barilla spa case study analysis essay

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Barilla SpA A Case Study solution

Introduction.

The current case solution is published by 247caseanalysis and focuses on Barilla SpA A. The case presents an overview of the strategic and managerial issues that the Barilla SpA A faces in the growth and development of the business. The case solution focuses on understanding the central issue(s) in the case. The case study solution then uses strategic tools and models to solve the case and makes strategic recommendations for the Barilla SpA A (Abratt & Bendixen, 2018; Iacobucci, 2021).

The case study and the case solution for the Barilla SpA A are intended to give a comprehensive and holistic perspective regarding real-world business situations and challenges to the reader. Like all HBS case studies, it is important for the reader to first read the case for the Barilla SpA A. The proposed case study solution for the Barilla SpA A has encompassed the needs of all stakeholders while addressing the central challenge effectively (Deepak & Jeyakumar, 2019).

External environment analysis

The Barilla SpA A cannot directly influence the external environment. The Barilla SpA A must ensure to assess and continually review the external environment to identify potential challenges and opportunities (Abratt & Bendixen, 2018). This is needed because:

The external environment is dynamic and keeps changing.

External environment factors and dynamics, directly and indirectly, influence Barilla SpA A operations (Anthony, 2021).

PESTEL Analysis

The Barilla SpA A needs political stability to maintain business development and growth globally.

The Barilla SpA A must also pay heed to local and global taxation implications for operations carried on site, as well as in other countries.

The Barilla SpA A is directly impacted by the policies and regulations devised by the governments in its host as well as home countries (Chernev, 2018).

Lower interest rates facilitate the Barilla SpA A as it leads to increased instances of borrowing.

Lower interest rates also lead to increased consumer power, and increased demand for products of Barilla SpA A (Deepak & Jeyakumar, 2019).

The operations and demand for Barilla SpA A are directly influenced by the GDP and economic growth in the countries where it operates and exports (Buchanan & Huczynski, 2019).

Increased focus on education and higher literacy rates have allowed the Barilla SpA A to benefit from a more skilled and talented labor pool.

The higher portion of the youth has also benefitted the Barilla SpA A in creating a high demand for its products and services (Iacobucci, 2021).

Assessment of the population and consumer trends have allowed the Barilla SpA A to refine its segmentation and targeting strategies – leading to improved positioning of its portfolio offering (De Mooij, 2019).

Technological

Barilla SpA A has high internal innovation capabilities.

Barilla SpA A invests in research and development for improved creativity and technological progress.

The Barilla SpA A makes use of innovative and advanced technology to make its internal processes more efficient and work towards achieving economies of scale.

Barilla SpA A also benefits from knowledge sharing through global operations and transfers technology internally (Baines, Fill, & Rosengren, 2017).

Environmental

The Barilla SpA A follows and abides by environmental regulations imposed in various countries.

Consumers for Barilla SpA A have rapidly adopted green lifestyles and green consumption.

Incorporating environmentalism into its strategic goals and direction has enabled the Barilla SpA A to become more efficient in this resource allocation (Stead & Stead, 2014).

The Barilla SpA A ensures to follow the equal employment and equal opportunity law.

Through the equal opportunity act and regulations, the Barilla SpA A ensures that it does not discriminate against different groups in its HUMAN RESOURCE MANAGEMENT practices.

The Barilla SpA A also ensures to abide by the health and safety regulations.

The Barilla SpA A makes sure to follow regulations regarding employment contracts and employer responsibilities to ensure fair policy-making and high performance (Lasserre, 2017).

Porter Five Forces

Industry rivalry.

There is high competitiveness and rivalry in the industry.

The market is highly fragmented, which leads to increased competition for Barilla SpA A.

The Barilla SpA A faces industry rivals of various sizes and operations.

The competition for Barilla SpA A is local as well as global in nature.

The increased rivalry in the industry ensures that all players, including Barilla SpA A, offer high-quality products and services to consumers at competitive prices (Varadarajan, 2015).

The threat of new entrants

The threat of new entrants is moderate.

There are entry barriers such as government regulations and financial capital needed for setting up operations.

