Barilla SPA case analysis based on the case study PDF

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This is a case study on barilla spa and its solution and the recommendation. This is a hbs case study used in course SCM....

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Barilla SpA Case Submission A case on supply chain integration GroupSaurav Ranjan Sethy Aparna Sujith Vikas Shweta Ramesh Deepankar Ojha Introduction: Started in 1875 as a small shop in Parma, Italy. By 1990, Barilla SPA was world’s largest pasta producer. It had a 35% share in Italy and 22% in Europe. They had two product categories mainly- 75% dry and 25% fresh. Fresh product usually had a shelf life of 21 days. It was found they had 800 SKUs of Dry products. Sales and Marketing Strategy: They followed heavy advertising and Brand Positioning. They even tried to push the product Into the distribution network. They gave discount On bulk volumes. Problem Statement: During the late 1980s, Barilla suffered increased operational inefficiencies and cost penalties that resulted from large week-to-week variation in its distribution pattern. There was mounting pressure on manufacturing due to production lead-time. Then there is perishability of products and tightly coupled linear sequence. This led to high inventory carrying cost and manufacturing cost. They had nearly a standard deviation of 23 tonnes per day, and a long order cycle time of 10 days. Reason for Demand Fluctuation: 

Excessive promotional activities.

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Volume discount (2-3%).

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Transportation discounts.

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No limit in order quantities from distributors.

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Product proliferations.

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Lack of Forecasting techniques.

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Long order lead times.

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Poor customer service rates.

Barilla SpA Case Submission A case on supply chain integration GroupSaurav Ranjan Sethy Aparna Sujith Vikas Shweta Ramesh Deepankar Ojha 

Poor communication.

Method adopted to curb fluctuation: Excess FG inventory to meet distributors demand and additional inventory at distributors warehouse were introduced. This led to lot of complications like overburdened manufacturing and logistic operation. The product delivery was not up to the mark. There was thinning of retailer and distributor margin and it led to increased inventory carrying cost. This led to the well known Bullwhip Effect. BULLWHIP EFFECT: Variation in demand caused bullwhip effect in the entire supply chain. There were three players: 

Plant

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Distributor

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Retailer

Plant had a huge variation in order due to fluctuating order at retailer end and unable to predict the correct demand. Explaining Exhibit 12: Because the plant has high product change over costs, Barilla has either inefficient production or excess finished goods. Transportation cost are higher than normal and utilization of central distribution was low. The distributor must build excess capacity to hold goods brought on any type of promotion. Just In Time Distribution (JITD): To address the concern, this concept was introduced. Decision making authority for determining shipments from Barilla to a distributor would transfer from distributor to Barilla. Rather than simply filling order specified by distributor,

Barilla SpA Case Submission A case on supply chain integration GroupSaurav Ranjan Sethy Aparna Sujith Vikas Shweta Ramesh Deepankar Ojha Barilla would monitor the flow of its product through the distributor’s warehouse, and decide accordingly. It was a Vendor managed inventory concept and it treats end customer data as the input. Expectation from JITD: 

Reduced manufacturing cost.

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Increased supply chain visibility.

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High bargaining power over distributors.

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Reduced inventory cycle.

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Planned production was possible.

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Improved fill rate to retail stores.

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High service level.

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Reduced inventory carrying cost.

Resistance to the concept from Internal and External factors: Internal: Sales representative feared reduction in responsibilities. They feared if there was no quick shipment, it may lead to stock out. The trade promotion was halted. The infrastructure was not enough to handle JITD. The cost reduction concept was not accepted openly. External: The distributors were not convinced. They felt their power was transferred to Barilla. They were not in favour of this new concept. Successful implementation of JITD: They should demonstrate that JITD benefits the distributors, and for that they should run the simulation on one of the 18 depots they have in hand. They need to perceive JITD as a company wide effort, not just some shortcut for time being. The top management has to be involved closely to get the best output. Build trust is key.

Barilla SpA Case Submission A case on supply chain integration GroupSaurav Ranjan Sethy Aparna Sujith Vikas Shweta Ramesh Deepankar Ojha...