Lot to #learn from #Barilla #Spa. Barilla SpA case study on #Bullwhip Effects & #JustinTime #JITD. Adiba, Chanchal, Deepak, Ranjita, Santosh, Zain

1. BARILLA SPA ( CASE STUDY )

2. • Introduction1
• Barilla’s Manufacturing & Distribution2
• Barilla’s Supply Chain Issues3
• Detailed Analysis4
• Recommendation5

3. Barilla in Years
❖ 1875 Founded by Pietro Barilla in Parma, Italy
❖ 1940s Run by Pietro & Gianni. Differentiated with a high quality
product supported by innovative marketing programs
❖ 1968 Constructed a .25 million sqm pasta plant in Pedrignano
❖ 1971 Acquired by W.R. Grace, Inc.
❖ 1979 Grace sold the company back to Pietro Barilla as failed to
make its acquisition pay-off
❖ 1980s Successful return of the company. Enjoyed an annual growth
rate of over 21% (came from both organic, i.e. existing
business expansions and non-organic, i.e. acquisition of new,
related business)
❖ 1990 Largest pasta manufacturer in the world with 35% of
market share in Italy & 22% market share in Europe

4. Barilla’s Financial Growth
Proven to be the world’s largest pasta manufacturer
Barilla Sales, 1960 - 1989
in Lire, Billions
15 47
344
456
609
728
1034
1204
1381
1634
1775
2068
1960 1970 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
❖ Successful return of the company. Enjoyed an annual growth rate of over 21%
❖ Organic growth: expansion of existing business
❖ Non-organic growth: acquisition of new, related business

5. Industry’s Background
Origins of pasta is
unknown
- Originated from China and
first brought to Italy by Marco
Polo
- Others claim that pasta’s
origins were rooted in Italy
Pasta consumption
- Nearly 18 kilos of pasta
per year per capita
consumption in Italy
- Limited seasonality in
pasta demand
Industry’s Growth
- Flat growth of less than 1% p.a.
with an estimated of 3.5 billion lire
- Growing segment in semolina &
fresh pasta
- Export market rise as much as
20-25% per year.
- Eastern Europe as an excellent
export opportunity.

6. Barilla’s Business Model
( Key Partners) ( Key Activities ) ( Value
Propositions )
( Customer Relationship ) ( Customer
Segment )
✓Wheat suppliers
✓Distributors
✓Advertising
agency
✓Produce pasta, bread and biscuits
✓Advertising campaign
✓Distribution and supply stock
management
Offer highest
quality and
most
sophisticated
pasta, bread
and biscuit
✓Personal assistance to DOs
by sales representatives
✓Semi self-service to GDs
Domestic Italy and
International Mass
Market through
distributors,
Supermarkets, and
small shops
( Key Resources ) ( Distribution Channels )
Physical asset in the form of pasta and
bread factory, mill and warehouses
✓ Marketing through media
utilizing high profile and well
known athletes and
celebrities
✓ Supply and distribute
products through distributors
and direct to stores
( Cost Structure ) ( Revenue Streams )
✓ Labor cost, Raw material cost, Manufacturing cost
✓ Advertising cost, Warehousing and Stock management cost
✓Profit from product sales

7. • Introduction1
• Barilla’s Manufacturing & Distribution2
• Barilla’s Supply Chain Issues3
• Detailed Analysis4
• Recommendation5

8. Barilla’s Manufacturing Process
Detailed manufacturing process: from raw ingredients to packaged pasta
Transformation
Resources
❑ Mixing & Kneading
❑ Flavoring & Coloring
❑ Rolling
❑ Pasteurizing
❑ Cutting
❑ Drying
❑ Packaging
❑ Dough
❑ Long, thin continuous
sheet
❑ Distinct Pasta Shape
❑Specified length of
pasta
❑High quality
pasta products

9. Barilla’s Process Design – Continuous Flow

10. Barilla’s Process Design – Continuous Flow

11. Barilla’s Product Lines
Ranging from fresh products and dry products
Fresh Products
Pasta: 21-day shelf lives
Bread: 1-day shelf life
Dry Products
❑ Represented 75% of Barilla’s sales
❑ Offered in 899 different packaged SKUs
Dry pasta
• 200 different
shapes & sizes
• Offered in >
470 different
packaged SKUs Longer shelf-life
bakery

