Presentation on Barilla Spa Case: An HBR Case presented in class in XLRI Jamshedpur (GMP)

1. Barilla SpA Group No : 8 Himadri, Rishi, Tarun, Manish, Vikas

3. By 1990, Barilla SPA - World’s largest pasta producer

4. Pasta Share - 35% in Italy and 22% in Europe

5. 2 Product Categories – 75% Dry and 25% Fresh

6. Fresh Products had 21 day Shelf Lives

7. Dry Products had Long ( 18 to 24 Months) or Medium(10 to 12 weeks) Shelf Lives

8. 800 SKUs of Dry Products

11. Steffi Graf, Stefan Edberg promoted the “Barilla” brand

12. Frequent Trade Promotion to push product into distribution network

13. Volume Discount

14. Use of Sales Representative

15. Merchandise Barilla Product

16. Set up In-Store promotion

17. Took note of Competitor’s price, stockouts, new product introductions

19. Demand Fluctuation Reasons Excessive Promotional activities Volume Discount No limit in order quantities from distributors Product proliferations Lack of sophisticated forecasting techniques.

20. Demand Fluctuation Exhibit 12

21. Demand Fluctuation Methods adopted to curb fluctuation Excess FG inventory to meet Distributors’ demand Additional inventory at Distributors warehouses Impact Overburdened Manufacturing and Logistic operation Poor product delivery Thinning of retailers/distributors margin Increased inventory carrying cost Unanticipated demand Bullwhip effect

22. Bullwhip Effect Variation in Demand caused Bullwhip effect in the entire supply chain Order Transfer Order Transfer Retailer Plant Distributor Magnified Variation in Order

23. Bullwhip Effect Causes of Bullwhip Effect Inaccuracies in Demand Forecasting Long Lead Times Price fluctuation due to Promotional activities Order batching To reduce ordering Cost To take advantage of Transportation economics such as full truck load Sales incentive Forward buying due to promotional activities to get benefit from lower price

24. Just-In-Time-Distribution (JITD) Vendor Managed Inventory Concept Treats end customer data as the input Final authority to determine shipments is Barilla SpA Barilla would decide what to ship to distributors and when to ship it Distributors will provide POS data of different SKUs.

25. Why JITD ? Expected benefits for Manufacturer Reduced Manufacturing Cost Increased Supply Chain visibility High bargaining power over Distributors Reduced inventory cycle A planned production planning is possible Expected benefits for Distributors Improved fill rates to Retail store- Quick response High service level – additional services to retailers without extra cost Reduced inventory carrying cost

26. JITD- Resistance Internal Sales representative feared reduction in responsibilities Inability to quick shipment may lead to Stock-out Inability to run Trade Promotion Lack of sophisticated infrastructure to handle JITD Skepticism about cost reduction External Unconvinced distributors Perceived power transfer to Barilla Distributors were skeptical about the effectiveness of the system

27. Experiments at Dry Product depots Barilla spa ran first JITD experiment at its Florence depot Top management was actively involved During the very first month of the program Inventory dropped from 10.1 days to 3.6 days Service level to retail stores increased from 98.9% to 99.8% Depot’s staff was not comfortable working with such low inventory levels Inventory levels finally allowed to increase to 5 days JITD next tried at Milan Depot Similar performance improvement as Florence These experiments established the credibility of JITD system

28. Implementation Result

29. Implementation Result

30. Implementation at D.O Cortese Barilla decided to implement JITD in Marchese DC of Cortese It involved Director of Logistics, EVP of Sales and Manager responsible for JITD implementation from Barilla Nine managers including MD, Logistic manager for Marchese DC of Cortese. Consultant Ferozzi- a neutral party trusted by both groups For six months, Barilla team analyzed daily shipment data of the DC Created the data base of DC’s historical demand pattern Finally implementation brought phenomenal result Prior to JITD Stock out rate : 2 to 5% ( Occasionally as high as 10 to 13%) After JITD Negligible stock out rate of less than.25%(Never exceeded 1%) Average inventory level also dropped

31. Implementation at D.O Cortese

32. Implementation at D.O Cortese

33. Implementation at D.O Cortese

34. Adaptation with other Distributors Barilla approached other customers with confidence. Developed a protocol which could be used to communicate with all customers Each SKU identified with three different product codes Barilla’s code Customer’s code EAN (European article numbering system) barcode – Most common barcode standard in Europe Advantages of the coding system Information can be received through any code Improved data sharing By 1993, all customers were linked electronically with the Barilla Headquarter.

35. Communication with Customers Distributors each day sent following information to Barilla Electronically Customer code number to identify customer Inventory for each SKU carried by DC Previous day’s “sell through”-All shipments of Barilla products out of DC to consumers on the previous day Stock outs on previous day for every Barilla SKU carried by DC An advance order for any promotions that the customer planned to run in the future Preferred delivery carton size

36. Group reflections/Takeaway Better demand forecasting using sophisticated tools ensures a robust supply chain Excessive fluctuation(SD) leads to increased Average Inventory Level, poor USL and frequent stock-out. Information centralization reduces Bullwhip Effect and enhances inventory management system Decision needs to be taken amongst “Pull based” and “Push based” systems To succeed in a new initiative, involvement of Top management is important Credibility needs to be gained before enforcing any idea to others Customers need to be convinced with the win-win concept

37. Thank You Pasta is Delicious !