In order to bring things back into place and to improve margins, Giorgio Magical, the Director of Logistics at Barilla wants to implement a Just-Len-Time Distribution IDIOT) system that was proposed by his predecessor Brandon Vital’. This system is entirely different from the existing setup and is being opposed by both the distributors and Burial’s Sales and Marketing Department.
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In this report we have studied the reasons for this opposition and have suggested strategies. We have given our rationale for the CITED system to work and have proposed recommendations to resolve all existing Issues.
We think that a centralized supply chain with Barilla having authority of the orders over the distributors will result in better margins for all the partners. We believe that by following these recommendations and implementations, Barilla will succeed in influencing its distributors and sales and marketing personnel to work together and apply the CITED program. This will not only result in better performance n terms of time and money but also promote trust and good relations among all the partners in the supply chain.
Pitter Barilla founded Barilla in 1875 as a small shop in Pram, Italy.
In 1990, Barilla SPA is the largest Pasta manufacturer in the world. It has a 35% market share in Italy ND a 22% market share in Europe. In addition, Barilla divides its product line into ‘ dry’ and “ fresh” product categories for which dry products represent 75% of Burial’s sales. They include dry pastas (macaroni, spaghetti, fussily, etc.
) and also bread, cookies, biscuits, Rusk, sauces, breadfruits, flour and dry toasts. Barilla has a very complex distribution network consisting of Grand Distributors (owned by large Supermarket chains), Organized Distributors (independent third party distributors) in addition to its own depots.
Vitality’s CITED proposal focuses exclusively on dry products old through distributors. Moreover, even though Barilla is the most successful pasta manufacturer in the world, they still face a few great issues. Ever since 1980, Barilla Nas increasingly dealing with demand fluctuations since their distributors order patterns often swung widely from week to week.
Barilla also deals with high pressures of manufacturing in terms of production lead-time. They have high inventory carrying and manufacturing costs due to operational inefficiencies. In addition, they have unacceptable cycle systems due to inadequate product availability.
Finally, their last issue is the distributors’ inability to carry a large number of SKI’S. For instance, we nave to begin by stating the reasons tort the extreme demand fluctuation Barilla has been going through for decades now.
To begin, Barilla brands are heavily advertised. Its marketing and sales strategy is based upon advertising and promotions. Since Pasta is very important for Italians, Burial’s sales strategy relies on the use of trade promotions to push product into the grocery distribution network. Subsequently, this is the first reason for demand fluctuation because it exults in excessive promotional activities.
Barilla also offers volume discounts; paying for transportation to distributors and offering incentives of 2% to 3% for orders in full truck-load quantities which was another reason for demand fluctuation. Accordingly, most distributors place their orders with Barilla once a week yet their sales volumes vary; another reason for Burial’s inefficiency since there was no limit n order quantities from its distributors.
Nearly all of the distributors have computer- supported ordering systems but only a few of them have sophisticated forecasting yester or analytical tools for determining order quantities.
Consequently, this indicated a lack of sophisticated forecasting techniques and it is our final reason for demand fluctuation. The impact of the issues mentioned earlier is really hurting Burial’s entire channel. The extreme demand of order variability overburdened Burial’s manufacturing and logistics operation and causes a Bullwhip effect in the entire supply chain. In addition, it is very difficult to quickly produce a particular pasta product that has been sold out due to unanticipated high demand, which exults in poor product delivery.
Furthermore, holding sufficient finished goods inventories to meet distributors’ order requirements is very expensive and difficult to predict which results in increased inventory carrying costs.
The CITED manufacturing concept is therefore introduced in order to fix these main issues and for both, Burial’s manufacturers and distributors to benefit from. When Vital first introduced the idea of CITED Oust-in-Time Distribution), he thought of it as “ a way to take costs out of our distribution channel without compromising service. ” In essence, the idea of
TIT was that rather than follow the traditional practice of delivering product to Burial’s distributors on the basis of whatever orders those distributors placed with the company, Burial’s own logistics organization would instead look at all of the distributors’ shipment data and specify the “ appropriate” delivery quantities. As a result, they would send only what is needed at the stores and would be able to manage inventory concept. Barilla would decide what to ship to distributors and “ hen to ship it, which would give them final authority.
Finally, the distributors would revived POS data of different SKU fixing their inability to carry large number of SKI’S.
Barilla is facing a hard decision. If it were for the Barilla manufacturers, the CITED system would have been implemented a long time ago (1980) but it is not as easy as that. A reason why the CITED proposal has not been applied is because of the structure of their distribution channel and the fact that most grocers in Italy aren’t equipped Heat with the necessary bar-code scanners and computer linkages. The other reason and the major one is because their distributors, sales and marketing organizations
Nerve opposed to the plan. The distributors were unwilling to give up their authority to place orders as they pleased.
