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Executive Summary

Barilla SpA, as one of Italy’s refined pasta supplier, they have come a long way in developing a renowned brand for its pasta and produce. Their supply chain and manufacturing process is heavily vertical integrated. However, recently, they are facing a number of difficult challenges and obstacles in order to meet the demand needs from its customer. There are a number of constraints in the operation process that has limited the amount of information- forecast data being flow through from the end-user consumer throughout the supply chain network and I believe that there is also a disconnection between the sales and the logistic operation. The proposed JITD system not only will increase the inventory flow between plants and distribution centre but also able to meet demand needs. They ought to address this to our distributors and to our sale staffs and list out the benefit that they can achieve as an overall. Moreover, Barilla will require to better forecast their sales and in times when there are promotions, their sales representative should work closely with their customer and communicate that information ahead of time to our supply chain logistic team such that proper allocation of resources and materials can be address. My decision is recommend hiring two Supply Chain Analysts who will act as a liaison between the sales and the DCs, where ones deal with the Northern DCs and the other tackle the Southern DCs. They will gather information and forecast data for analysis and input into the system. By using those data, the plant will have sufficient amount of data in order to schedule their production line longer and reduce the amount of changeover, thus increase the overall efficiency and delivery process.

Issue Identification

Immediate Issue

Currently, Barilla is facing with the problem of demand fluctuations from their distributors and buyers. This is due to the poor forecasting and planning that they have in place. The promotional process that Barilla has in place causes the stock outs and inventory fluctuations. For example, during promotion week, the distributors can order what they want and how much they want and this is an uncontrolled environment. They have the opportunity to address this issue with the newly proposed JITD system but there is also a disconnection from the plant, logistic and the sales team which adds to the problem. This immediate issue is just the tip of the iceberg and the issues that are in place are cause by the systemic issue listed below.

Systematic Issue

Promotional week

During promotional week, a distributor would be able to order as much as they desired on any products during promotional week. This will cause stock outs and inventory fluctuations within the DCs, which eventually will cause the manufacturing plant to scramble around to slot in to increase production into their production schedule.

Disconnect communication between DCs, sales and Supply Chain

As a team, they should consider company’s profit and growth as the main goal. There seems to be a disconnection between the three, sale team only look at their sales data, their incentive and commission, distributor understand that they will need to push stock to their customer to make them happy and be profitable and when they are out of stock and place an order it takes at least 8 -14 business days for items to arrive.

Distribution process and order process

The current ordering process takes too long to process. Distributors, including the GDs and DOs checked their inventory stock before making an order to replenish. If they were to order the stock, it will take 8-14 days for the orders to arrive at the distributors. The supply chain map can be seen under Exhibit 1.

Environmental & Root Cause Analysis

Qualitative Analysis

Barilla has established as a diverse market and sells product through 3 brands. They have position themselves among other 2000 competitors. The following are some of the key competitive advantages that they have incurred.

❖ Barilla is heavily vertical integrated; they have four flour mills throughout Italy. The Pedrignano plant is one state of the art facility to manufacture pasta, it is one of the largest and most technological advance facilities, and it has 11 lines to produce 9000 quintals of pasta each day. Though different pasta require different equipment to make, Barilla’s pasta plants were specialized by the type of pasta produced in each plant to allow a more efficient run.

❖ Barilla is able to sell pasta in package sealed cardboard form as compare to the traditional plastic bag form which indicate that they have put effort and the importance to supply high quality products to their customers. They keep their temperature and humidity in the kiln to a specified level to ensure high quality products.

❖ Barilla sales and marketing is strong, their sales rep spend 90% of their time at the store level. They will setup booth and promote in-store promotion and at the same time take note on competitor’s price, stock out and new product information.

Quantitative Analysis

Pasta consumption

Pasta being the native products of Italy and they love their pasta, it leads other European country in per capita consumption at 17.8 kg, exhibit 2. It also leads in the number of commercial shops in the retail business, exhibit 3. Italy admires their food and it shows in the figure, they lead other European countries in fruit and vegetables, meats, fish and bakery for the number of outlets which can be seen in the exhibit 4.

Manufacturing capacity

Assuming a 250 working days and with the manufacturing capability of 11 lines running production, the Pedrignano plant is able to produce 9000 quintals a day which equates to 2,250,000 quintals that they can produce a year. In exhibit 5&6, if Barilla are able to use the sales data with an average of 400 quintals per week, this amount to 20,400 quintals per year. They have plenty of capacity to produce the sales that they can generate. During the weeks of summer where the sales are high, our inventory in Cortese DC is low and our stock outs are high.

Ordering process

For an order to process, the distributor will have to take a walkthrough in their facility and walk the isle using a simple periodic –review inventory system to determine what needs to be order through the DCs. During the order process, it will take up to 10-14 days before it arrive at the distributors, it then have to travel to the supermarket before selling it to the consumer. By the time, it arrives in the store, it will be already too late and they would have lost the sales to other competitors.

