Barilla SpA (A)

Submitted by
- Ashwin Susarala
- Bhuvaneshwari Dharmar
- Divyangana Sharma
- Nikhil Khedekar
- Rohit Arora

Company's Introduction and brief background:

Barilla which was originally established in 1877 is today one of the top Italian food
groups. It was the world’s largest pasta producer in 1990.
The details of the pasta share - 35% in Italy and 22% in Europe.
A leader in the pasta business worldwide, in the pasta sauces business in
continental Europe, in the bakery products business in Italy and in the crisp bread
business in Scandinavia.

Different types of Products, and network of distribution:

Products are divided into 2 types- Dry and Fresh products

Dry Products: Dry pasta, cookies, flour and bread sticks to name a few. Dry
products have long shelf life of either 18 to 24 months or medium shelf life of 1- to
12 weeks.
Fresh products: Fresh pasta and fresh bread. Shelf life between 1 to 21 days.

The company boasted of an extensive network of plants located throughout Italy.

Barilla used three types of retail outlets: small independent grocers, supermarket
chains and independent supermarkets.

The modus operandi of their activities were as listed below:

• First, the products were shipped from the plants in which they were made to
one of two Barilla central distribution centers (CDCs).
• Depending upon the product variety, it was moved within 3 days (fresh
products) and a month (dry products) out of CDC. Certain fresh products did
not flow through CDCs.
• Independent agents purchased the fresh products from CDCs and channeled
the product through 70 regional warehouses. Dry products were purchased
by distributors and shipped them to supermarkets.
Issue in hand:

In the late 1980s, Barilla suffered increasing operational inefficiencies and cost
penalties that resulted from large week-to-week variations in its distributors’ order
patterns and demand fluctuations. The variation in demand showed a remarkable
variations as one moved up the supply chain. Essentially, the supply channel
experienced the Bullwhip effect. The various reasons for the variations were
attributed as:
• Lead time issues: Long order lead times
• Transport issues: Transportation discounts
• Order size issues: varying order size
• Discount issues: Volume discount
• Promotional issues: Promotional activity
• Forecasting issues: Lack of forecasting systems.

How to go about dealing with it:

• To reduce uncertainty by sharing information.

• To reduce variability by having year round low price.
• To reduce lead times by cross docking.

New Idea:

The new concept is the Just-in-Time Distribution (JITD). A new Barilla’s logistics
organization which will help in more effectively predicting the future demand and
thus enabling to effectively meet end-customer’s need and also in distributing the
workload on Barilla’s manufacturing and logistics systems.

Benefits of JITD:

It helps in better collaboration between the manufacturers and distributors and is

also beneficial for both. It will help the manufacturer to better forecast the demand
and hence maintain an optimal level of inventory. It will also increase the supply
chain visibility. Distributor is also benefited as his inventory holding costs would
reduce. Thus it will help in enhancing the relationship between the manufacturer
and distributor.
Challenges:
Internal:
• Sales representatives not comfortable with the diminishing trends in their
responsibilities.
• Increasing competitor’s shelf space.
• Cost benefits not clearly evident.
• Non-presence of the infrastructure required to handle JITD.
External:
• New process making the distributor’s skeptic and hence their unwillingness to
share the warehouse data.
• Suspected increasing power of Barilla by the distributors.
• Lack of faith in Barilla’s inventory management.

Way forward:

• Working with one or more distributor so as to showcase the JITD benefits.

• JITD to be adopted as a part of the operating strategy of the company.
• Establishing effective communication channel with the customers so as to
make them aware of the benefits of the new process.