For internal resistance, sales representatives: tell that their many responsibilities would be reduced and that they ran the risk of being unable to adjust their shipments sufficiently. They also would not have the ability to run trade promotions, which in the long-term would be better for Barilla anyway since trade promotions are a reason of demand fluctuation. Finally, they were skeptical about cost reductions and the effectiveness of the system in general.
Nevertheless, their first option is to reject the CITED system and keep everything as it is since Burial’s distributors and sales and marketing department are against it. If Arial decided on this, given their high manufacturing costs, their manufacturers Mould be forced to carry extra inventory.
Barilla ends up having to hold a lot of inventory and struggle a lot in their manufacturing and distribution operations to meet distributor demands. Finally, if they chose this alternative they would have to break the best production sequence. Moreover, we must recognize that their strictures don’t have it easy.
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They do not have enough room in their stores and Morehouse to carry the large inventories manufacturers would like them to; they simply don’t have enough shelf space. Therefore, they would be forced to maintain extra capacity and trucks in the long run while in the short run they would be forced to obtain extra capacity at a premium. Burial’s second option is to implement the TIT system with the purpose of fixing all of the company’s main issues, especially the demand fluctuations.
This system would more effectively meet end-consumer’s needs et would also more evenly distribute the workload on Burial’s manufacturing and logistics system.
The main issue with this option is that Barilla needs to assure their distributors that CITED will in fact benefit both of them by demonstrating all its advantages. First of all, Barilla plans to provide their distributors with a high service level that include additional services at no extra cost. This good service will allow them to reduce their inventory levels, distribution costs and improve their fill rates to their stores quick response. With this in mind, CITED would particularly be designed to infinite its manufacturers. It would also improve their operations and reduce their manufacturing costs and inventory cycle.
The CITED system would in fact give the manufacturers high bargaining power over the distributors; Barilla being responsible for determining the quantities and delivery schedules would improve operations for both manufacturers and distributors. Finally, the last benefit of this system for the manufacturers would be a suitable planned production. V. Recommendations Barilla needs to fix their demand fluctuations that have been increasing ever since 980 and the proposed CITED system is proved to fix this and most of their other Issues.
For that reason, I recommend that Barilla implement the CITED system. The benefits for all departments outweigh the internal resistance arguments of the sales and marketing representatives and the distributors’ unwillingness to give up their order placing authority.
Even though they would lose some authority in placing orders and some of the sales representatives’ responsibilities would be reduced, this system would benefit them in their stores and would help them be more efficient. E CITED system is designed to look at all of the distributors’ shipment data and send only what is needed at the stores. If they chose to do nothing their issues would simply not go away, they would only get worse. The way they operate now is almost impossible to anticipate demand swings and this is mainly what causes the demand insinuations. W D program, Barilla could finally make delivery decisions and therefore improve its demand forecasting systems. Furthermore, it would improve Burial’s visibility with trade and make distributors more dependent on them.
These actors should therefore improve the relationships between Barilla and the distributors rather than harm them and bring the Barilla Company as a whole back to an efficient level again. VI. Implementation It is anticipated that it would take a lot of time and effort before Barilla could successfully implement CITED to their supply chain. As previously mentioned, they need to convince all the supply chain players that this new approach will benefit everyone and that it is a win-win concept.
In other words, credibility and good understanding of the system needs to be gained before enforcing any idea to others.
He first thing that needs to be done is to gather the appropriate staff to come up Ninth good strategies to implement the CITED system. It is Burial’s logistic organization that is mainly responsible for this process. Therefore Giorgio Magical, director of logistics, will have to gather the sales and marketing managers as well as any other manager needed for the implementation. They will also need a neutral party trusted by both the manufacturers and distributors.
Once the appropriate staff has been gathered they can start approaching strategies that will make the application successful.
First, the company will have to purchase a new computer system. For the first few months, they will have to analyze daily shipment data of the DC. Furthermore, a very important capability for Barilla to consider and achieve is flexibility to respond to orders and to manufacture. This would remedy the sales representative’s internal resistance of their “ lack of manufacturing flexibility’.
Given the structure of their distribution channel and their lack of appropriate equipment, a bar code system will have to be linked to the supply chain system in order to get accurate inventory movements in and out of the company. They need to improve their own forecasting systems so they can make better use of the data they receive.
Finally, they’ll also need to develop a set of decision rules that they can use to determine what to send after having received new data and created new forecasts.
Monitor and Control/ Conclusion Performance of the system will be monitored and controlled in the short run and long run by meeting end-consumer’s needs more effectively. However, it would also more evenly distribute the workload on Burial’s manufacturing and logistics system. Ere improvement of better demand forecasting using sophisticated tools will ensure reoccur supply chain; a centralized supply chain will reduce the Bullwhip Effect and enhance the inventory management system.
Good decisions will be taken amongst “ pull based” and “ push based” systems.
Finally, involving a top appropriate management is important to succeed in this new initiative. These implementation procedures will build a successful CITED system for Barilla. A system that will not only place this company back into a suitable efficiency level in terms of time and money but also promote trust and good relations among all the partners in the supply