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TRANSCRIPT
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Barilla Case
The JITD initiative at Barrila drew a lot of internal and external objections which made it unsuccessful in
terms of implementation. An in-depth analysis of the Barrilas case reveals the various sources of
objections. As an attempt to solve the traditional problems within the uncertainties-affected supply chain,
the JITD idea is commendable. But the problem lies in its lack of tactics to win the stake-holders
support. But the problem lies in its lack of tactics to win the stake-holders support. Possible solutions
corresponding to different aspects of problems are discussed along with the problem analysis. Finally, a
stake-holder consortium based on a real-time vendor managed inventory system is suggested.
Problems and Possible Solutions
The problems that JITD intends to solve:
Demand fluctuation and low customer fill rate : As the Exhibit 12 showed, the demand
variability is huge. On the other hand, the production line of Barilla can not afford frequent changes
in order amount due to the long setup process. It comes out that if the forecast is unreliable, they will
either need to build up huge inventory or lose the customer fill rate, none of them is favorable. Also,
the Barilla customers will face stockout due to the low fill rate of Barilla. Another reason could be
the big order policy (refer to Conflicts internal to Barilla) makes GD/DO stockouts by buying the
wrong product a lot but having no extra space or money to buy the correct product to meet the
demand.
High Inventory at distributors and No Space or further investment available : As Exhibit
13 shows, the distributors have huge inventory and stockouts rate, which indicates that new product
keeps coming out while old products still keep their spaces.
Advantages of JITD:
Decrease the Total Inventory in the Whole Supply Chain : JITD helps to reduce inventory
held at the distributors since it builds inventories at the central warehouses and then delivers only the
quantities required by the end-users through checking inventory at the distributors more frequently.
Theoretically, it eliminates the needs for each distributor to hold it own Safety Buffer which causes
demand fluctuation. Therefore, it benefits the distributors through releasing their inventories space
and cost. Actually, the distributors will be more competitive to react to the demand variability, such
as, new product, after season stocketc.
Better Customer Fill Rate both in Barilla and the Distributors : JITD emphases quick
response. Since the inventory data and delivery pattern are controlled by Barilla, their central factory
and CDCs are therefore easier to schedule their production and deliveries to meet the customer
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demand. For the distributors, since their flexibility and reaction speed have all been increased due to
the lowered inventory level, they surely could have better customer fill rate and less stockouts rate
than before.
Further Distribution and Manufacturing Cost Reduction based on Scheduled Production (less
hurry orders interruption): As mentioned before, Barilla has long changeover time to setup for another
product. The less interruption, the more cost-efficient. But this is only true for bottleneck machines.
This is also true for distribution cost. In contrast to the fluctuating due to unknown situations in the
past, a better delivery schedule could be built by using complete data obtained from the end-users.
Drawbacks of JITD:
Inventory could increase at Barilla : The concept comes intuitively that if Barrila reduces the
inventory from the distributors, supposing the total inventory of the whole supply chain is fixed, it has
to increase its central inventory to meet the customers demands.
[Solution] We all know that inventory level depends on order quantity and lead-time. According to the
case, CDC now holds one month inventory while DC and GC hold about 2 weeks and small shops over
2 weeks. We also know that supermarkets place order every day, which provide the distributors with
plenty of information. Therefore it is possible to reduce the inventory by shortening the review period,
say 3 days instead of current once per week. If the distributors inventory could be reduced to one week
or so, the CDCs inventory will also have room for reduction.
The lead-time is too long : Now the average lead time is 10 days and varied from 8 to 14 days.
If the lead-time could not be shortened, it will considerably affect the response time to customer
orders. It is necessary to check if there is any problem with the transaction time or transportation time
(It can be related to the promotion plans or the distribution plans).
Give competitor more distributor shelf space : If the shelf space is released at distributor level
by JITD, chances are that the distributor might stock more competitors products.
[Solution] Maybe Barrila could make a deal with the distributors that the additional space is for
Barrilas new products only.
Hard to Perform Trade Promotions : JITD encourages the distributors to buy less each time
while at a more frequent rate. However, the trade promotions stand in the opposite way (refer to
internal conflict -- promotion plan)
[Soution] Using aggregate volume promotion of one year quantity instead of quantity on each order +
EDLPP(everyday low purchase price) promotion.
