Barilla Case Study: The Underlying Causes And Difficulties
Executive Summary
Barilla, the leading pasta manufacturer in Italy, faces increasing problems related to demand fluctuation. Their distributors also suffer from high inventory holding costs and low service levels on the other hand. This report explains, why the company and their distributors are troubled with this situation and how Barilla intends to solve it. The problem Barilla experiences is called the “Bullwhip Effect”, i.e. that demand variability increases when moving up the supply chain. Several factors enforce this Bullwhip Effect, e.g. high lead times, poor demand forecasting, and batch ordering. In this report we will point out, that exactly those aspects can be identified as the underlying reasons for Barilla’s problems. In a next step, we will analyze the cost dimensions of the JITD concept Barilla developed in order to reduce demand variability. We identified five cost categories where the JITD approach would lead to a decrease in costs, e.g. inventory holding costs, penalty costs and transportation costs. However, cost increases, especially implementation costs, have to be taken into consideration as well. In the last part of the report, we will address the issue of implementation hurdles of the JITD program with regard to distributor resistance, sales force refusal and the problematic handling of trade promotions. The resistance Barilla faces from their distributors can be lessened by convincing them of their competence to forecast so pre-cisely, that inventory levels will decrease and out of stock situations will be damped down as well. Therefore, Barilla might conduct a test phase or offer a warranty. Furthermore, the reluctance from within Barilla, especially from the sales force, has to be taken down by changing the incentive system and clearly defining new tasks for the sales representatives. Concerning trade promotions, the possibility of abolishing promotions and quantity discounts has to be discussed.
As conclusion, Barilla needs to
Barilla, the leading pasta manufacturer in Italy, faces increasing problems related to demand fluctuation. Their distributors also suffer from high inventory holding costs and low service levels on the other hand. This report explains, why the company and their distributors are troubled with this situation and how Barilla intends to solve it. The problem Barilla experiences is called the “Bullwhip Effect”, i.e. that demand variability increases when moving up the supply chain. Several factors enforce this Bullwhip Effect, e.g. high lead times, poor demand forecasting, and batch ordering. In this report we will point out, that exactly those aspects can be identified as the underlying reasons for Barilla’s problems. In a next step, we will analyze the cost dimensions of the JITD concept Barilla developed in order to reduce demand variability. We identified five cost categories where the JITD approach would lead to a decrease in costs, e.g. inventory holding costs, penalty costs and transportation costs. However, cost increases, especially implementation costs, have to be taken into consideration as well. In the last part of the report, we will address the issue of implementation hurdles of the JITD program with regard to distributor resistance, sales force refusal and the problematic handling of trade promotions. The resistance Barilla faces from their distributors can be lessened by convincing them of their competence to forecast so pre-cisely, that inventory levels will decrease and out of stock situations will be damped down as well. Therefore, Barilla might conduct a test phase or offer a warranty. Furthermore, the reluctance from within Barilla, especially from the sales force, has to be taken down by changing the incentive system and clearly defining new tasks for the sales representatives. Concerning trade promotions, the possibility of abolishing promotions and quantity discounts has to be discussed.
As conclusion, Barilla needs to