Executive Summary Barilla SpA was founded in 1875 and today is the world's largest pasta manufacturer.They produce 35% of all the pasta sold in Italy and 22% percent of what is sold in Europe. Barilla has revolutionized the pasta industry's marketing practices by creating a recognizable brand name and strong image. However, their traditional business practices are becoming increasingly inefficient and costly. Operating within an environment of large scale demand variations which have grossly inflated manufacturing, inventory, and transportation costs Giorgio Maggiali, director of Barilla's logistics department is proposing an innovative idea created by his predecessor Brando Vitali called Just-in-Time Distribution (JITD). This is a significant change from their traditional methods of distributors ordering freely and independently from Barilla. JITD requires that all members of the distribution channel share sales information and allow Barilla to order and dispense the amount of products to each distributor that they deem appropriate. This would ideally more accurately match supply with demand decreasing operational inefficiencies within the entire supply chain. The following report outlines the current issues facing Barilla and how the JITD system should improve their incumbent deficiencies. Issue(s) Identification Immediate Issue Extreme fluctuations in demand causing operational inefficiencies have Barilla looking for new options to improve. Maggiali is trying to convince the parties involved to implement JITD but resistance from distributors and internal personnel is rampant. 1|Page The lack of trust in the potential success of JITD from the distributors and Barilla's sales team is delaying any progression towards the new vendormanaged inventory model. Due to demand fluctuations Barilla was experiencing incremental increases in production costs. Relinquishing control and working together is challenging or non-existent. they operate through their own central distribution centres (CDCs) as well as a chain of distributors including Grand Distributors (GDs) which are owned by large supermarket chains. With varying demand it was becoming increasingly ambitious for Barilla to manage their resources with regards to transportation and production facilities.Systemic Issues 1. Based in Italy. and 2|Page . Conflicting goals between Barilla's employees and distributors make changes from traditional inventory management to JITD scary for both parties. 2. 4. 3. To change production from one type of pasta to the next was time consuming and expensive. Environmental and Root Cause Analysis Barilla has an expansive and complex distribution network. The more trucks they had on the road the more costly for Barilla. 5. Scheduling what resources they needed when was nearly impossible without accurate forecasts and they were frequently transporting goods to off-set any shortages to distributors. Large variations in demand was making it necessary for Barilla's to hold hefty amounts of inventory thus creating sizable carrying costs. 4% to 10% from buying in large quantities (full truckloads) or purchasing particular SKUs at a discount. This creates huge demand increases for Barilla at certain times and extremely slow demand requirements at other times. Distributors are not eager to buy without a promotional offer when they are aware that another opportunity for savings is around the corner. Sales representatives receive bonuses based on their gains but in turn are limited in their ability to sell during non-promotional periods. is the vast number of stock keeping units (SKUs) in which they maintain. Furthermore to advertising. Barilla's sales strategy is to frequently offer promotions. Barilla's brands are heavily advertised with an emphasis on high quality and sophistication.Organized Distributors (DOs) which are third-party independent suppliers. Barilla's sales representatives are compensated in direct correlation to their growth in sales. Traditionally most all distributors within the network have limited analytical tools and low-tech forecasting systems which are ineffective in predicting demand resulting in inaccurate forecasts and faulty order quantity requirements for Barilla. Throughout the year they have ten to twelve periods in which distributors can save anywhere from 1. History has dictated the level of personal contact between Barilla and it distributors ranging from very hands-on at the DO level to extremely limited when concerning the GDs. The more they sell the more they will earn. Within their dry pasta line alone. Customers are left with inadequate supply and distributors are left with unhappy customers. Barilla offers 800 3|Page . In addition to the distribution complexity. There are no exceptions during the promotional periods. These promotions increase sales while increasing extensive demand fluctuations. Internally. Barilla experiences decreases in erratic transportation costs. 