This ensures that only powerful players with high financial muscle enter the market where Barilla SpA A is operating.

New entrants ensure that the Barilla SpA A maintains its focus on competitiveness and high quality (Wunder, 2019; Abratt & Bendixen, 2018).

Threat of substitutes

The threat of substitutes is moderate to high.

There is direct well as indirect substitutes available for Barilla SpA A offerings.

The high number of players and market fragmentation has led to the increased availability of substitutes for Barilla SpA A products.

There are low switching costs for consumers between substitutes (Sahaf, 2019; Kotabe & Helsen, 2020).

Bargaining power of buyers

Barilla SpA A operational a highly fragmented industry.

The bargaining power of the buyers is high.

Players, including Barilla SpA A, do not have a retail setup (Phillips & Moutinho, 2018; Chernev, 2018).

Bargaining power of sellers

The bargaining power of suppliers is high in the industry where Barilla SpA A operates.

There're numerous players in the industry, and suppliers have contracted with most of them.

The raw materials provided by suppliers are restricted, and limited owing to quality needs and benchmarks (Kotabe & Helsen, 2020; Joyce, 2022).

Internal environment analysis

The internal analysis allows an insight into the factors that Barilla SpA A can directly influence. These factors and capabilities are used by the Barilla SpA A to ensure that:

It is able to capitalize on the opportunities from the external environment.

It is able to mitigate risks and manage challenges and threats appropriately.

The Barilla SpA A is able to set the right strategic direction and use internal capacities towards its attainment (Stead & Stead, 2014; Deepak & Jeyakumar, 2019).

The Barilla SpA A has a strong brand image and a positive consumer perception in the market.

The Barilla SpA A invests in research and development, which helps the company focus its new product development as well as marketing capabilities (Phillips & Moutinho, 2018).

The company has a strong financial revenue earning ability and enjoys high profits.

The Barilla SpA A has a global distribution network, which is strong and has allowed it to enjoy high business growth.

International expansion has allowed the Barilla SpA A to understand diverse cultures and their knees – and engage in the localization of its product portfolio (DuBrin, 2013).

The Barilla SpA A is criticized for high prices for its product portfolio.

The company has suffered negative PR owing to the recall of some of its products which were faulty.

Despite engagement with advanced technology, Barilla SpA A continues to use manual systems internally, which leads to time ineffectiveness (Abratt & Bendixen, 2018).

The Barilla SpA A has an organizational culture that is resistant to change and, as a result, exhibits slow adaptation to new trends.

The product design for the Barilla SpA A’s offerings is imitative.

The Barilla SpA A has undifferentiated products in its portfolio with respect to the competition (Phillips & Moutinho, 2018; Baines, Fill, & Rosengren, 2017).

Opportunities

The Barilla SpA A has the opportunity to expand to developing and emerging economies.

The Barilla SpA A can develop outsourcing partnerships to further maintain cost-effectiveness.

The Barilla SpA A can also engage in green production and work towards environmental sustainability (Stead & Stead, 2014; Lasserre, 2017).

The Barilla SpA A can also develop strategic partnerships and alliances to facilitate business growth and development.

Target niche markets, and develop new products.

The Barilla SpA A can benefit from the evolving media trends for marketing purposes – including using social media content creation to target new consumer groups (Varadarajan, 2015; Wilson, 2018).

The Barilla SpA A is facing high competition.

The Barilla SpA A is also experiencing high imitation of its products.

The Barilla SpA A faces threats from the increased price volatility of raw materials as well.

The unstable government and government policies are also a threat to the operations of the Barilla SpA A- especially internationally.

Slow change adaptation may lead the Barilla SpA A to become an industry laggard (Anthony, 2021; Abratt & Bendixen, 2018).

Marketing mix

The product offerings by the Barilla SpA A maintain consistently high quality.

The Barilla SpA A engages in brand-building activities to ensure that its product and service offerings are well received by the target audience (Chernev, 2018).

Brand-building activities build positive associations for Barilla SpA A and lead to repeat purchases as well as high consumer loyalty.