JITD Relies on the customers to input data. But what if the customers are not able or not
willing to give the right data? As the case indicates, most distributors are not ready for the point-of-
sale system. And they are not willing to give other people their sensitive sales data. If Barrilla rigidly
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demand data from them, the data could be fake and therefore lead to bigger mistakes (refer to
customers concern)
[Solution] Try to starting from their problem and show them both the benefit (if we can work together)
and drawback (if we dont work together) of JITD instead of pushing our plan).
If the whole supply chain rely on Barilla, what if some unexpected disturbance, said strike,
happen? To reduce the inventory from the distributors level means that the whole supply chains
safety stock relies on Barillas CDC. But we all know that being out of stock is much riskier to lose
customers than over stock. Are they strong enough?
[Solution] Using statistics number to explain. It would be very good if we can have fill rate of 99%.
But obviously we can not afford a100% fill rate, and we dont expect it.
Conflicts internal to Barilla
The current promotion and discount policy VS. JITD :
Currently Barilla divides each year into 10 or 12 "canvass" period with each corresponds to a
promotional program. The incentives for the Barillas sales representatives lie on achieving sales
goal for each canvass period. Therefore they are actually welcoming distributors to buy as much as
possible. Besides, one of the representatives sales tools is volume discount for both full-truck-load
and larger volume orders. This, to some extent, encourages distributor to order less frequently with
larger order quantity every time.
But the JITD promoters think that although the above two aspects decrease Barilla's CDC inventory
level at current period, the distributor's inventory level will increase considerably. And, if
distributors are ordering more at a time and less frequently, it actually will cause demand fluctuation
from a long term point of view.
[Solution]Instead of giving discount for big order volume, we would give discount for stable long-
term orders (EDLPP). By doing so we could have many reliable long-term orders to fill the market
demands, and the fluctuation could be reduced considerably.
The sales representatives role in the DO system:
With the current system, the sales representatives are playing important roles in DOs, which take
about 20% (0.65*0.3) of Brillas dry product sale. They coordinate among DOs, CDCs and
distributor buyers to solve problems and settle disputes. The sales representatives will be concerned
that their responsibilities would be reduced if JITD is put in place.
[Solution] Since each representative carries a portable computer for imputing the distributors orders,
we could install a system by which more information at the distributor's warehouse level could be
collected by the sales representative working at the front line. By doing so, the sales representative
will still play an important role in the new system, meanwhile saves the distributors work in
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implementing the JITD, and therefore encourages them to participate in JITD. We just need to get the
distributors permission for releasing data, and our sales representatives will do the data collecting
and inputting work.
Barillas customers concern:
As one of Barillas customer, the response to Barillas JITD proposal would be a combination of the
following emotions:
Sense of defense . How could Barilla demand sales data from us which are considered confidential?
Does Barilla have the authority to do this? Are they intending to monopoly the supply chain? If we
release our sales data to Barilla, will this information go to our competitors? These doubts will result
in defensive actions such as procrastination in responding to Barillas request or refuse to cooperate.
Sense of losing control. If it is left for Barilla to decide how much we need and how much should be
shipped to us, we will lose control of our inventory. Besides, Barilla will base its daily distribution
amount to us on the information of our sales amount and inventory level as well as similar
information from our peer distributors. This does not seem to be a robust approach because their
criteria for quota distribution is vague and subjective. It is easy to cause unfair treatment. What if
we need to order more due to a sudden market surge? Will we be granted more shipment? As a
protection, we might intentionally alter sales data and inventory level reported to Barilla whatever is
advantageous to us.
Sense of burden. Barilla requires us to report to them our inventory level and sales amount
everyday, which contradicts our periodic/weekly review policy and will add extra burdens to our
staff. Will Barilla pay for the extra cost incurred? We might require Barilla to pay for the extra
staffing cost. Besides, since information is money, Barilla needs to pay for our regularly provided
information.
Sense of distrust. It seems that Barilla thinks that it can do a better job than us in managing our
inventory. Their greatly reduced shipping amount to our company indicates that they think our
predictions in the past are not correct. As a counter action, we might refuse to provide past sales
data to Barilla so that they will have difficulties in predicting the market demand.
Confusion. Barilla seems to think that the problem of the supply chain lies in inaccurate projections.But actually the reason lie in their long lead time of their delivery as well as the remarkable variance
in their delivery time, therefore we have to build inventory buffers to shield from their uncertainties.
They should improve their service first. As a counter action, we might ask Barilla to deliver goods
within 24 hours although we know it is not possible.