Barilla: What Is the Impact of Fluctuating Demand on Operations?
Case Analysis 3
Barilla SpA
MGT 371 Section 2 – Team 6
What is the impact of fluctuating demand on operations?
Because of the way Barilla’s manufacturing process works, demand fluctuations have a significant impact on the company’s operations. Tight heat and humidity specifications in factory tunnel kilns require very specific sequences of pasta production, which means Barilla has limited flexibility in ramping up (or ramping down) the production of pastas experiencing unexpected demand levels. Furthermore, because of extremely high holding costs, it is simply not economically viable for Barilla to maintain substantial finished goods inventories to guarantee fulfilling distributors’ fluctuating order quantities. Demand fluctuations are also causing tension and disagreements among Barilla’s manufacturing and logistics personnel. Some believe that distributors and retailers should shoulder the burden of carrying additional inventory, while others believe these points on the supply chain are already holding too much inventory. Most important, as end-consumer demand fluctuates – even slightly – the perceived variation in demand increases significantly moving down the supply chain toward Barilla’s manufacturing facilities. This phenomenon, called the bullwhip effect, leads manufacturing personnel to make demand forecasts that do not accurately reflect real demand levels. This is the primary issue facing Barilla’s operations process. Specifically, management must understand that forecasting demand levels based on data received from only distributors will overstate variability and may not accurately reflect the true needs of the retailer and the end-consumer. The JITD proposal has been met with significant resistance within the company; sales representatives and distributors believe that Barilla’s response to demand fluctuations simply diminishes their inventory and service responsibilities.
What are the underlying causes of the fluctuating demand?
Barilla SpA
MGT 371 Section 2 – Team 6
What is the impact of fluctuating demand on operations?
Because of the way Barilla’s manufacturing process works, demand fluctuations have a significant impact on the company’s operations. Tight heat and humidity specifications in factory tunnel kilns require very specific sequences of pasta production, which means Barilla has limited flexibility in ramping up (or ramping down) the production of pastas experiencing unexpected demand levels. Furthermore, because of extremely high holding costs, it is simply not economically viable for Barilla to maintain substantial finished goods inventories to guarantee fulfilling distributors’ fluctuating order quantities. Demand fluctuations are also causing tension and disagreements among Barilla’s manufacturing and logistics personnel. Some believe that distributors and retailers should shoulder the burden of carrying additional inventory, while others believe these points on the supply chain are already holding too much inventory. Most important, as end-consumer demand fluctuates – even slightly – the perceived variation in demand increases significantly moving down the supply chain toward Barilla’s manufacturing facilities. This phenomenon, called the bullwhip effect, leads manufacturing personnel to make demand forecasts that do not accurately reflect real demand levels. This is the primary issue facing Barilla’s operations process. Specifically, management must understand that forecasting demand levels based on data received from only distributors will overstate variability and may not accurately reflect the true needs of the retailer and the end-consumer. The JITD proposal has been met with significant resistance within the company; sales representatives and distributors believe that Barilla’s response to demand fluctuations simply diminishes their inventory and service responsibilities.
What are the underlying causes of the fluctuating demand?