12. Barilla’s Channel Distributions
Barilla’s products offered in 100 thousands retail outlets that consist of 3 type of outlets
Small independent
shops
35% of dry products
2 weeks of inventory
at the store level
Supermarket chains
70% of 65% of dry
products
10-12 days of inventory
Carried a total of 4,800
dry-product SKUs
Carry the product in only
one packaging option
Independent
supermarkets
30% out of 65% of dry
products

13. Barilla’s Channel Distributions
Plant
CDC’s
GD’s
Chain Super
Markets
Customers
Do’s
Independent
Super
Markets
Customers
Barilla’s run
Depot
“Signora
Maria”
Shops
Customers
CDC : Central Distribution Centre
GD : Grand Distribution
DO : Organized Distributors
LTL : Less than Truck Load Quantity
TL : Truck Load Quantity
65% ( TL )
90% ( TL )
35% ( TL )
10% ( TL )
LTL
LTL
LTL
FlowofInformation

14. Barilla’s Channel Distributions
Different channel distributions depending on product type
Fresh Products
Purchased from the two CDCs
by independent agents
(concessionaire)
Channeled through 70 regional
warehouses
Inventory days of 3-day in each
warehouse
Dry Products
Purchased by distributors
Shipped the products mostly to
supermarkets (75%)
Remainder was distributed
through 18 small Barilla-owned
warehouses, mostly to small shops

15. Barilla Sales & Marketing Model
Advertising
Positioned Barilla as the highest
quality, most sophisticated pasta
product available
Modern, sophisticated settings
in major Italian cities instead
traditional Italian folklore
Use well-known athletes &
celebrities for a talent
Trade Promotions
10 or 12 canvass period with
4-5 weeks in length, each
corresponding to a promotional
program
Discount offering for
distributor: attracting distributor to
buy the product as much as desired
Offered volume discounts, e.g.
incentives of 2-3% for FTL orders
Incentives for Barilla sales
representatives

16. Barilla Distribution
Once a week placing order behavior
Average lead time of shipping: 10
calendar days
Distributors’ sales volume varied: mostly
used simple periodic-review inventory
systems
Few had forecasting systems or
sophisticated analytical tools for
determining order quantities

17. • Introduction1
• Barilla’s Manufacturing & Distribution2
• Barilla’s Supply Chain Issues3
• Detailed Analysis4
• Recommendation5

18. Barilla’s Issues

19. Reasons
Excessive Promotional
activities
Volume Discount
No limit in order quantities
from distributors
Product proliferations
Lack of sophisticated
forecasting techniques.
Transportation Discount
Demand Fluctuation

20. Methods adopted to curb variability
Holding buffer finished goods inventory to meet Distributors’ demand.
Asking Distributors/Retailer to carry additional inventory at their warehouses.
Variability in Demand
Impact
Strained Manufacturing and Logistic operation.
Poor product delivery management.
Thinning of retailers/distributors margin.
Increased inventory holding cost.
Bullwhip effect.

21. Amplified Variation in Demand
Plant Distributor Wholesaler RetailerOrderOrderOrder
8 Units10 Units20 Units40 Units
Bullwhip Effect

22. Flow of Bullwhip Effect
Retailer
Retailer Increase Order
Wholesaler
Wholesaler Increase
Order
Distributors
DC Increase Order
Plant

23. Inaccuracies in Demand Forecasting & Inflated Orders.
Long Lead Times.
Price fluctuation due to Promotional activities.
Order batching
To reduce ordering Cost.
To take advantage of Transportation economics such as full truck load.
Sales incentive.
Forward buying by retailers due to promotional activities to get benefit from
lower price.
Forced to reduce the Price to increase Demand.
Causes Analysis of Bullwhip Effect

24. Solution
Reduce Uncertainty
POS ( Point of Sale)
Sharing Information
Centralizing Demand information
Reduce Variability
Year round or everyday low pricing.
Reduce Lead Times
Information Lead Times
Order Lead Times
Strategic Partnership
Quick Response
Continuous Replenishment.
Advance Continuous Replenishment
Vendor Managed Inventory ( VMI )
Bullwhip Effect

25. • Introduction1
• Barilla’s Manufacturing & Distribution2
• Barilla’s Supply Chain Issues3
• Detailed Analysis4
• Recommendation5

26. Vendor Managed Inventory Concept.
Treats end customer data as the input
Final authority to determine shipments is Barilla SpA
Barilla would decide what to ship to distributors and when to ship it
Distributors will provide POS data of different SKUs.
Just-In-Time-Distribution (JITD)
Reduce Manufacturing cost.
Increase Supply Change
visibility.
Reduce Inventory Level.
Manufacture Distributors
Improved Fill Rates to Retail
Stores.
Additional Service without
any extra cost.
Reduce Inventory holding
costs.
What is JITD ?