Barilla SpA A ensures that its products are available in different SKU sizes to cater to the needs of different groups within its target audience.

The Barilla SpA A also offers a warranty for its products (Khan, 2014).

The Barilla SpA A ensures competitive pricing in the industry among the high number of market players.

For new products, the Barilla SpA A maintains an introductory pricing strategy to encourage trials and purchases (Kareh, 2018).

For its star products, the company maintains penetrative pricing strategies to allow maximum trial.

For mature products, the Barilla SpA A engages in aggressive and competitive pricing.

The Barilla SpA A offers regular discounts to appeal to consumers, clear stocks, as well as for increasing footfall (Išoraitė, 2016).

Barilla SpA A ensures that all its product offerings are highly accessible.

The Barilla SpA A places products in physical retail setups like supermarkets and hypermarkets.

The Barilla SpA A also places products with e-tailers such as amazon so consumers can easily access the products (Iacobucci, 2021).

The Barilla SpA A also has an online system on its website for managing orders placed directly with the company.

The Barilla SpA A has a strong distribution network, as well as competent and quick consumer service. (Kareh, 2018; Abratt & Bendixen, 2018).

The Barilla SpA A uses traditional promotional platforms of television to reach the masses with its product portfolio.

The Barilla SpA A also engages in radio and print promotional activities and advertisements (Deepak & Jeyakumar, 2019).

The Barilla SpA A also uses social media to reach out to its audiences and influence them.

The Barilla SpA A has developed expertise in interesting and relevant content creation, which attracts its primary as well as secondary target consumer groups (De Mooij, 2019).

The Barilla SpA A frequently uses influencers to create a positive buzz and hype regarding its products, as well as to ensure high reach.

All promotional content is integrated and uses emotional appeals to create a lasting relationship with the consumers (Chernev, 2018).

The Barilla SpA A has a strong global presence and strong business development capabilities.

The Barilla SpA A focuses on research and development internally to identify market gaps and demands.

The Barilla SpA A makes use of AI in its production operations and marketing functions to increase cost efficiency as well as affectivity (Dimitrieska, Stankovska, & Efremova, 2018).

The Barilla SpA A engages and invests in acquiring advanced and progressive technology for operational efficiency. (Joyce, 2022).

The Barilla SpA A has a strong retail setup and a strong distribution network across the globe (Gillespie & Swan, 2021; Chernev, 2018).

The Barilla SpA A has access to unique raw materials, which helps it maintain high quality as well as differentiation in its product offerings.

The Barilla SpA A holds special patents and licenses for manufacturing processes, as well as for being able to manufacture off-site in other countries (Grewal & Levy, 2021).

The Barilla SpA A undertakes and participates in sustainable and eco-friendly manufacturing processes.

The Barilla SpA A has also developed a green packaging solution for its product offerings and portfolio (Gillespie & Swan, 2021).

The leadership within the Barilla SpA A is visionary and charismatic.

The organizational culture within Barilla SpA A is robust, innovative and creative.

The organizational culture is based on the unique values, and implementation of the same – including transparency, honesty, and commitment (Groucutt & Hopkins, 2015).

The human resource management policies within the Barilla SpA A support employee development and engagement – leading to high employee satisfaction and high employee morale (Machado, 2019; Anthony, 2021).

The compensation framework within the Barilla SpA A is advanced and focuses on extrinsic as well as intrinsic drivers for employee performance.

The Barilla SpA A enjoys high brand equity based on consistently high deliverance of product quality (Hitt, Miller, Colella, & Triana, 2017; Grewal & Levy, 2021).

The technical infrastructure within the Barilla SpA A comprises new and advanced technology as well as network development to support its operations (Griffin, 2021)

The Barilla SpA A has access to advanced physical infrastructure as well which helps support its technical advancements, as well as its manufacturing and related operations (Valeri, 2021)

The international exposure that the Barilla SpA A has received owing to its expansions has allowed it to develop and apply innovation as well as new knowledge for improving existing processes and schedules within the company (Hitt, Miller, Colella, & Triana, 2017; Abratt & Bendixen, 2018; Valeri, 2021).

