Barilla Spa Case Study Analysis Essay Example For Students

Barilla Spa Case Study Analysis Essay Barilla SpA (A) Case Study Analysis 2 Diagnose the underlying causes of the difficulties that the JITD program was created to solve. What are the benefits and drawback of this program? Brando Vitali, Barilla’s director of logistics, proposed the idea of Just-In-Time Distribution (JITD) in the 1980’s as an alternative to Barilla’s traditional practice of delivering products to their distributors (Hammond, 1). Instead of distributing Barilla’s products based on the orders the distributors placed with the company, Barilla’s own logistics organization would determine the product quantities to distribute that would most effectively meet end-consumers needs. This in turn, would more evenly distribute the workload on Barilla’s manufacturing and logistics systems (Hammond, 1). Vitali hoped his innovative idea would solve the tremendous fluctuation that occurred from week to week in the number of Barilla dry products being ordered by the distributors. The extreme demand variability seriously strained Barilla’s manufacturing and logistics operations. Barilla’s highly automated manufacturing system was not designed to accommodate large fluctuations in demand nor, was it designed to accommodate sudden changes in demand or product. The manufacturing sequences of pasta production made it very difficult to produce particular types of pasta that had been sold out due to unexpectedly high demand. The temperature and humidity in the kiln had to be precisely specified for each size and shape of pasta and had to be tightly controlled to ensure that quality was maintained (Hammond, 3). This procedure limited the ability to rapidly shift production between different pastas. Different sizes of pasta were also made in different plants based on the variety of equipment required for pasta production (Hammond, 3). This limited Barilla’s production flexibility to shift plant locations as needed to meet product demand. The JITD program was also created to address the amount of inventory being held at Barilla’s Central Distribution Centers (CDC’s), their Grande Distribuzione (GD’s), their Distribuzione Organizzata (DO’s), and their retailers. Some distributor’s inventory levels were so low that they were experiencing high-stock out rates when attempting to fill retailer orders (Hammond, 7). Other distributors and retailers were carrying too much inventory. Barilla felt their customers were realizing that they didn’t have enough room in their stores or warehouses to carry the large inventories Barilla wanted them too (Hammond, 8). On the other hand, the distributors felt that they were being pressured to increase the inventory levels they had already stocked and to add items they didn’t carry to their product offerings (Hammond, 8). The JITD program would look at all the distributor’s shipment data and send only what was needed to the stores (Hammond, 8). This would eliminate Barilla scrambling to meet demand swings from the distributor. It would also improve operations for Barilla and their customers. Barilla would be able to ship products as needed, rather than build huge stocks in their facilities (Hammond, 8). Finally, holding sufficient finished goods inventories at Barilla’s CDC’s to meet distributors order requirements, was extremely expensive when weekly demand fluctuated so much and was so difficult to predict. Production sequencing based on type (and size of facility), made it cost prohibitive to change-over product runs or mix multiple types. Flexible scheduling based on orders from distributors could not be achieved. Vitali’s position on the JITD program was that it would save manufacturers and retailers money due to thinning margins by taking costs out of the distribution channel without compromising service. Barilla would use forecasting systems and analytical tools to determine product quantities in a sensible and logical manner. They would look at data provided by the distributors and make decisions based on their forecasts (Hammond, 8). Their process would be very similar to using point-of-sale data from retailers. Barilla’s forecasting would need to include predicting sales for individual products within each line, calculating equipment and labor requirements to meet product line forecasts, and projecting labor and equipment availabilities over the planning horizon (Jacobs Chase, 48-49). 