The root cause that drove Barilla's then Director of Logistics, Brando Vitali, to propose his "Just-in-Time Circulation" (JITD) concept was the extreme fluctuations popular the business was experiencing at that time. Orders for dried up products swung significantly from week to week. For example, as presented in the event, in 1989 purchases went from around 850 in week 12 to around 175 in week 13. That's practically an 80% decrease in one week. The purchases continued to fall season in week 14 below 100 and below 50 in week 15 then by week 17 requests were near 800 again. This sort of pattern, also known as the bullwhip result (for example, see display 1 and 2), was difficult to forecast and was putting a strain on Barilla's manufacturing and logistics procedures. With a ten calendar day lead time on the delivery of the dried up goods stock-outs were becoming more regular. It was very costly to carry more inventory in order to meet up with the demand fluctuation and so Vitali started to force his JITD arrange for the company's syndication network.
Although every week fluctuation in demand spawned the necessity for change within Barilla's distribution network the JITD proposal implied that Vitali presumed the root cause to be arbitrary reordering levels at the vendors. The lack of any important forecasting means that distributors would simply review inventory levels once weekly and submit purchases when products fell below a certain reorder level. There have been no analytics or forecasting systems involved with ordering which offered little self confidence to logistics department at Barilla. Vitali thought that if Barilla could evaluate the end consumer demand for its products they could determine the "appropriate" delivery amounts. Due to the complexity of the situation, however, Barilla will need information from its suppliers.
Herein lies the fundamental issue, the lack of information and significant complexity. In additional to the lack of any meaningful dealer forecasting, Barilla faces a number of factors. In Barilla's chain, they face lead time period as well as lead time variability. The sales force has incentives for pressing products at times. Furthermore, suppliers receive quantity discount rates. Furthermore, the merchandise is perishable. All of these factors (and their associated costs) make the condition difficult to resolve.
All of these problems contribute to the variability and bullwhip impact wreaking havoc on Barilla. There are four options to reduce the bullwhip result: reduce uncertainty, reduce variability, reduce lead-time, and through strategic partnerships. Given the lead times necessary to produce additional pasta, a make-to-order model and speedier delivery network is not possible. The target, then is to concentrate on the other three categories. If Barilla centralizes the information within the source chain (the underlying idea behind the suggested JITD plan) they can decrease the large fluctuations in demand. Quite simply, since known demand reduces the need for a buffer, information can serve as an alternative for inventory.
The JITD proposal made forecasting end consumer demand Barilla's responsibility and Vitali presumed that Barilla could undertake it much better than the distributors by taking a far more analytical approach predicated on intelligence obtained from the customers. Certainly the vendors blamed Barilla's long lead times for the stock outs. They claimed that if Barilla could flip their orders around in 36 time that stock outs would not be considered a problem. This of course was impossible for Barilla taking into consideration the heating and humidity features for drying the pasta. Shortening the lead time for delivery was not feasible.
Vatali's JITD program enables the company to ship product when it is needed, rather than building great stocks of inventory at both manufacturing unit and the circulation centers. While using JITD program the delivery decisions derive from the finish customers' needs rather than reorder amounts at the marketers. This takes a few of the "Bullwhip" benefit from the supply chain because the company is no longer working with end customer demand through the distributor, but is working directly with end customer demand data. This will reduce the consequences of the volatile every week demand such as stock outs and high inventory costs. Furthermore, the JITD program is the fact that it'll improve Barilla's demand forecasting. With end customer data in hand Barilla can be proactive to forecasted demand within its supply chain rather than reactive. This may ensure a far more even workload throughout its creation and logistics system.
One of the downsides to the new program is that it is "sophisticated" relative to the traditional distribution model. Although Vitali explains the program as a "simple procedure" it's new and the machine is not setup for these kinds of relationships. For instance, the Barilla dealing immediately with end customer data and then telling the vendors what they'll order from them. There is some reluctance from the distributors to talk about sales data with Barilla. With all the JITD program the vendors are more like another one of Barilla's DC (closer to the finish customer) rather than third party distributor. This novel marriage with Barilla is the one that the distributor is nearly ready to admit.