Value chain

The core capabilities and strengths of the Barilla SpA A have enabled it to overcome obstacles and challenges and achieve its strategic goals and targets.

The core strengths and competencies of Barilla SpA A form an important part of the company’s value chain (Chernev, 2018; Anthony, 2021).

Primary activities

Barilla SpA A works directly and owns part of its operations in the value chain.

The Barilla SpA A also works through different third parties as well as contracts with other parties for managing operations in other countries (Anthony, 2021).

For inbound logistics, the Barilla SpA A ensures that all raw materials are transferred to warehouses and manufacturing sites in a timely fashion using company-owned transportation.

The Barilla SpA A manages its operations directly as well as through third parties.

The operations of the Barilla SpA A are spanned in its hometown as well as conducted overseas at other locations (Deepak & Jeyakumar, 2019).

In offshore countries, the Barilla SpA A manages operations through partners and agents – who look after distribution and marketing activities for the Barilla SpA A.

The Barilla SpA A engages in invested marketing activities – based on consumer and market research (Dimitrieska, Stankovska, & Efremova, 2018; Chernev, 2018).

The Barilla SpA A also makes use of AI for its marketing and promotional activities.

The Barilla SpA A regularly trains its employees to develop skills regarding consumer service.

The Barilla SpA A has maintained strict policies regarding consumer service as well as ensuring high quality and increased customer satisfaction (Joyce, 2022).

Secondary activities

The Barilla SpA A has a strong human resource management department, regulated by modern policies and practices.

The human resource management department at the Barilla SpA A supports the organizational culture and the leadership through its various functions – such as hiring, training and compensation management (DuBrin, 2013).

The Barilla SpA A makes use of advanced technology to support its operations and achieve strategic goals and targets (DuBrin, 2013; Joyce, 2022).

The advanced technology is acquired internationally (Iacobucci, 2021).

The Barilla SpA A engages in regulated procurement with selected suppliers.

The Barilla SpA A ensures its contracted suppliers provide consistently high-quality raw materials to maintain high quality for end consumers (Gillespie & Swan, 2021).

The Barilla SpA A is used to resolve its managerial and strategic challenges using one of the following strategies.

The strategies recommended will allow the Barilla SpA A to expand and develop, as well as manage its risks and challenges effectively.

Using these strategies, the Barilla SpA A will also be able to remain competitive in the market.

Market development strategies

The Barilla SpA A can engage in informative and emotional marketing to appeal to the target audience in the market and increase brand awareness.

The Barilla SpA A can devise and run educational campaigns to help understand the importance of the product, and its need (Išoraitė, 2016).

The Barilla SpA A can work with influencers and celebrities to help spread the message through social media as well as conventional media.

The Barilla SpA A can use a team on the ground to interact with the target audience, brief them about the product and its benefits, and influence them positively towards purchase decisions. (Baines, Fill, & Rosengren, 2017).

Market penetration strategies

The Barilla SpA A can increase its marketing spending and use emotional appeals to influence the target audience.

The marketing strategies should be focused on maximizing the reach of the brand's message and promise (Iacobucci, 2021).

The Barilla SpA A is recommended to make its products accessible through an increased number of supermarkets and hypermarkets.

The Barilla SpA A can also open its own retail setups to increase footfall and reach across different regions (Sahaf, 2019).

Product development strategies

The Barilla SpA A is recommended to and can engage in market and consumer research for product development.

Encouraging innovation and discussion of new ideas within the Barilla SpA A can also lead to rapid new product development (Varadarajan, 2015).

The Barilla SpA A can also optimize the development of new products by making its manufacturing and testing processes more effective.

The Barilla SpA A can also create innovation labs and labs for new product development and testing (Sahaf, 2019; Abratt & Bendixen, 2018).

Diversification strategies

The Barilla SpA A can expand horizontally and add new product lines.

The Barilla SpA A can also expand vertically and add new products to the existing product line

The diversification will allow the Barilla SpA A to attract new consumer groups (De Mooij, 2019).