3 Benefits to the JITD program include delivering only what was needed to the distributors to avoid large inventories, limiting the variation in order swings from week to week for dry products, and improving operations to determine quantities and delivery schedules. If Barilla didn’t have to respond to volatile demand patterns from their distributors, they could reduce distribution costs, inventory levels, and ultimately manufacturing costs. They could respond to the ultimate demand (from the end-consumer), by using the consumers input to produce orders (Hammond, 8). Barilla’s replenishment decisions would be based on forecasts created from actual daily demand from each distributor. In the end, the distributor’s cost would be lowered because they wouldn’t need to carry as much inventory (they would only receive what they needed to supply their retailers from the manufacturers) and Barilla’s strain on their logistics and manufacturing processes would decrease. The JITD program would also allow distributors and retailers to carry more variety with fewer inventories. The JITD program would limit Barilla’s ability to run frequent, and expected, trade promotions to push products into their grocery distribution network (Hammond, 6). They would no longer be able to run traditional canvass periods (times when distributors could buy as much product as desired to meet current and future needs) and would need to eliminate volume discounts. Elimination of the â€Å"canvass† periods would discourage sales representatives who used these periods to sell more products to distributors to achieve sales targets (Hammond, 6). The volume discounts that were offered to the distributors for truck load quantities and multiple truck load purchases of pasta would also cease to exist with the JITD program. The entire relationship between the sales representatives and distributors appears to weaken with the JITD program, as the sales representatives lose their traditional areas of influence and the ability for distributors to control their inventory is taken away. The JITD program is a shortsighted view of a â€Å"push† model based on point-of-sale demand (i. e. pull† from the end consumer). In other words, even though the end-customer demand would be used to generate production quantities, the demand would not be pulled from the downstream process, i. e. the distribution centers. The program would completely cut-out the distributers needs and the majority of the distributors and supermarkets did not have the infrastructure to realize Barilla’s vision. Most grocers in Italy weren’t equi pped with the necessary bar-code scanners and computer linkages to provide actual retail sell–through data to Barilla. On the other hand, Barilla wasn’t prepared to invest in their vision to the degree they needed to in order to succeed with the JITD program. An overwhelming opposition between Barilla and its distributors continued for over two years. By replacing Vitali with Giorgio Maggiali in 1988, Barilla appeared to have a better chance of getting the distributors to buy-in to the proposed JITD program, based on Maggiali’s hands-on methods (Hammond, 9). What conflicts or barriers internal to Barilla does the JITD program create? What causes these conflicts? As Giorgio Maggiali, how would you deal with these? Barilla’s sales and marketing organizations viewed the JITD program as infeasible and dangerous (Hammond, 1). Its marketing and sales strategy was based on a combination of advertising and promotions (Hammond, 5). This strategy could be eliminated with the JITD program. The sales and marketing organizations were very vocal in expressing their opposition to the plan and how it could adversely affect their departments (Hammond, 9). Holistic and interconnectedTherefore, the manufacturing to support the JITD program would take an extreme effort at redesigning their production methods, schedules and learning how to be more agile, more flexible and lean. Pasta production is very different from a Toyota plant that makes five models and can shift, based on demand (i. e. Camry to Prius). Once Barilla possesses the demand data from their distributors, they could adjust manufacturing to meet actual demand, and not just the â€Å"wild swings† that were occurring. Changes in Barilla’s manufacturing process are critical for an effective JITD program. The customers to focus on next to promote the JITD program are the independent retailers supplied from Barillas own warehouses and the retailers served by the distributors who had not signed onto the program. Barilla’s internally-owned regional warehouses distribute 35% of their products to small independent shops (Hammond, 5). Focusing on this segment could provide the opportunity for Barilla to collect the usage/demand data they need directly from the retailers. They could convince the 6 independent retailers of the value in the JITD program when they ordered new equipment. These retailers would become more committed to Barilla when they realized their orders would flow more efficiently and save them money on in-store inventory. It would also be beneficial to provide these retailers with handheld computers so their orders would go directly to the distributor or Barilla warehouse (thus allowing Barilla to obtain near real-time usage data). The independent supermarkets served by the DOs are an excellent place to collect data, while at the same time convincing them of the JITD program benefits. Sales representatives spent 90% of their time working at the store level setting-up in store promotions, discussing products and strategy with store management, and inputting distributor orders (Hammond, 6). The sales representatives could also visit the GD’s that distributed products to supermarket chains. The GD’s were