A second drawback to the JITD program is the fact it could be costly to apply such a plan. Barilla would have to hire a tiny team within its logistics section to utilize the distributors to collect the finish customer sales data. These folks would have to be relationship focused to manage the awkward interactions created with the JITD program. This team would then compile the data from all the vendors, evaluate it and develop a demand forecast. Despite having the new team and the new data it continues to be a forecast and forecasts are never right. Another disadvantage is the fact that it reduces the need for shelf space at the distributor. With a more efficient syndication system and the need for fewer products at the distributor Barilla has freed up shelf space at the distributor. Given the awkward relationship created with JITD the distributor may be inclined to push competitors' products to the supermarkets and at the same time provide them with the shelf space that Barilla freed up. Giving up shelf space at the distributor is something Barilla must consider as it can be an unwanted aftereffect of the new program.
Barilla faces a number of issues and barriers against JITD circulation, the majority of which fall under the group of "trust. " From supplier relationship aspect, (similar to the disadvantage) the circulation network is not ready for the sort of supply chain romantic relationship JITD requires. The circulation managers believe that Barilla showing them what things to order is an insult. They assume that they don't need another company revealing them how to do their job. Furthermore, other parties in the string wonder if they will experience any benefits, or are the increased profits limited by Barilla. Lastly, there is the concern concerning whether or not Barilla gets the competence to properly put into action the program.
These issues are made worse from inner amount of resistance from the sales force. The sales team is concerned that their bonuses will be taken away because order levels would be toned. Furthermore, given that the sales force is in direct connection with the suppliers, the sales team is motivating the suppliers to not choose the new program. Fear of job duty changes or, even worse, obsolescence makes a company-wide work difficult. This visual insufficient unity lessens the capability to gain the trust essential for implementation.
Thus, both interior support and exterior support (from other participants in the string) is going to be necessary for JITD's success. Beginning internally, Maggiali needs to make this program a company-wide effort-enlisting support from top management, as well as integrating incentives for JITD execution success. The sales force should understand that while their jobs may be innovating, they will not be made outdated. At the same time, suppliers will also have to have bonuses for putting your signature on onto the new program. Through discount rates and education, suppliers need to be made aware of the mutual benefits associated with the program. Thus, the new role of the sales team is educational. They'll need to teach the suppliers on how centralized information will lead to raised service levels, lower inventory and lead to a superior ROA. Suppliers need to comprehend that although it can happen that Barilla is pushing inventory into their warehouses, it is actually a move system based on actual demand! The effect is a worldwide optimization (signifying it is across all the phases of the source chain), alternatively than creating "bumpy" demand optimizations at each level.
Understandably, trust may still be an issue. As a result, Barilla should anticipate to put into action a pilot program at one of its 18 depots in order to show data the remaining suppliers. As the suppliers believe that they can be incurring either additional costs or risk, Barilla will also have to share the excess benefits of the program (by means of special discounts).
If the pilot review yields positive data and the correct incentives are given, Barilla's customers will adopt the program. There will most likely be some hesitation as folks are resistant to improve and even more resistant to giving up control, as evidenced by the retort from this article, "I possibly could improve my inventory and service level myself if you'll deliver my orders more quickly. " Admittedly, there could be some laggards (as is the case with the adoption of any new product or process). If other suppliers get savings and experience success, in order to stay competitive, the remaining laggards can be obligated to become listed on this program.
Since the JITD program centralizes demand information and decision making, thus lowering costs, it should be successful. The caveat is the fact JITD must be considered a complete commitment between Barilla and its distributors, because even if the same demand data is utilised, varying forecasting methods and purchasing practices will lead to a continued bullwhip effect. Thus, the same ideal practices much exist across the marketers. The JITD program also brings about a reduction in lead time. Given that the info is networked, the demand data calls for less time to visit from the buyer to Barilla. For this to be effective, the required technology resources must maintain place.
Given that lead time decrease (in addition to the proposed plan) is unfeasible, if the JITD program were to are unsuccessful, few alternatives can be found. All the options are based on the concept of reducing variability. First, Barilla could reduce the amount of product options by eliminating the less popular products. This risks shedding market show as well as awareness on the grocery shelf. Second, Barilla could reduce all rates incentives and demand merchants utilize an "everyday-low-pricing, "(EDLP) strategy. Through the elimination of price offers, Barilla can lessen lots of the dramatic demand shifts that occur, in doing so leading to more continuous consumer demand patterns. This plan unfortunately decreases the effectiveness of one of the primary weapons for taking market shares, rates. Therefore, JITD remains your best option for Barilla.
Exhibit 1: Every week demand for Barilla Dry up Products from Cortese's Notheast Distribution Center, 1989
Exhibit 2: As demand variability occurs by the consumer (at the submit the diagram), it is amplified at each level of the supply chain. As such, small changes popular equivalent huge repercussions for Barilla
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