OSCM_Barilla SpA_Group I

8/30/2014
Case Analysis – Barilla SpA
1
Case Study Analysis
Barilla SpA
Binus Business School,
MM Executive Batch 20
Presented by Group I
Alexander Christian
Dina Sandri Fani
Jenna Widyawati
Ridwan Martawidjaja

Table of Contents
8/30/2014
2
Introductions
About Barilla
Barilla’s Issues
Detailed Analysis
Recommendations
1
2
3
4
5

Table of Contents
8/30/2014
3
Introductions
About Barilla
Barilla’s Issues
Detailed Analysis
Recommendations
1
2
3
4
5

Barilla in Years
8/30/2014
4
• 1875 Founded by Pietro Barilla in Parma, Italy
• 1940s Run by Pietro & Gianni. Differentiated with a
high quality product supported by innovative
marketing programs
• 1968 Constructed a 1.25 mio sqm pasta plant in
Pedrignano
• 1971 Acquired by W.R. Grace, Inc.
• 1979 Grace sold the company back to Pietro Barilla
as failed to make its acquisition pay-off
• 1980s Successful return of the company. Enjoyed an
annual growth rate of over 21% (came from
both organic, i.e. existing business expansions
and non-organic, i.e. acquisition of new, related
business)
• 1990 Largest pasta manufacturer in the world with
35% of market share in Italy & 22% market
share in Europe

Barilla’s footprint in the pasta manufacturer industry in Italy
Proven to be the world’s largest pasta manufacturer
Case Analysis – Barilla SpA 8/30/2014
5
15 47
344
456
Barilla Sales, 1960 - 1990
609
in Lirre, Billions
728
1,034
1,204
1,381
1,634
1,775
2,068
• Successful return of the company. Enjoyed an annual growth rate of over 21%
• Organic growth: expansion of existing business
• Non-organic growth: acquisition of new, related business
2,390
1960 1970 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Had 25 plant locations in total in 1989
6
Map
Key
Plant
Location
Products
1 Braibanti Pasta
2 Cagliari Pasta
3 Foggia Pasta
4 Matera Pasta
5 Pedrignano Pasta, noodles, biscuits
6 Viale Barilla Tortellini, noodles, fresh
pasta
7 Caserta Pasta, rusks, breadsticks
8 Grissin Bon Breadsticks
9 Rubbiano Rusks, breadsticks
10 Milano Panettone, cakes,
croissants
11 Pomezia Croissants
12 Mantova Biscuits, cakes

7
Had 25 plant locations in total in 1989
Map
Key
Plant
Location
Products
13 Melvi Snacks
14 Ascoli Snacks, sliced loafs
15 Rodolfi Sauces
16 Altamura Flour mill
17 Castelplanio Flour mill
18 Ferrara Flour mill
19 Matera Flour mill
20 Termoli Flour mill
21 Milano Fresh bread
22 Milano Fresh bread
23 Altopascio Fresh bread
24 Padova Fresh bread
25 Torino Fresh bread

Industry’s Background
8
Origins of pasta is
unknown
Originated from China
and first brought to Italy
by Marco Polo
Others claim that pasta’s
origins were rooted in
Italy
Pasta consumption
Nearly 18 kilos of pasta
per year per capita
consumption in Italy
Limited seasonality in
pasta demand
Industry’s Growth
Flat growth of less than
1% p.a. with an estimated
of 3.5 billion lire
Growing segment in
semolina & fresh pasta
Export market rise as
much as 20-25% per
year.
Eastern Europe as an
excellent export
opportunity

Table of Contents
8/30/2014
9
Introductions
About Barilla
Barilla’s Issues
Detailed Analysis
Recommendations
1
2
3
4
5

Barilla’s Business Model
10
Customer
Segments
Domestic Italy and
International Mass
Market through
distributors,
supermarkets, and
small shops
Customer
Relationships
Personal assistance
to DOs by sales
representatives
Semi self-service to
GDs
Value Proposition
Offer highest quality
and most
sophisticated pasta,
bread and biscuit

11
Key Resources
Physical asset in the
form of pasta and
bread factory, mill and
warehouses
Key Activities
Produce pasta, bread
and biscuits
Advertising campaign
Distribution and
supply stock
management
Key Partners
Wheat suppliers
Distributors
Advertising agency

12
Channels
Marketing through
media utilizing high
profile and well known
athletes and
celebrities
Supply and distribute
products through
distributors and direct
to stores
Cost structure
Labor cost
Raw material cost
Manufacturing cost
Advertising cost
Warehousing and
stock management
cost
Revenue Streams
Profit from product
sales