rarely visited by the sales force yet, could be valuable for buy-in to the program. By reaching out to the DO’s and GD’s, Barilla could gather the data they need to better assist the distributors in serving their customers. Barilla could also demonstrate to the distributors how the JITD program would work and save them money. Barilla and their stakeholders would benefit greatly from analyzing the sales data and decomposing it using least squares regression to help normalize the seasonal and trend factors attributable to the severe fluctuations. This would each stakeholder at every stage in the value chain to schedule for those causal relationships and better absorb the demand (Jacobs and Chase, 318-319). After convincing the in-house sales team that the JITD program was worth trying, Barilla should focus on convincing the outside companies that the program would work for them. This step is critical, as this is where the opposition to the JITD program stems from. Barilla’s sales force was opposed to the program and sabotaged the program with distributors buyers. The buyers, in turn appeared to sabotage the logistics departments. It’s important to obtain buy-in to the JITD program from the entire team. The sales force needed to understand that the JITD program could be promoted as a selling tool and not a threat to their sales. It provided an additional service offered by Barilla at no additional cost. Distributors also would benefit by realizing that the JITD program would eliminate the need for faster delivery because merchandise would be delivered as desired just-in-time. There would be no need for them to place an order and with a week or more of delay before it to be delivered. The program could decrease their inventories and improve their delivery rate to their stores. If Barilla could gather demand data directly from retailers, they could use that data to better level their production schedule by adjusting inputs appropriately and ultimately being able to better demonstrate to customers that JITD program was feasible (Jacobs Chase 371-371). Likewise having robust end-customer demand data Barilla could determine whether a fixed-order quantity and/or a fixed-time quantity would be viable as a function of sales to establish more accurate and responsive inventory controls (Jacobs Chase, 388). In the event that the sales force and distributors continue to be opposed to the JITD program, we suggest that Barilla turn its attention to improving their manufacturing operation. Barilla’s manufacturing operation needs to gain more flexibility to allow it to react more quickly to meet the changes in demand. The system needs to adjust to the JITD program by manufacturing to meet that demand without building up large inventories (which is what they are trying to avoid). Barilla can’t promise their distributors that they could save money by carrying less unnecessary inventory unless they can prove that their manufacturing processes have changed to meet fluctuations in demand. They have overinvested in making their facilities efficient at producing like types and sizes of pasta, which made it cost and schedule prohibitive for them to changeover production runs to meet variations in demand. Barilla could benefit from implementing several key aspects discussed in our textbook with regards to creating lean manufacturing processes. They could use value-stream mapping to assist them to fully understand their production processes, material flows, and information flows (Jacobs Chase, 278). They could eliminate unnecessary activities in their processes, recognize their physical factory 7 constraints, work with their retailers and distributors to understand their needs, and truly develop a cooperative association with their customers over the long term so everyone could mutually benefit (Jacobs Chase, 291). Inviting Barilla’s distributors into their factories to view first-hand the operations taking place would assist in building a staple relationship between the distributors and manufacturer. The JITD program is definitely reasonable with proof of changes in Barilla’s manufacturing process and buy-in from all levels of retailers, marketing, sales, and distributors. These divisions of Barilla’s value chain ARE their customers. They need included as equitably as possible in balancing their system to respond to fluctuating demand. Barilla could not rely solely on trying to push a strategy through â€Å"grass roots† efforts by visiting their customers individually and hoping to convince them of the JITD program benefits. This approach was clearly not working. Barilla needed to restructure the JITD program to include the needs of every â€Å"customer† in the system as best possible. Perhaps working with on a pilot scale initially to entice other stakeholders in the value chain would be the most effective strategy to establish the sense of buy-in the program absolutely depended on to be a success. References Hammond, J. H. (2006). Barilla SpA (A). Harvard Business Review. Jacobs, R. , and Chase, B. (2008). Operations and Supply Management The Core. McGraw-Hill, Irwin.