Barilla spA: Case Report

Prepared by Claudio Parra
Supply Chain Management
Seneca(Markham) Monday’s
Submitted: Wednesday, October 15, 2014 Submitted to: Perry Davidson

Table of Contents

Table of Contents……………………………………………………………………2
Introduction……………………………………………………………………………3
Environment and Root Cause Analysis…………………………………4-5
Issue Identifier…………………………………………………………………………6
Recommendation……………………………………………………………………7
Implementation………………………………………………………………………8
Monitor Chart…………………………………………………………………………9

Barilla is one of the world’s largest pasta manufactures, which also produces bread, cookies and other quicker perishable items. Holding about 35% of Italy’s market and 22% of the global market, this vertically integrated company has been faced with challenges in both the manufacturing and distribution due to the high fluctuation of demand. With about 75% of its SKU’s being in the pasta line, it has been difficult to keep shelves fully stocked. Even with the control of flour mills and centralized distribution centres(CDC’s), the information flow between end consumer and manufacturer has created friction within its business partners.

Being such a large manufacture of pasta(its main product) the distribution process has been

outsource into two separate interties. Grande Distrbuzione(GD’s) focusing on large

supermarket chains, and Distribuzione Organizzata(DO’s) centered around the

smaller/independent supermarkets. This has caused I delay in product reaching the end user,

therefore resulting in 7% stock out throughout the year. Barilla does service the smaller

customer(mom & pop shops) throughout Italy via its own inter-company warehouses, which at

times is forced to take in more inventory than it needs for due to volume pricing pushed

through the sales team.

Although GD’s and DO’s hold sufficient stock being able to deliver product in about 10days from

order placement, the information flow between the end user and Barilla’s manufacturing plant

has resulted in costly scenarios for Barilla which should be addressed. With the addition to

volume purchasing, promotional items has not made the situation any easier for distribution

centres and has had a negative effect on inventory levels.

Maintaining the vertically integrated focus may result in reduced lead times and subsequently

reducing stock outs throughout the year. Using Just in Time Distribution(JITD) effectively would

reduce lead times by at least 50%. If Barilla would eliminate one of the barriers the third party

DO/GD’s create, it would help move product and information flow would be much smoother

and effective. Barilla should look to purchase some of the DO/GD’s do its can have better

control of what inventory is stored and what product is sent to them. Barilla currently carriers

about 1month of product in their inventory and their distribution partners carry about 3-4

weeks of inventory, which adds up to close to 2months of inventory at a time which also adds

the risk of product running its life cycle before it reaches store shelves. Because CDC’s and

DO’s/GD’s are currently separate entities the amount of product being moved within the

channels and spoiling in transit creates delays, even though supermarkets usually carry 1-2

SKU’s.

The large variation of SKU’s makes it difficult for Barilla to maintain production schedules and

effectively produce product at a consistent rate. Having to supply 800 different SKU’s at once is

a challenge for any manufacture, making certain items available on a seasonal basis would

increase revenue because they would be considered premium items as well as eliminate some

of the demand fluctuations.

Promotional sales and volume discounts were large influences to the inventory difficulties at

Barilla. Being able to take time with the sales team in order to properly understand the trends

of each customer’s demand throughout the year would be beneficial to all involved.

Incorporating safety stock would be effective only if other factors are understood and systems

are established, this is determined by the manufacturing lead time, recurrence of order of can

individual product and how effective the flow of information is from once consumer places the

order until its received and processed at the respective Barilla station. Only then can adequate

safety stock levels be set which will be used as guidelines to barilla’s production schedule. Also,

setting minimum order quantities would serve beneficial as production planning can be

structured around promoted items allowing for inventory to build before releasing to shipping

to third party handlers.

My recommendation to Barilla is to strength their JITD and the only way this mind set can be

successful is if everyone from top to bottom is integrated and made to feel like their input has a

direct impact on the supply chain. This would mean the implementation of technology(web

based) software that can be viewed by levels of the supply chain so everyone involved can be

informed of current status of inventory levels, sales order status and therefore eliminating

some of the rush orders and stock outs. With the sales team being a key focal point of the

strategy, forecasting measures for promoted items and traditionally strong selling items can be

taken into consideration and so manufacturing can coordinate with the distribution team and

product that is actually needed can be pushed through the proper channels and not just truck

fillers. In order to reduce SKU’s some slower moving items can be made as “seasonal” and this

would benefit Barilla because then they could push the product they want to stores. Which

would recuse the amount of inventory on the road and in DO’s/DG’s, allowing them to predict

manufacturing trends and effectively promoting items without running the risk of stock out. By

intergrading the third party distributors into Barilla’s network of information or if Barilla would

like to make them(DO/DG) a partner rather than keeping them as a separate entity of the

supply chain, it would centralize the information flow from sales and marketing team and

would turn the mentality from reactive to a more proactive approach to production and

distribution. This would eliminate added distribution costs and reduce production costs.

Taking all these recommendations into consideration, the implementation could be gradual so

to not drastically disrupt current flow. Given a time frame such as a year to organize all

nationally based distributions and moving internationally once shown the system is working

within 1.5-2years. The initial cost of technology(programs) to all levels of the Barilla network

may have to be absorbed by Barilla, it would show effective to all parties and would produce

long term savings for Barilla. The issue then being can Barilla invests in the future to maintain

competitive and profitable in the long term.

OPTIONS | PROS | CONS | ALTERNATIVES | Stock forecasting to build safety stock | Avoid stock-outs through demand fluctuation | Maybe considered time consuming and repetitive | | Minimize the amount of SKU's | Can focus on popular items to maintain healthy stock levels | Some Specialty items may not be available year round | Rotate "seasonal" items to better and push that inventory to stores | Eliminate DO's and work directly with individual stores | May cut lead times by up to 50% | Job Loss/Long standing relationship will be severed | keep DO's in international markets and slowly deplete stock from DO's in Italy | Sell the JITD mentality within the organization and its partners | The only way this will succeed is if all parties involved believe and support the transition | If all parties involved do not buy into the concept it will be a difficult road ahead | all Parties can present their own Balanced Scorecard and discuss a way to keep all parties satisfied and interested |