Barilla Supply Chain Management
Second assignment: Barilla SpA
Barilla has suffered from fluctuations in demand. The lack of forecasting has lead to high inventories along the supply chain, generating high costs associated with keeping this inventory and opportunity costs. Barilla was not the only one to face disadvantages, it was possible to see loses throughout the supply chain: the distributors also suffered from high inventories and long time between orders and deliveries; and the retailers were not receiving a good service.
Barilla went through a significant period of growth since its beginning as a small shop in Parma. It has transformed in a vertically integrated corporation with flour mills, pasta plants and bakery factories located throughout Italy. It has become the largest pasta manufacturer in the world and expanded its business throughout Europe.
But with its growth also came a much more complex structure. The company is now organized into seven divisions, and sells hundreds of different products. Barillas factories are spread through Italy, and each factory has its specific products, that are then shipped from the plants to one of two Barilla central distributions centers (CDC).
The distribution channels from these CDCs are also complicated because it evolves several different agents, particularly the role of the distributor that is responsible for the supply of Barillas products to supermarkets.
The problem faced by Barilla is a typical example of bullwhip effect, in which lack of information in the start and middle of the chain leads to an imbalance in the supply chain, with either high level of stocks or a stock out. The sharing of demand information can conduct to an equilibrium considering the final product offer and demand.
To overcome this issue, Brando Vitali, by the time director of logistics, suggested an idea called Just-in-Time Distribution (JITD) that actually is a Vendor Managed Inventory (VMI) system, in which Barilla would be responsible for forecasting the demand of its direct and/or indirect clients and place their orders.
Even though this conception could benefit all the supply chain players, it met resistance by the distributors that feared losing their control over the orders. The distributors were reluctant in sharing their data in retail demand. More importantly, the clients felt that the new system would beneficiate only Barilla.
Not only that, but resistance also came from inside the company by its sales and marketing areas. The sales team feared losing power and responsibilities, and so presented some doubts about the JITD such as the risk of stock-out and that a decrease in inventory would imply in giving shelf space to competitors. Another argument was that this new approach would mean flat sales, since there would be no more promotion of the products.
The first action that Giorgio Maggiali, the