4|Page . Distributors improve customer order requirements while Barilla offers additional services for no extra costs. Distributors become more dependent on Barilla. Long lead times and increasing order cycles ensue while the inability to change production processes quickly to off-set demand variations is challenging Barilla's bottom line.different packaged varieties where every family of pasta (“short” (macaroni and fusilli) or “long” (spaghetti and capellini)) are made in separate facilities due to the equipment required to accommodate the variations in size and shape. Cons: Barilla sales representatives lose their incentives and sales become flat. Barilla proceeds and convinces the distributors to implement the JITD system. Alternatives and/or Options 1. Production processes are also tightly controlled to ensure the output of high quality products that are expected from Barilla. enhancing their visibility in the supply chain. Pros: Reduces Barilla's manufacturing costs by more accurately allocating production requirements decreasing stock outs. Trims inventory levels. 2. Retailers need to improve their IT capabilities to have the ability to share sales information. Increases Barilla's ability to respond quicker to stock-outs with fewer lines of production. Pros: Simplifies the distributors ordering process. Decreases inventory costs and demand variability. 5|Page . Distributors develop relationships with Barilla competitors to fill the free spaces in their warehouses. Barilla manufacturing processes become leaner specializing in fewer items. Decrease in sales from lack of variety. Distributors are hesitant to believe that Barilla has better inventory management practices then they do. Cons: Potential decrease in brand recognition by offering fewer items to consumers. Barilla is unable to react to any unexpected shifts in demand due to stock-outs. Promotional activities become obsolete causing strife between distributors and Barilla. Barilla reduces their quantity of SKUs available. They need to be reassured that there will be gains within their employment framework as well not just in Barilla's bottom line. including how they now will receive bonuses based on share value within Barilla.Recommendation To rectify the uncertainty in demand and improve their operational efficiency. the more compensated the sales team will be based on their personal territory percentage. Implementation To begin Barilla needs to acquire the acceptance within their own organization of the JITD implementation. In addition to changing the perceptions of individual associates within Barilla. Barilla must convince that success will come for all involved if the JITD system is implemented. Convincing the distributors as well as their internal sales team is imperative. order cycle times should decrease as well as production and distribution challenges. The JITD will allow demand to steady. eliminating the bullwhip effect within the supply chain as a whole and in turn. The successful management of the implementation of JITD will require collaborative efforts from Barilla's entire organization and their network of distributors. To counter-act the resistance from their internal personnel. to successfully implement JITD the perceptions from the entire organization and their 6|Page . The sales representatives should then be involved in each step of the process starting from day one. Maggiali should gain top management support and have them present it to the sales team alongside the logistics department. The greater the profit margins are for Barilla at the end of each quarter. New compensation packages should be outlined to the sales department. This will flatten the demand and optimize manufacturing planning. These meetings will give Barilla an opportunity to continue building trust with the distributors by delivering on the commitments they have made. At this point. Monitor and Control Post implementation.supply network will have to change regarding promotional activities. Currently these promotions create huge demand fluctuations causing the production processes and entire supply chain to become unreliable at best. monthly meetings with each distributor and their Barilla territory sales representative will take place to evaluate JITD successes and highlight areas requiring improvement. 7|Page . Barilla needs to establish year-round price reductions or discounts that are deemed acceptable by all parties involved and reevaluated at each year end. Displaying the cost savings and money making value of the JITD system will go a long way in convincing distributors to re-evaluate their initial refusals. Distributors will also have to be convinced that they are still in control of their own business practices. Action plan development should follow to eliminate the problem areas. Implementing the JITD system within one of their own CDCs first will enhance Barilla's chances of convincing other distributors to follow suit. the system's success can be determined and valued. A committee solely responsible for implementing the new system should be created and personnel from all relevant departments within Barilla should be represented as well as upper management. Barilla should build trust by involving the distributors in each step of the process and making their plans known without withholding any imperative information of their own business activities. Evaluations of inventory levels and stock outs 8|Page .