Alternatives and /or Options

Alternatives

Short term alternatives

In order to address the immediate issue of demand fluctuations, I recommend that they should identify the SKUs that Barilla most run out all the time and pin point the SKUs that have the most fluctuations. In order for this to happen, they will need to communicate with the distributors about their “hot” item on the list. In the short term, the plant may need to boost production capacity to keep up the demand and carry additional amount of inventory. At the same time, they will need to suspend all promotional week until our sales rep, distributors, supply chain, and manufacturing team can come to consent. The advantage of this is that they would be able to identify the SKUs that are in high demand and at the same time identify the low moving SKUs to determine whether they should be deemed as obsolete item In essence, they would able to communicate that within the organization. The disadvantage of this will put more strains on manufacturing and distribution, the CDCs will have to carry more inventories. Over the course of the next few months, they would need to establish a communication channel between the plant, the DCs, sales team and the distributors to monitor the progress.

Long term alternatives

In order to facilitate this process, they would need the distributors to supply us with a weekly firm order forecast as well as a rolling forecast for the next six weeks such that they would be able to pass these data to their manufacturing plant. Such data would be great useful for the plant to plan and schedule where the right amount of resource can be allocated equally. With the forecast rolling in, they can better prepare themselves and eventually would be able to cut down the order time to delivery time of products to our distributors from 8-14days to 5-10 days. In the mean time, I would like to use this opportunity to suggest to them to hire two supply chain analysts who will act as a liaison between the sales team and distribution team. One analyst will deal with the northern DCs and the other will focus on the southern DCs. With the information they obtain, they would provide this to the plant to schedule their run. For this to happen, communication is the key and I recommend that they should have a weekly operation meeting between the manufacturing, supply chain, sales, logistic, and distributions teams. Supply chain analyst should attend daily production meeting such that operation in the plant can be communicated daily if necessary.

JITD ordering system

The origin of the JIT system comes from Taiichi Ohno[1], he notice that in the supermarket environment, everything need to be fresh, as the fruit and vegetable is being taken off the shelf, it was replaced and replenish from the back. Likewise, in Barilla case the consumers pull the products off the shelf, this will trigger a decrease in stock in the supermarket system, it will then trigger the supermarket to replenish, and so on. This can be described in the above diagram. The JITD system is a pull system rather than a push inventory system approach. Barilla need to use this information and show this to their distributors and list out the advantages of this system such that they can better control the inventory at all level of the process. Only the optimal inventory is needed, no more and no less to maintain the demand requirement throughout.

Recommendations

I suggest that Barilla to start with the short term goals and pinpoint the “Hot” SKUs and tackle the regional area that suffer the most from the stock out and communicate that to the plant to boost up production and at the same time look at some of the old SKUs and identify which one they can turn obsolete.

Forecasting System

It is important to have the forecasting system in place to control the demand fluctuation. The forecast will act as a bible for the supply chain analyst to communicate the production requirement for the plant to plan and schedule.

New Supply Chain Analysts

The newly appointed supply chain analyst will gather the data as a whole bundle and use that data to assist in the production planning and scheduling. They will also act as a link between the sales, marketing and distribution. Sales and marketing rep will need to inform them of upcoming promotion 6 weeks ahead such that production can be increase and additional materials can be procured. This will allow the plant to make the necessary resource adjustment.

JITD system

I suggested that Barilla should move forward with the JITD system and spread the worlds out to our distributors and address the benefit that they will be able to achieve.

Implementation

The implementation process will take some time. In the short-run, they would require to gather as much information as possible to have a concrete forecast data in order to map out a road for the JITD system to put into live usage. They would also need to do weekly cycle count on our inventory at our DCs for us to monitor the inventory level until they have a firm forecast from our distributors. Communications is the key of success for this JITD system to work and each department head must be on the case to address issue and openly talk about their concerns such that changes can be made if necessary to refine the progress. Human resource will have to source the right candidate to be able to do the supply chain analyst job; this person must have good communication skills, a team player, good understanding of MRP and ERP system and be able to do analytical work.

In the long run, they should further improve our forecasting system and communication channel with our distributors and openly discussing our needs and understanding their need and their obstacles so that they can provide better service to them. As a matter of fact, they are our links to our customers.

Monitor & Control

Barilla supply chain team would divide the region between the north and the south and would monitor our fill rate with IFOT (In Full On Time) system. Each night data are to be sent from the distributors to the supply chain analyst and identify our fill rates and at what percentage they are out by. They will maintain these data and see if they would be able to identify a forecast trend to preventative.

Conclusion

In conclusion, the difficulty that Barilla is currently seeing with the demand fluctuation will be address once they have a robust forecasting system. More importantly is that if they have more time to see and analyze the data, the 6 months rolling forecast with the 1 week firm order as well as the constant communication channel between the sales, supply chain, distributors and the manufacturing team would be able to adjust to the need even if they are out because they can see it coming and are able to adjust to the need. If the strategy of JITD is successfully implemented, Barilla will be able to compete in the pasta industry with other pasta manufacturers in terms of sales, capacity, profitability and in growth.

Exhibits

Exhibit 1

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Exhibit 2

[pic]

Exhibit 3

[pic]

Exhibit 4

[pic]

Exhibit 5

[pic]

Exhibit 6

[pic]

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[1] The Toyota Way, Jeff Liker ,2004

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Distributors

CDCs

Plant

Supplier

Supermarket

Consumer

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