allows distributors to purchase high quantities during promotional periods, creating false demand for Barilla.
Distributor Substitutable sells to two types of distributors: Grandee Deleteriousness (GO), large distributors that sell to supermarket chains, and Distributions Organize (DO) that sell to independent supermarkets. Both groups lack forecasting systems or information technology to record sales and demand trends. The distributors also Incentives System Barilla? have too much control over the ordering process. Sale representative incentive system is based on the number of product sold to distributors. Therefore, they attempt to push products only during promotional erodes, contributing to false demand.
Large SKIS Selection Barilla offers over 800 SKU in the dry goods selection alone, varying by pasta type, ingredients, and packaging quantities and size. – Just-Len-Time Distribution The CITED program would attempt to improve operations by delivering ? quantities to the distributors based on end user Information provided by the distributor themselves. Pros This Incentive would give Barilla more control over the ordering process, reducing the risks involved with improper forecasting and purchases by distributors. Labor, transport, and reduction costs would be reduced thanks to better planning, creating stability and order.
Barilla can optimize the entire production and sales process based on more accurate end user information Instead of biased distributor order patterns. This will g eve Barilla more control In every stage AT tenet supply canal, allowing ten company to operate at its fullest potential. Cons The CITED was strongly opposed by both Barilla employees and distributors. The major issue is the resistance of the distributors in accepting the program due to the fact they feel that they will lose intro over the ordering and distribution process.
The distributors do not trust Barilla with their information, and therefore are highly reluctant to provide it. Sales personnel also feel that they will no longer be needed for marketing products to the distributors, and fear lay-offs. They will no longer be able to influence sales figures seeing as how these numbers will already be standardized, losing all rewards and incentives. In general, Barilla and its distributors have a lack of trust in this program; they have to review all the options before launching this program in order to be a success.
Options: There are several options Barilla can turn to in this case: stay with the system they have right now, implement the JODI program as it is or implement the CITED program in the long run, with adjustments to accommodate customers. We have decided to go with the third option of implementing the JODI program but in the long run, with adjustments, incentives and other benefits to both the buyer and the supplier. First they have to implement a system which allows Barilla to gather point of sales and units information.
Centralizing the information will allow Barilla to recognize the sales of each product, change in demand and what products to produce and when. (**) The strategy we are trying to use was to gather the information straight form the customer, but since customers are not willing to provide the information nor the technology is available to gather the information by other means, we have two options. First option is to buy the information straight form the customer and offer a confidentiality agreement to reassure them that the information will not be distributed to any other company.
The second is to offer deals to the customers where they will receive discounts on the orders, a faster deliver time where the retailers will be able to free their stockrooms for other merchandise. A confidentiality agreement will also be available for these retailers. Another option is to change the pricing and promotion strategy in order to stabilize the demand for each product. At the beginning of this project, all of the promotions will be eliminated, discounts will only be offered in bulk orders, this will help us to start building a demand table to see what items are being sold.
Barilla is working with over 800 another strategy will be to reduce the number of in order to gain a better idea of what products have the demand and what other products to market more heavily. Improve the lead time of the delivery of the products in order to give them more shelf time and be able to manage the production better. If Barilla wants this program to succeed they will have to invest in more equipment, in order have a better production line.
In a company where more than 800 products are produces, it is very time consuming to be hanging the equipment every so often to produce all pastas available in Barilla. Recommendations: Our main recommendation will be to eliminate the need for distributors; this will eliminate many of the problems that Barilla has build up during the years. The first issue that will get resolved is the thrust issue between distributors and Barilla. This will allow Barilla to get first hand information regarding the demand of their products, which is the main goal of this operation.
This could also allow netter management AT ten plant, allowing ten warehouse anon t reduction line to better utilize their resources and have a better management of the supply chain. Barilla will gain control of the distribution line and create better and more efficient lines of distributions for their products. Barilla will have to set up warehouses for their products, and can strategically place them near the most important cities. Barilla can Justify all these new expenses by gaining control of the information on the demand, information for production is invaluable in these types of companies.