The diversification will also allow the Barilla SpA A to increase its penetration and reach amongst existing consumers.

The Barilla SpA A will be able to increase brand awareness through diversification as well (Iacobucci, 2021; Abratt & Bendixen, 2018).

The Barilla SpA A needs to strategically align its resources for optimization and to achieve its strategic goals and targets. The Barilla SpA A should continue to use its internal capabilities to realize new opportunities and for mitigating risks and weaknesses. In addition, the Barilla SpA A should also make use of other strategic models to understand the managerial challenges that the organization faces and devise suitable strategies and actions for overcoming them. The leadership of the Barilla SpA A will play a critical role in ensuring that the organization overcomes the challenges by focusing on the organizational culture and values, which will then impact the operations and performance at large.

Abratt, R., & Bendixen, M. (2018). Strategic marketing: Concepts and cases. New York, United States: Routledge.

Anthony, H. (2021). Understanding strategic management. New York: Oxford University Press.

Baines, P., Fill, C., & Rosengren, S. (2017). Marketing. New York, United States: Oxford University Press.

Buchanan, D., & Huczynski, A. (2019). Organizational behaviour. London: Pearson UK.

Chernev, A. (2018). Strategic marketing management. Berlin/Heidelberg, Germany: Cerebellum Press.

De Mooij, M. (2019). Consumer behavior and culture: Consequences for global marketing and advertising. Thousand Oaks, California: Sage.

Deepak, R., & Jeyakumar, S. (2019). Marketing management. New Delhi, India: Educreation Publishing.

Dimitrieska, S., Stankovska, A., & Efremova, T. (2018). Artificial intelligence and marketing. Entrepreneurship, 6(2), 298-304.

DuBrin, A. (2013). Fundamentals of organizational behavior: An applied perspective. Amsterdam, Netherlands: Elsevier.

Gillespie, K., & Swan, K. (2021). Global marketing. New York, United States: Routledge.

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Groucutt, J., & Hopkins, C. (2015). Marketing. London: Macmillan International Higher Education.

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Iacobucci, D. (2021). Marketing management. Boston, Massachusetts, United States: Cengage Learning.

Išoraitė, M. (2016). Marketing mix theoretical aspects. International Journal of Research-Granthaalayah, 4(6), 25-37.

Joyce, P. (2022). Strategic Management and Governance: Strategy Execution Around the World. Oxfordshire United Kingdom: Taylor & Francis.

Kareh, A. (2018). Evolution of the four Ps: Revisiting the marketing mix. Retrieved June 2022, from Forbes: https://www.forbes.com/sites/forbesagencycouncil/2018/01/03/evolution-of-the-four-ps-revisiting-the-marketing-mix/

Khan, M. (2014). The concept of ‘marketing mix’and its elements. International journal of information, business and management, 6(2), 95-107.

Kotabe, M., & Helsen, K. (2020). Global marketing management. Hoboken, New Jersey, United States: John Wiley & Sons.

Lasserre, P. (2017). Global strategic management. London: Macmillan International Higher Education.

Machado, C. (2019). Organizational Behaviour and Human Resource Management. Berlin: Springer.

Phillips, P., & Moutinho, L. (2018). Contemporary issues in strategic management. London: Routledge.

Sahaf, A. (2019). Strategic marketing: Making decisions for strategic advantage. New Delhi, India: PHI Learning Pvt. Ltd.

Stead, J., & Stead, W. (2014). Sustainable strategic management. London: Routledge.

Valeri, M. (2021). Organizational studies: implications for the strategic management. Berlin, Germany: Springer Nature.

Varadarajan, R. (2015). Strategic marketing, marketing strategy and market strategy. AMS review , 5(3), 78-90.

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Wunder, T. (2019). Rethinking strategic management: Sustainable strategizing for positive impact. Berlin: Springer Nature.

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Barilla spA case analysis

Ramamurthy Raghavendra

Barilla SpA, an Italian pasta manufacturer, is experiencing amplified levels of inefficiencies and rising costs due to variability in demand from its distributors. The main problem addressed in this case is how to effectively implement JITD system suggested by Giorgio Magialli, the Director of Logistics by resolving the issue of gaining control over the fluctuating demand.

