1. Barilla SpA
BY:
M.V. Karthik

2. Introduction
Started in 1875 by Pietro Barilla in a
small shop in Parma, Italy
By 1990, Barilla SPA - World’s largest
pasta producer
Pasta Share - 35% in Italy and 22% in
Europe
2 Product Categories – 75% Dry and 25%
Fresh
Fresh Products had 21 day Shelf Lives
Dry Products had Long ( 18 to 24 Months)
or Medium(10 to 12 weeks) Shelf Lives
800 SKUs of Dry Products
Retail Outlets – Small independent
shops and Supermarkets (Chain and
Independent)

3. Distribution System
CDC = Central Distribution Centre
GD = Grand Distributors
DO = Organized Distributors
PLANT
65%
35%
Flow of Information
CDC’s
Barilla run
depots
GD’s
Chain supermarkets
Customers
DO’s
Independent
supermarkets
Customers
“Signora Maria”
Shops
Customers

4. Issues Faced
Extreme demand fluctuations (Since 1980)- week to week variation in
distributors’ order patterns
Pressures to manufacturing in terms of production lead-time and
perishability of product
High Inventory Carrying Cost & manufacturing cost due operational
inefficiencies
Unacceptable Cycle Service Levels (CSL) – inadequate product availability
Distributors’ inability to carry large number of SKUs

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

6. Demand Fluctuation
Exhibit 12

7. Demand Fluctuation
Methods adopted to curb fluctuation
Excess FG inventory to meet Distributors’ demand
Additional inventory at Distributors warehouses
Impact
Overburdened Manufacturing and Logistic operation
Poor product delivery
Thinning of retailers/distributors margin
Increased inventory carrying cost
Unanticipated demand
Bullwhip effect

8. Bullwhip Effect
Variation in Demand caused Bullwhip effect in the entire supply chain
Order Transfer
Plant
Magnified
Variation in
Order
Order Transfer
Distributor
Retailer

9. Bullwhip Effect
Causes of Bullwhip Effect
Inaccuracies in Demand Forecasting
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 due to promotional activities to get benefit from lower price

10. Just-In-Time-Distribution (JITD)
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.

11. Why JITD ?
Expected benefits for Manufacturer





Reduced Manufacturing Cost
Increased Supply Chain visibility
High bargaining power over Distributors
Reduced inventory cycle
A planned production planning is possible
Expected benefits for Distributors



Improved fill rates to Retail store- Quick response
High service level – additional services to retailers without extra cost
Reduced inventory carrying cost

12. JITD- Resistance
Internal





Sales representative feared reduction in responsibilities
Inability to quick shipment may lead to Stock-out
Inability to run Trade Promotion
Lack of sophisticated infrastructure to handle JITD
Skepticism about cost reduction
External



Unconvinced distributors
Perceived power transfer to Barilla
Distributors were skeptical about the effectiveness of the system

13. Experiments at Dry Product depots
Barilla spa ran first JITD experiment at its Florence depot
Top management was actively involved
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%
Depot’s staff was not comfortable working with such low inventory levels
Inventory levels finally allowed to increase to 5 days
JITD next tried at Milan Depot
Similar performance improvement as Florence
These experiments established the credibility of JITD system

14. Implementation Result

15. Implementation Result

16. Implementation at D.O Cortese


Barilla decided to implement JITD in Marchese DC of Cortese
It involved
Director of Logistics, EVP of Sales and Manager responsible for JITD
implementation from Barilla
 Nine managers including MD, Logistic manager for Marchese DC of Cortese.
 Consultant Ferozzi- a neutral party trusted by both groups


For six months, Barilla team analyzed daily shipment data of the DC

Created the data base of DC’s historical demand pattern
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


17. Implementation at D.O Cortese

18. Implementation at D.O Cortese

19. Implementation at D.O Cortese

20. Adaptation with other Distributors

Barilla approached other customers with confidence.

Developed a protocol which could be used to communicate with all
customers

Each SKU identified with three different product codes
Barilla’s code
Customer’s code
 EAN (European article numbering system) barcode – Most common barcode
standard in Europe



Advantages of the coding system


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Information can be received through any code
Improved data sharing
By 1993, all customers were linked electronically with the Barilla
Headquarter.

21. Communication with Customers
Distributors each day sent following information to
Barilla Electronically
1.
Customer code number to identify customer
2.
Inventory for each SKU carried by DC
3.
Previous day’s “sell through”-All shipments of Barilla products out of
DC to consumers on the previous day
4.
Stock outs on previous day for every Barilla SKU carried by DC
5.
An advance order for any promotions that the customer planned to
run in the future
6.
Preferred delivery carton size

22. Group reflections/Takeaway


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

23. Thank You
Pasta is Delicious !