Barilla’s Manufacturing Process
Detailed manufacturing process: from raw ingredients to packaged pasta
13
Input
Process
Output
Core Ingredients
Flour Water
Additional Ingredients
Eggs Spinach
1 Mixing ingredients 1 Dough
2
Rolling dough
Enabler: pairs of roller
2
Long, thin
continuous sheet
3 Extruding
Enabler: bronze die
screen
3 Distinct pasta
shape
4 Cutting
Enabler: cutting machine
4 Specified length
of pasta
5 Drying, weighing, &
packing
Enabler: long tunnel kiln
5 High quality
pasta products

Barilla’s Manufacturing Process
Specialized by the type of pasta produced in the plant
14
Pasta’s manufacturing plant
Composition of the
pasta
Made with or without
eggs or spinach
Dry or fresh pasta
Size & shape of the
pasta
Short: macaroni or fusilli
Long: spaghetti or capellini

Barilla’s Product Lines
Ranging from fresh products and dry products
15
Fresh products Dry products
Pasta: 21-day shelf lives
Bread: 1-day shelf life
 Represented 75% of Barilla’s sales
 Offered in 899 different packaged SKUs
Dry pasta
• 200 different
shapes & sizes
• Offered in > 470
different
packaged SKUs
Longer shelf-life
bakery
Either made in the Northern CDC in Pedrignano or Southern CDC in Naple

Barilla’s Channel Distributions
Different channel distributions depending on product type
16
Fresh products
 Purchased from the two CDCs by
independent agents (concessionari)
 Channeled through 70 regional
warehouses
 Inventory days of 3-day in each
warehouse
Dry products
 Purchased by distributors
 Shipped the products mostly to
supermarkets (75%)
 Remainder was distributed through 18
small Barilla-owned warehouses,
mostly to small shops

17
Barilla’s Channel Distributions
Barilla’s products offered in 100 thousands retail outlets that consist of 3 type of outlets
Small independent
shops
 35% of dry products
 2 weeks of inventory
at the store level
Supermarket chains
 70% of 65% of dry
products
 10-12 days of inventory
 Carried a total of 4,800
dry-product SKUs
 Carry the product in only
one packaging option
Independent
supermarkets
 30% out of 65% of dry
products

Barilla Supply Chain Process
18
Dry
products
CDC
warehouse
GDs
DOs
Filled supermarkets’
order out
2-week supply in
inventory
Ship the order
24-48 hours after the
receipt of the orders
Order received at
the stores
Supermarket chain
Independent
supermarket
Centralized buyer for
a large number of
independent
supermarkets
Regional operations.
The retailers they
served usually
sourced product from
only a single DO

Barilla Sales & Marketing Model
19
Advertising
 Positioned Barilla as the highest
quality, most sophisticated pasta
product available
 Modern, sophisticated settings in
major Italian cities instead traditional
Italian folklore
 Use well-known athletes & celebrities
for a talent
Trade Promotions
 10 or 12 canvass period with 4-5
weeks in length, each corresponding
to a promotional program
 Discount offering for distributor:
attracting distributor to buy the product
as much as desired
 Offered volume discounts, e.g.
incentives of 2-3% for FTL orders
 Incentives for Barilla sales
representatives

Barilla Distribution
20
 Once a week placing order
behavior
 Average lead time of
shipping: 10 calendar days
 Distributors’ sales volume
varied: mostly used simple
periodic-review inventory
systems
 Few had forecasting systems
or sophisticated analytical
tools for determining order
quantities

Table of Contents
8/30/2014
21
Introductions
About Barilla
Barilla’s Issues
Detailed Analysis
Recommendations
1
2
3
4
5

Barilla’s Issues
22
Unable to quickly match
demand with supply
Resulting in:
a. Not enough inventory:
revenue foregone for both
Barilla & retailers; or
b. Too much inventory: huge cost
involved; markdowns

23
Barilla’s Issues
The 4 Vs
Volume
Low High
Variety
High Low
Variation
High Low
Visibility
High Low
The issue
lies here …
Propose JITD to overcome the
issues
 Introduce accurate
forecasting (time series
analysis)
 Match demand with supply
 Move from capacity lagging
to capacity smoothing

Table of Contents
8/30/2014
24
Introductions
About Barilla
Barilla’s Issues
Detailed Analysis
Recommendations
1
2
3
4
5

Deciding The Right Supply Chain for Barilla
25
 Barilla used an
inappropriate supply
chain, i.e. responsive
supply chain due to
fluctuating demand
 Recommend moving to
efficient supply chain
 Efficient supply chain
will help Barilla to
respond quickly to
unpredictable demand in
order to minimize stock
out, forced markdowns,
and obsolete inventory.
It will invest on reducing
lead time aggressively
 JITD can enable this

Fluctuating Demands resulted to Inefficient Supply Chain
… thus, identification of the underlying drivers of fluctuations became extremely important
26
“Pasta consumption was relatively
consistent throughout the year”
yet
“Extreme demand variability”
The bullwhip effect (Lee and
Padmanabhan, 1997)
‘In a supply chain for a typical
consumer product, even when
consumer sales do not seem to
vary much, there is pronounced
variability in the retailers’ orders to
the wholesalers’
Caused by:
 Heavy promotions in the form of price,
transportation, and volume discounts
 Existing compensation system:
encouraged the sales reps to push
more products
 Large number of SKUs lead to greater
complexity
 Bad forecasting from distributors due
to the absence of forecasting systems
 Long lead times of 10 days