Barilla has a very complex distribution network including independent third party distributors and due to such a multi-echlon network, Barilla has been experiencing large amounts of variability in demand which are resulting in operational inefficiency and increased manufacturing, inventory and distribution costs.

The proposed JITD system required the distributors to share their sales data with Barilla, who would then forecast and deliver appropriate amounts of products to the distributors at the right time in order to effectively meet demand. This was a radical change from the current and more traditional supply-chain setup where the distributors were not sharing any data and could place orders at will. Vitali’s proposal came under severe criticism from not only the distributors but also Barilla’s own Sales and Marketing department for an array of reasons.

Main reasons for fluctuating demand:

Promotions : The use of promotions in the form of price, transportation, and volume discounts was the main strategy to sell more products to the distriutors.

Sales Reps : The compensation system in place at Barilla for Sales reps, made them to push more products into the pipeline during promotional periods and not able to sell sufficient quantities during non promotional periods created wide variation in demand patterns.

SKU’s: The huge range of SkU’s in each product line led to greater complexity

Gaming bevavior and wrong forecasting practices : The distributors were having full control of their orders to Barilla and used gaming during stock outs periods. The distributors did not use any sophisticated forecasting models or systems to calculate the order quantities without any threshold minimum order quantities but rather just followed a replenishment ordering.

This is a preview of the whole essay

Long lead times: Barilla was dealing with perishable items and the lead times of between 8 and 14 days after it received their orders, the average lead-time being 10 days was high given the nature of products and continuously changing ordering patterns.

Barilla’s cost implications:

The fluctuating demand had adverse cost implications for Barilla:

The production costs was rising heavily due to frequent changeover for offering wide range of SKU’s, and backorders. It also led to production scheduling difficulties and high labor & transportation costs to satisfy the high ordering during promotional periods. Finally the cash flows were also uneven.

Reasons for stiff opposition to JITD by Distributors:

The pasta industry distributors were not yet prepared for such an sophisticated information sharing process. The distributors were not ready to share their sales data to Barilla and were not aware of the benefits of supply chain collaboration through collaborative forecasting and planning. The distributors were sacred of the negative implications of sharing the sales data thinking of the loss of control over ordering process would make them loose competitive advantage over Barilla through adjustin their order quantities through their own forecasting & planning for attaining the profit margins, and Barilla would push their products and cut down their costs. They also felt that, they would loose the opportunity to gain advantage during the promotional periods and they cannot place orders at will. Since the distributors were working with nearly 200 suppliers, they did not have the trust comfort level by disclosing the sales data to Barilla, and their relations with other suppliers could be affected, if they were aware of sharing the proprietary data with Barilla.

Besides, the distributors, the internal Barilla’s sales force were also reluctant to these JITD implementation, as they were sacred of loosing their jobs, if the ordering process was automated and the Barilla would not need them for going to the field and putting their efforts to convince their distributors to order more quantities and get sales incentives.

Recommendations:

The first approach to effectively implement JITD is to convince and educate the internal sales force and the distributors of the benefits of Collaborative Planning Forecasting and Replenishment (CPFR). In order to condense the Bullwhip effect being experienced by Barilla, their supply chain would have to be centralized.

The JITD will work, only if Barilla gains control over the inventory throughout their supply chain. Since the pasta industry in Italy is not yet geared towards tracking the point of sales data through scanners and barcodes, hence each stage has to collaboratively make ordering forecasts based on the end customer sales data. The JITD system will eliminate the fixed costs in ordering for distributors through an effective centralized system through out the supply chain and for Barilla, they can improve their production scheduling and reduce the labor and transportation costs.

How to effectively implement JITD at Barilla?

Collaborative planning and Aggregate Demand :

Barilla and their Distributors can effectively team up and build a comprehensive forecasting model, which will take into account the perishable inventory system model, threshold inventory levels, demand fluctuation factors to capture the spikes in the demand by aggregating the demand throughout the supply chain.

