Barilla SpA

BY:M.V. Karthik

Introduction

Started in 1875 by Pietro Barilla in a small shop in Parma, ItalyBy 1990, Barilla SPA - World’s largest pasta producerPasta Share - 35% in Italy and 22% in Europe2 Product Categories – 75% Dry and 25% Fresh Fresh Products had 21 day Shelf LivesDry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf Lives800 SKUs of Dry Products Retail Outlets – Small independent shops and Supermarkets (Chain and Independent)

Distribution System

PLANT

CDC’s

GD’s DO’s

“Signora Maria” ShopsIndependent supermarkets

Chain supermarkets

Customers Customers Customers

Barilla run depots

Flo

w o

f In

form

atio

n

CDC = Central Distribution CentreGD = Grand DistributorsDO = Organized Distributors

65%35%

Issues FacedExtreme demand fluctuations (Since 1980)- week to week variation in distributors’ order patterns

Pressures to manufacturing in terms of production lead-time and perishability of product

High Inventory Carrying Cost & manufacturing cost due operational inefficiencies

Unacceptable Cycle Service Levels (CSL) – inadequate product availability

Distributors’ inability to carry large number of SKUs

Demand FluctuationReasons

Excessive Promotional activities

Volume Discount

No limit in order quantities from distributors

Product proliferations

Lack of sophisticated forecasting techniques.

Demand FluctuationExhibit 12

Demand FluctuationMethods adopted to curb fluctuation

Excess FG inventory to meet Distributors’ demandAdditional inventory at Distributors warehouses

Impact

Overburdened Manufacturing and Logistic operationPoor product deliveryThinning of retailers/distributors marginIncreased inventory carrying costUnanticipated demand Bullwhip effect

Bullwhip EffectVariation in Demand caused Bullwhip effect in the entire supply chain

DistributorPlant Retailer

Order TransferOrder Transfer

Magnified Variation in Order

Bullwhip EffectCauses of Bullwhip Effect

Inaccuracies in Demand ForecastingLong Lead TimesPrice fluctuation due to Promotional activitiesOrder batching

To reduce ordering CostTo take advantage of Transportation economics such as full truck loadSales incentiveForward buying due to promotional activities to get benefit from lower price

Just-In-Time-Distribution (JITD)

Vendor Managed Inventory Concept

Treats end customer data as the input

Final authority to determine shipments is Barilla SpA

Barilla would decide what to ship to distributors and when to ship it

Distributors will provide POS data of different SKUs.

Why JITD ?

Expected benefits for Manufacturer

Reduced Manufacturing Cost Increased Supply Chain visibility High bargaining power over Distributors Reduced inventory cycle A planned production planning is possible

Expected benefits for Distributors

Improved fill rates to Retail store- Quick response High service level – additional services to retailers without extra cost Reduced inventory carrying cost

JITD- Resistance

Internal

Sales representative feared reduction in responsibilities Inability to quick shipment may lead to Stock-out Inability to run Trade Promotion Lack of sophisticated infrastructure to handle JITD Skepticism about cost reduction

External

Unconvinced distributors Perceived power transfer to Barilla Distributors were skeptical about the effectiveness of the system

Experiments at Dry Product depots

Barilla spa ran first JITD experiment at its Florence depot

Top management was actively involved

During the very first month of the programInventory dropped from 10.1 days to 3.6 daysService level to retail stores increased from 98.9% to 99.8%

Depot’s staff was not comfortable working with such low inventory levels Inventory levels finally allowed to increase to 5 days

JITD next tried at Milan DepotSimilar performance improvement as Florence

These experiments established the credibility of JITD system

Implementation Result

Implementation Result

Implementation at D.O Cortese Barilla decided to implement JITD in Marchese DC of Cortese It involved

Director of Logistics, EVP of Sales and Manager responsible for JITD implementation from Barilla

Nine managers including MD, Logistic manager for Marchese DC of Cortese. Consultant Ferozzi- a neutral party trusted by both groups

For six months, Barilla team analyzed daily shipment data of the DC Created the data base of DC’s historical demand pattern

Finally implementation brought phenomenal resultPrior to JITD

Stock out rate : 2 to 5% ( Occasionally as high as 10 to 13%)

After JITD Negligible stock out rate of less than.25%(Never exceeded 1%) Average inventory level also dropped

Implementation at D.O Cortese

Implementation at D.O Cortese

Implementation at D.O Cortese

Adaptation with other Distributors

Barilla approached other customers with confidence.

Developed a protocol which could be used to communicate with all customers

Each SKU identified with three different product codes Barilla’s code Customer’s code EAN (European article numbering system) barcode – Most common barcode

standard in Europe

Advantages of the coding system Information can be received through any code Improved data sharing

By 1993, all customers were linked electronically with the Barilla Headquarter.

Communication with CustomersDistributors each day sent following information to Barilla Electronically

1. Customer code number to identify customer

2. Inventory for each SKU carried by DC

3. Previous day’s “sell through”-All shipments of Barilla products out of DC to consumers on the previous day

4. Stock outs on previous day for every Barilla SKU carried by DC

5. An advance order for any promotions that the customer planned to run in the future

6. Preferred delivery carton size

Group reflections/Takeaway

Better demand forecasting using sophisticated tools ensures a robust supply chain

Excessive fluctuation(SD) leads to increased Average Inventory Level, poor USL and frequent stock-out.

Information centralization reduces Bullwhip Effect and enhances inventory management system

Decision needs to be taken amongst “Pull based” and “Push based” systems

To succeed in a new initiative, involvement of Top management is important

Credibility needs to be gained before enforcing any idea to others

Customers need to be convinced with the win-win concept

Thank You

Pasta is Delicious !