Barilla Spa (A) Case Study Essay

Executive Summary Sales representatives at the Barilla SpA, world’s largest pasta producer, are seeing customers changing due to long re-order lead-time and frequent stock-outs. Even with a high inventory levels, Barilla is still not able to cope with the fluctuating demand. The fluctuation in demand is seen as the bullwhip effect that is caused by sales strategies that have been put into place that is very product focused. This causes excessive demand from week to week depending on the product that the promotion or incentive is been aimed towards. There is also a lack of data sharing and poor communication throughout the whole supply chain which does not bring visibility for production forecast. With the Just-in-Time Distribution (JITD) that was brought in from the logistics manager, neither internally nor externally is supporting the new system. With the lack of understanding of the new system and the positive results it will bring, it will be hard to convince buy-ins from different angles. The initiative should be tested first from Barilla’s own facilities and prove out the methods and be able to visualize the improvements to the rest of its supply chain. During the implementation and test phase, there should be dedicated teams which monitor the data and metrics coming from the new system. Daily meetings should be held to discuss issues and resolve them as quickly as possible. As inventory levels drop, issues with the distribution system will arise which provides a priority of issues to resolve. Once the system has been proven, the results will be the biggest selling points to have the implementation through the whole supply chain and for everyone to understand its benefits. Issues Identification Barilla is experiencing issues to meet their fluctuating demand from the distribution centers even when carrying additional inventory throughout the supply chain. Brando Vitali has came with a proposal of a Just-in-time Distribution (JITD) but neither the sales team in Barilla or the buyers at the distribution centers are agreeing with the approach. At the same time, these teams are already noticing that our customers are leaving due to the lack of servicing we are able to provide. Distribution centers were asked to carry more inventories to prevent occurrences of stock outs but the suggestion was not accepted. In return, they issued a complaint regarding the number of SKUs Barilla has which makes it impossible to manage and the long manufacturing lead-time due to the tight heat and humidity specifications. Environmental and Root Cause Analysis Fluctuating Demand: The fluctuation in demand is caused by a combination of reasons. The trade promotions and volume discounts that Barilla uses as sales strategies are one of the biggest influences. There were also no limits to the quantities that the distributors are allowed to order per each â€Å"canvass† period. The incentive program for Barilla’s sales representatives is also causing inconsistency to the demand; they would be pushing for the SKU’s that would bring them a higher incentive. Barilla is also experience a growth in their export market; it was expected to reach 20-25% per year. With this increasing growth, Barilla does not have any sophisticated forecasting technique that would prepare them to meet the demand. There is a minimal visibility for Barilla to see where the volatility is in the demand is coming from. This is creating the Bullwhip Effect throughout their whole supply chain. The poor communication and cooperation between retailers, distribution centers and manufacturer is the reason that they all are maintaining higher inventory than required. Resistance to Changes: There were many resistances to this new initiative when it was being brought up internally and externally. When there is a lack of understanding of the results that a new initiative will bring, there will always be resistance to change. Sales team fears that that they would see a reduction of responsibilities and distribution centers were defensive when they misinterpret the approach as saying they don’t know what they are doing. Alternative and/or Options Alternative #1 – Continue to promote the Just-in-time Distribution (JITD) initiative To be able to eliminate the Bullwhip Effect, there must be an increase in visibility through the whole supply chain. With better communication and an understanding and trust between vendors, it will eliminate the volatility in demand. This will improve the service levels from distributors to retailers and at the same time reduce the inventory carrying cost. With the visibility, it will better Barilla to forecast their demand and improve their production planning process. While achieving this, it will reduce their manufacturing cost and their inventory cycle. Alternative #2 – Eliminate product focus sales strategies Instead of promoting particular products in each canvass period that will cause excessive demand, Barilla should maintain a constant competitive pricing through the year. Barilla should also eliminate their product-focus incentive policy for their sales representative and create incentive programs that will not allow them to focus on a particular SKU. Recommendations and Implementation Barilla should continue to promote the Just-in-Time Distribution initiative. As this is a new concept for the distributors and retailers, Barilla should prove out this initiative at their own facility. With the results, they can then have bigger bargaining power to promote this idea to its whole supply chain. As for anything else to be successful in a company, it is important for top management to be actively involved. Employees need to be aware of the importance of this project in order for it to be successful and for them to understand positive results it will bring to the company. During the implementation, there would be decrease in inventory levels. Before, the inventory levels were used as a buffer to hide the problems that prevents us from working with a lower inventory level. As we decrease the inventory levels, the problems will arise and it will identify for us what issues we need to resolve as a priority. If the problem requires a longer time to resolve, then the inventory levels can be raise to prevent affecting customers from stock-outs. Then the focus would be to resolve the issue and the inventory levels can be lowered again. With this approach, it will help prioritize the issues that need to be address and which ones will help lower our inventory levels. Monitor and Control To monitor the affects of this initiative, there are a few key performance indicators that need to be set-up. Stock Out Rate – This will immediately show the trend with the current system and be able to visualize that JITD will increase service levels. Inventory Levels – Visualize inventory levels at all firms to demonstrate the win-win scenario that this initiative will bring. Re-order Lead-time – To show with the increase communication, it helps for manufacturers to respond faster There should be daily meetings held with the key departments to ensure that the information is communicated in an effective manner. The meeting should be held at the same time in the same form to create a drum-beat system that will create a habit for the stakeholders to inform of any issues that they have encounter and to gather as a group to resolve.