Demand Planning :

Customer surveys can help Barilla and Distributors to understand the needs of their customers and help them to effectively manage and control the demand patterns.

Methodology:

To convince the internal staff and sales force, Barilla can run a 6-8 month pilot program or educate them by running a simulation of the whole exercise to show the benefits of sharing the sales data. The upper management should involve the sales managers in incorporating their needs and complications involved in executing the JITD in the field.  The sales force should be given additional responsibilities for market development through adopting “Go-to-market” strategy in the event the whole ordering process is automated through the JITD system implementation. The compensation system can be revamped into a new level and could still be in place by assigning target sales revenue through above mentioned market development and territory management programs.

The pilot programs and simulation exercise cost results should be circulated to the distributors to enable them to understand the cost cutting and better inventory management practices the JITD system can offer, so that the distributors initially become ready to adopt the JITD implementation in a phase manner.

Confidence and trust building with distributors can be achieved through long term strategic partnership development and having constant operational meetings with Barilla’s upper management instead of letting the sales force giving their inputs to the effective application of JITD. Policies governing the profit margin sharing can be formalized as part of building the supply chain collaboration strategies.

Since Barilla has more than 22% market share outside Italy in Europe, and it becomes easy to implement JITD in Europe locations where there is significant usage of barcodes and scanners systems to capture the POS data in place. The success story of these European locations can convince Italian distributors of the benefits of JITD. Barilla should conduct a study to track the most fast selling pasta SKU’s, region wise, so that they can reduce the amount of SKU’s they offer and streamline to offer a particular set of product line segmented across each region to reduce the complexity in the supply chain.

The huge # of intermediaries of distributors and selling agents is also one of the hindrances for existing inefficiencies, hence Barilla should consider reducing the # of levels in the logistics network.

The Efficient Customer Response (ECR) initiative can be a useful tool for Barilla for sharing the POS data all along the supply chain and understand the customer buying preferences and accordingly adjust the # of SKU’s to offer in each pasta product line and plan for new product introductions.

Document Details

• Word Count 1299
• Page Count 2
• Level University Degree
• Subject Business and Administrative studies

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• Published: May 19, 2018
• Type: Case Study

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 distributor's 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

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).

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 “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 “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 equipped 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). Barilla’s sales representatives worked closely with the grocery stores and distributors and felt the JITD program would take away their influence. They feared that their ability to have specials and increase sales levels would not exist with the JITD program. They were also concerned that they would be unable to adjust shipments quickly to changes in selling patterns, If they were unable to run promotions, they didn’t know how they could get their distributors to push the Barilla products.

The sales and marketing organizations raised additional issues about the JITD program such as the possibility of a strike or other disturbance in the supply process leading to a stock out, competitor advantage if space was freed up in distributor warehouses and an increase in costs if production schedules weren’t changed. Sales representatives clearly thought the distributors couldn’t handle a “sophisticated relationship” with the supplier.

Distributors viewed the JITD program as Barilla’s attempt to dump inventory and the cost of carrying it on them to absorb the fluctuations in demand (Hammond, 8). Vitali noted they Barilla should only ship when needed (from inventories in distributor warehouses) to meet demand and absorb

the pressure on production. This approach was not acceptable to the managers of the GD’s or DO’s. The DO’s that served the independent markets, were not able to devote storage to compensate for the inflexible production system at Barilla.

Causes of the internal conflicts came from the sales representatives’ fear of losing its traditional power and influence with the distributors. They felt their relationship with the distributors would be weakened and considered the JITD program a huge threat to their sales. Giorgio Maggiali's response to the conflicts being created within Barilla to the JITD Program was for the sales organization to view JITD as a selling tool, and not a threat to sales (Hammond, 9). The JITD program offered additional service to the customer at no extra cost. It also would improve Barilla's visibility with trade and make distributors more dependent on Barilla. Maggiali felt the JITD program could improve the relationships between Barilla and the distributors rather than harm them.

