Barilla case

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SKU's that Barilla sells : 800

Barilla's production process is rigid to ensure quality : Temperature, Humidity

65% italian market ; 35% International market

Exhibit 8:

End consumption pattern : stable pattern : 18kg/year

so the issue is order pattern does not mimic end consumption pattern;

Why is that so?

Due to the Bull-Whip effect:

Factors causing bull-whip effect :

1) volume-based discounting

2) Canvass period : 10-12 periods

Due to above, distributor buys less frequently in Bulk

3) truck load discounts

4) Push-ordering : compensation system towards end of quarter

compensation based on sell-thru (compensation , once you sell to distributor) vs

sell-in (compensation once you sell to retailer)

5) no minimum or maximum limit of orders

6) High product variety

7) relatively low fill rates

This is similar to the beer game, except Barilla has lot more SKUs : 800

Trade-off for distribution : Inventory holding cost vs Discounts

How to handle the uncertainty?

1) barilla to be flexible in production order ; (not possible due to focus on quality)

2) greater safety stock : results in holding cost on safety stock

3) Utilization of trucks/workforce @ CDC : idle one day ; overbooked next day;

Do promotions help Barilla?

needed for luring new customers ; needed for new products;

Barilla has already huge brand image ; 10-12 canvass periods too high;

What is JITD program?

barilla will decide how much and what to distribute;

It is called so because, customer demand and product demand to go together

Why is this program important?

Win-Win for entire supply chain : Barilla : reduce investments in finished goods inventory

DC : increase the return on assets

Distributor reaction to JITD:

distributors not excited by JITD;

power shift to Barilla

Maggialli approach:

apply JITD at depots

take sales reps into confidence

What actually happened?

first implementation in Barilla' own depots

Maggialli convinced the Top management on the need for the JITD program