27. JITD - Resistance
The Sales & Marketing team were
vocal in their opposition to the plan as
they felt their responsibilities would be
diminished
Concerns rise about the sales level.
Lack of Infrastructure to manage
JITD
Increased competitors shelf space at
distributors.
External Resistance
Unconvinced Distributors
Skeptical about Barilla’s
Inventory management Program.
Not willing to share warehouse
data.
Common Causes
Perceived loss of power/ influence
Risk of Inability to ship quickly.
Internal Resistance

28. Overcoming Internal / External Resistance
Run experiment at one or more of the distributor’s site to demonstrate the benefits of JITD.
A system would be installed in the representatives' portable computer by which more
information at the distributor warehouse level could be collected
New compensation system: Award a percentage of the company’s getting from JITD
implementation to the employees
Show them the money
• Evidenced-based approach: should be shown
that the costs of the system would reduce so
much
Address Trust Issues
• Build a transparent policy
• Get Senior Management closely involved.
• Initiate joint-decision making and planning

29. Overcoming Internal / External Resistance
Proposed distribution pattern
Barilla Plants
Barilla – Run
Depots
Independent
Super
Markets
Chain
Supermarkets
Signora
Maria Shops
✓ Need to Expand Capacity by 200 %
✓Vertical Integration of Supply Chain
✓Cuts out the Middle Man
✓Redeploy CC Staff to Depots

30. Results on Implementation of JITD
During the very first month of the program
Inventory dropped from 10.1 days to 3.6 days
Service level to retail stores increased from 98.9% to 99.8%
Inventory levels finally allowed to decrease to 5 Days from 10 Days
JITD next tried at Milan Depot
Similar performance improvement as Florence
These experiments established the credibility of JITD system
Finally implementation brought phenomenal result
Prior to JITD
Stock out rate : 2 to 5% ( Occasionally as high as 10 to 13%)
After JITD
Negligible stock out rate of less than .25%(Never exceeded 1%)
Average inventory level also dropped

31. • Introduction1
• Barilla’s Manufacturing & Distribution2
• Barilla’s Supply Chain Issues3
• Detailed Analysis4
• Recommendation5

32. Issues Recommendations
JITD initially identified by Vitali - drawback is
lack of computer systems among retailers
Start with biggest supermarket chain
customers
Consider subsidizing computer
systems for them
Then roll out to independent
supermarkets.
800 different SKUs currently offered Reduce range = fewer
changeovers = more predictability
Change Management Process For any transition it is ideal to rope in
professional consultants.
Demand fluctuation Eliminate or reduce the promotional
discounts.
Recommendation

33. Lesson Learnt
Better demand forecasting using sophisticated tools ensures a robust supply
chain.
Excessive fluctuation(SD) leads to increased Average Inventory Level, poor USL
and frequent stock-out.
Information centralization reduces Bullwhip Effect and enhances inventory
management system.
Decision needs to be taken amongst “Pull based” and “Push based” systems
To succeed in a new initiative, involvement of Top management is important.
Credibility needs to be gained before enforcing any idea to others.
Customers need to be convinced with the win-win concept.

34. Barilla in 2017 - Completed 140 Years

35. Barilla in 2017 - Completed 140 Years
Currently 28
production
sites and mills
across the
globe.
Attaining further
increase in
market through
Balanced
Marketing
policies.
Renewed
Industrial capital
resulting in
significant
improvements in
productivity.
Implementation of
de-complexity
process and
gradual reduction
on fixed
overhead.

36. THANKS TO THE TEAM
ADIBA , CHANCHAL, DEEPAK, RANJITA, SANTOSH DASH, ZAIN