Information gained from the program would provide Barilla with objective data to improve their own planning process. The JITD program would need to be linked to volume discount incentives for distributors and promotion discounts for retailers in order to receive buy-in from the distributors, sales, and marketing organizations. These strategies heavily influenced the demand. To be truly successful, the JITD program needed to be an end-to-end strategy that could respond to a composite demand signal at all stages in the value chain from sourcing, to production, distribution, marketing, sales and retail.

As one of Barilla's customers, what would you response to JITD be? Why? As one of Barilla’s traditional customers, I would be opposed to

the JITD program. I wouldn’t want Barilla to manage my inventory. As a distributor, I feel inventory management is my job. I would also be concerned with Barilla viewing my warehouse and/or sales figures. It seems that allowing them to push their products into my warehouse would reduce their own expenses and not mine. I’m also concerned that disruptions in the supply chain could lead to shortages/stock outs in my distribution center.

Finally, I have a difficult time believing that Barilla would be better at forecasting or managing inventory, than I’m already doing. In order for the JITD program to be acceptable to me (and to the other distributors), it would have to include my needs as opposed to excluding them. To make the JITD program manageable across the supply chain, a range of limits could be placed at each stage (particularly with the distributors with regards to how much they could inflate their orders based on their forecast and the lead-time needed to fill them).

Placing limits at the various stages, could act as a restoring force to stabilize the volatile demand by balancing the order frequency with the fill frequency. I would also give the factory the time it needed to change production runs to fill the orders. 5 It appears that what has happened over time in the Barilla company, is similar to the adversarial relationship described in our textbook between supply chain partners.

Barilla has allowed its distributors to purchase large amounts of inventory turning “canvass” periods into forward buying incentives that actually become costly for them to carry the additional supply in their warehouses. In turn, Barilla has had a difficult

time reacting quickly to the surge in raw material requirements and is trying to implement the JITD program (Jacobs & Chase, 226). The variability that has been created between the customers to the producer in the supply chain indicates a lack of synchronization among the supply chain members, otherwise known as the bullwhip effect (Jacobs & Chase, 227). Barilla’s efforts to implement the JITD program appear very similar to Campbell Soup’s continuous replenishment efforts, which typify what many manufacturers are doing to smooth the flow of materials through their supply chain (Jacobs & Chase, 227).

If Barilla’s supply process becomes imbedded through advanced technology and the establishment of a mature supply process, Barilla’s distributors will become more response to the JITD program. In the environment in which Barilla operated in 1990, do you believe JITD (or a similar kind of program) would be feasible? Would it be effective? If so, which customers would you target next? How would you convince them that the JITD program was worth trying? If not, what alternatives would you suggest to combat some of the difficulties that Barilla's operating system faces?

If properly implemented, the JITD program would be feasible in the environment in which Barilla operated in 1990. However, it’s critical to convince Barilla's own sales and marketing staff of the value of the program before approaching the distributors for program buy-in and implementation plans. Barilla’s sales staff appeared to sabotage the JITD program from the start. They resisted the program for fear of the program threatening their sales levels. Once Barilla convinced their sales staff of the JITD program benefits, they could utilize their sales representatives to positively

promote the program to their distributors and retailers.

Barilla would also need to convince the sales/buyers at the distributors that the JITD program would save them money and make their job more efficient before approaching the logistics people. The logistics people seemed most willing to try the JITD program when Maggiali approached them in 1988. Once buyers became aware that the JITD program was designed to save them money, and the objections created by sales staff's and the distributors were overcome, JITD would become a feasible program.

The key to making this effort successful was to obtain the inventory and sales data for Barilla to accurately forecast the demand for their products. The problem with the JITD program is whether or not Barilla would be able to adjust their production to meet the goal of decreasing their inventory (as well as the distributor’s inventory). Barilla’s highly mechanized means of pasta production is completed in a standardized time consuming way, with different shapes and sizes of pasta coming from different plants. Their plants are not designed to quickly shift from making linguini to macaroni, from spaghetti to capellini, etceteras.

Therefore, 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 “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 Barilla's 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 DO's 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 distributor's 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 “grass roots” efforts by visiting their customers individually and hoping to convince them of the JITD program benefits.

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