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Operations & Supply Chain Management

Barilla SpA (Barilla) recognises that inefficiencies in its supply string are "placing an evergrowing burden" on creation and distribution. "Just-in-Time-Distribution" (JITD), the perfect solution is proposed by the prior and current logistics managers, is an attempt to stabilise the demand fluctuations at the root of the resource string problem but has been strenuously resisted by customers and by the business's own sales force. The obstacles facing Barilla are much broader than the evident "demand" distortions in the supply chain. The proposed solution does not address core misalignments from manufacturing plants to distribution centres to retail shelves. The company needs to radically revise its approach to increasing its logistics, but the JITD proposal fails to supply the required strategy positioning and the needed execution excellence.

I. Background

Barilla has source chain problems in all core areas: the product and SKU's are over -varied, creating manufacturing complexity. The company's special offers and just how it incentivizes its sales team distort demand and sales characters. Distributor order batching, poor forecasting, and gaming contribute to demand fluctuations. The travel system is sophisticated and expensive. And lastly, there is certainly little to no use of technology and data to understand customer behavior and to manage the source chain. ~

For the purpose of this discussion we are concentrating on the dry pasta business, the key source of sales and profits.

II. Problems and Probable Solutions

1. Product and SKU over-diversity There are 200 pasta shapes and sizes, bought from over 470 different packaged SKU's. Popular pasta products are offered in a number of presentation options with different motifs for different areas. Barilla recognizes packaging variety and customisation as part of its value differentiation.

Since different pastas require different developing techniques, the large number of products complicates the creation process. Pasta is a functional product and Barilla is producing and distributing it as though it were an impressive one.

Barilla could rationalise its product arranged whilst keeping its value proposition since almost all of its retailers bring only one or two packaging options. Determining the optimal product combination for Barilla is not the goal of this report but this intricacy is a root cause of downstream issues.

2. Promotions and video games by distributors

Barilla's price deals (canvass intervals and volume discount rates) encourage over- and under-ordering and video games. Demand distortions give food to back to processing, creating supply issues. The supply chain participants aren't aligned or cooperating; they have different aims and bonuses.

Barilla should align its sales strategy with JITD. Savings should be utilized as a tool to reward transparency, predictability and accuracy and reliability and also to discourage gaming. They ought to shoot for smaller, more regular batches and much more regular resupply

3. Sales force incentive structure

Barilla pushes its sales associates to meet sales focuses on through the canvas periods. The sales staff are also permitted to offer volume special discounts.

Sales force incentives contribute to sales volatility and misalignment with end demand.

Instead, Barilla should align its sales team incentives with the company's key goals under JITD. For example they should tie up sales bonus items to stock- out rates and inventory levels, not only to products sold.

4. Distributor order batching and bad forecasting

The company does not have any sense of end retail demand. Barilla views it as unstable distributor demand (real consumer demand being masked by several intermediaries in the resource chain). You will find obvious "bullwhip" effects. While end demand is relatively secure, order variability is quite large; deviation in average every week orders in some region reach over 600% with stockouts of 5-9% and inventory runs from 0 to more than 5 days (Exhibit 12 and 13). Most vendors use a periodic-review inventory system, putting requests when levels fall season below a certain cause, and time the system utilizing the discount home windows to order large batches.

The company must enlist the source chain lovers' acceptance and advocacy by detailing the positive impact of the proposed changes on profits, margins, customer support and satisfaction. It will use quantitative metrics to gauge the improvements liked by distributors and merchants from, for example, the reduced costs.

5. Distribution system complexity

Barilla's supply string does not suit the merchandise and must be made better. Retail customers are not getting the merchandise they need despite a complete of nearly eight weeks of inventory over the system: a month at the Barilla CDCs, fourteen days at the distributors, and 10-12 times at the supermarkets. The surplus inventory in the machine does not buffer demand changes and is an indicator of inefficiencies.

Barilla has level and really should be operating a much more tightly handled system. The business should eliminate vendors and CDCs and should supply directly to the supermarkets. Barilla will better control equipment and data, and revel in cost savings and higher margins credited to diminished inventory levels. Within the diagram in Exhibit 8, the Barilla-run depots could either be eliminated or included within the Barilla CDC.

6. Making complexity

Barilla must rationalise its making process. The business must accumulate data on end customer demand and winnow down its product established first before let's assume that distributor demand displays customer demand.

7. Sub-optimal use of technology

Barilla's distributors have computer-based order management systems, but do not require have state-of-the-art forecasting solutions or POS systems.

As part of its JITD implementation plan, Barilla should pilot the JITD in part of its system to stress test new technology, also to ensure pristine execution and successful future deployment over the full system.

8. Poor use of data

Barilla struggles to effectively model and forecast end demand. The composition and the low technology of its syndication route limit Barilla's usage of data.

Barilla should trail macroeconomic factors associated with fluctuating pasta demand and co-ordinate them with genuine data on consumer consumption. They should show data with their distribution associates, customers and developing crops. Barilla should then devise strategies that lead to smaller batches and much more frequent resupply. As a result everyone will hold fewer inventories, doubt will be reduced and cash flows and margins will improve.

9. Transportation complexness and cost

Although two thirds of dried out product is destined for supermarkets, the pasta moves from the Barilla flower to CDCs, then to two types of distributors, to Barilla-run depots and then to three retail customers. (Display 8) For a simple product with a straightforward end customer - largely dried out pasta, mainly large supermarkets - the syndication architecture is overly complex. .

Once the demand and supply are managed properly, data becomes available, and the right technology is deployed, the business has an opportunity to adapt its travelling and truck utilization to JITD, optimizing asset utilization and lowering overall costs.

III. Conclusion

The proposed solution JITD, while a step in the right route (a standard fix for "bullwhip" results), will not solution all Barilla's problems and hazards being improperly well prepared and poorly performed. While focusing the answer on dried products delivered to distributors bound for large supermarkets, (nearly all sales), is practical, the manufacturing issues, the inefficient distribution architecture and having less data at a time customer demand are not addressed.

Barilla needs to rethink their strategy and re-align their company round the new strategy. Barilla's source chain challenges are more far-reaching than simple demand distortions. Therefore JITD, Barilla's treatment because of its self-diagnosed problem is incomplete. The company requires a more sweeping proper reassessment of its business.

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