Analyzing the root cause of the costs of poor coordination
27
Distributors & Retailers
 Impact of cost of poor coordination
would be costs of carrying inventory
 Reflected from Barilla’s logistics
manager discussion on retail inventory
pressure at distributor & retailer side
Barilla
 Impact of cost of poor coordination
would be greater costs for its
manufacturing & logistic operations
 Reflected from below comment
“As I see it, they are realizing they
do not have enough room in their
stores and warehouses to carry
the very large inventories
manufacturers would like them to.
Think of shelf space in retail outlets.
You cannot easily increase it. Yet,
manufacturers are continuously
introducing new products, and they
want retailers to display.”
“As the 1980s progressed, Barilla
increasingly felt the effects of fluctuating
demand. Orders for Barilla dry products
often swung wildly from week to week.
(exhibit 12.) such extreme demand
variability strained Barilla’s
manufacturing & logistics
operations.”
Yet, even with large inventories at
distributors, Barilla products still
have stock outs. (exhibit 13)

Minimizing the cost of poor coordination
28
 Support Vitali’s idea to request
distributor to provide the
following data:
 Detailed Barilla products it
had shipped out of its
warehouse to retailers
during the previous day
 Current stock level for each
Barilla SKU
 Introduce accurate forecasting
(time series analysis)
 Match demand with supply
 Move from capacity lagging to
capacity smoothing

Managing Conflicts with regards to JITD implementation
29
Internal Resistance
 The Sales & Marketing team were
vocal in their opposition to the plan
 Felt their responsibilities would be
diminished
 Concerns rise about the sales level
External Resistance
 Coming from the Distributors
 Concerns rise regarding the idea of
giving much control to Barilla
Similar Causes
 Perceived loss of power/
influence
 Fear of job losses
 Risk aversion – distrust of
change
 The “human factor”

Overcoming Internal Resistance
30
 Clear communication campaigns needed to
allay fears
 Consider co-locating teams to improve
communication
 Human solution to a human issue
 Change Sales and Marketing
role into JITD customer
relationship and development
managers :
 Performing role as the
communication bridge between
the company and the
distributors
 A system would be installed in
the representatives' portable
computer by which more
information at the distributor
warehouse level could be
collected
 Play a vital role in the new
system
 New compensation system:
award a percentage of the
company’s getting from JITD
implementation to the
employees

31
Overcoming External Resistance
Show them the money
 Evidenced-based
approach: should be shown
that the costs of the system
would reduce so much
Address Trust Issues
 Build a transparent policy
 Send the upper management
instead of sending the Logistics
personnel to talk to
 Initiate joint-decision making and
planning

32
Overcoming External Resistance
Current distribution pattern Proposed distribution pattern

Customers’ Response with regards to JITD Implementation
33
 Skeptical that it could
improve distributor’s
inventory level (reduce
inventory carrying costs)
and improve service level
 JITD would at first be
disconcerting because
will be losing control of
my inventory
 Need to convincingly
demonstrate the specific
benefits that JITD will
have for me

Would JITD be feasible? Whom to be the target market?
34
Yes, JITD would be feasible in 1990, it could be effective to minimize costs
of carrying inventory at manufacturer side, distributor side, and retailer side. It’s
also effective minimizing stock out and suitable for functional product as in
Barilla case. In order to be effective it is very important to be combined with
“everyday low price” policy.
Next customer to be targeted will be biggest supermarket chain customers,
followed by independent supermarkets and ‘signora marias’
In order to convince sales & marketing function that JITD is effective. It could
be applied as pilot project for Barilla run depots (35% of shipping.) If such
pilot project is successful to achieve its objective in optimizing its inventory
level, therefore we believe sales & marketing function would “switch sides” to
become ambassador for JITD for 3rd party distributors (GD & DO.)

Table of Contents
8/30/2014
35
Introductions
About Barilla
Barilla’s Issues
Detailed Analysis
Recommendations
1
2
3
4
5

Conclusions & Recommendations
36
Issues/Ideas Recommendations
JITD initially identified by Vitali -
drawback is lack of computer
systems among retailers

 800 different SKUs currently
offered
 Fluctuating demands
 Start with biggest supermarket chain
customers
 Consider subsidizing computer
systems for them
 Then roll out to independent
supermarkets and ‘signora marias’
 Reduce range = fewer
changeovers = more predictability
 Introduce discount for most
consistent orders month on month
 Restructure dependency on trade
promotions

37

OSCM_Barilla SpA_Group I

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OSCM_Barilla SpA_Group I