Barilla SpA (A) Page 1

Barilla SpA (A)

Harvard Business School Case Study

Edwin M. Mercado
Montana Tech of The University of Montana
03/22/11
 Barilla SpA (A)

Introduction

Barilla SpA, an Italy based company, is the world’s largest Pasta manufacturer. It has a
35% market share in Italy and a 22% market share in Europe. In addition to the family of pastas
(macaroni, spaghetti, fusilli, etc.) it also manufactures bread, cookies, biscuits, rusks, sauces,
breadsticks, etc. Barilla has a very complex distribution network consisting of Grand Distributors
(owned by large Supermarket chains), Organized Distributors (independent third party
distributors) in addition to its own depots. Due to such a complex and multi-echelon network,
Barilla has been experiencing large amounts of variability in demand which are resulting in
operational inefficiency and increased manufacturing, inventory and distribution costs.

Brando Vitali, Barilla’s ex-Director of Logistics, had proposed a Just-In-Time

Problems

Promotions: Barilla’s sales strategy relied heavily on the use of promotions, in the form
of price, transportation and volume discounts. They divided the year into 10 to 12 canvass or
promotional periods, during which different products were offered at discounts. These price
discounts ranged from 1.4% to 10%. Barilla’s volume discounts consisted of carton discounts
offered by sales representatives and the transportation discounts consisted of free shipping to the
distributors.

 Sales Representatives: The compensation system for the sales reps was flawed in that they
were rewarded based on the amount of the products that they sold to the distributors. This
was causing problems as the sales reps would try and push more products during the
promotional period to get a bonus and were not able to sell as much during non-promotional
periods. This led to wide variation in demand and made forecasting very difficult.
 Large number of SKU’s: Barilla’s dry products (the focus of the JITD proposal) were offered
in 800 different packaged stock keeping units (SKUs). Most of the popular products were
offered in as many as 8 different packaging options. These large numbers led to greater
complexity.
 Bad forecasting by Distributors: The distributors did not have forecasting systems or
sophisticated analytical tools for determining order quantities and this resulted in bad
forecasts.

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 Barilla SpA (A)

 Long Delivery Lead Times: Barilla supplied its distributors between 8 and 14 days after it
received their orders, the average lead-time being 10 days. This was slightly long and a lot
could change in the supply chain during this period, causing rise in variability.
 Production Costs: These costs increased drastically as the demand variation increased. This
was because pasta production was a very delicate process and the drying of different types of
pasta required precise levels of temperature and humidity that could not be changed fast
enough to produce different types of pasta in demand. As Barilla struggled to cope up with
the fluctuating demand, the production costs rose as changeover was costly and lead times as
well as backorders increased.
 Scheduling Difficulties: It was difficult for Barilla to schedule its resources and facilities like
Labor, Machinery and Trucks due to demand variations. They would tend to overuse the
resources when the demand was high and on periods of low demand the resources would be
scantily used. This was resulting in increased costs of Labor and maintenance.

Solutions

 Trial Run of the JITD system: This is Barilla’s best chance to convince the skeptics of the
system. Barilla should try and implement the system using its 18 depots that supply to the
small independent stores as well as some of the supermarkets. This system could be
implemented from 6 months to a year depending on the time available to Barilla. If this
system were a success, i.e. Barilla and the depots experienced reduction in demand
variability and costs, the critics would be effectively silenced.
 JITD in Exports: Barilla has a 22% market share in Europe and this share is expected to rise
as the growth in the export market increases by 20-25% each year. Barilla could try and
implement the JITD system with its distributors, both current and future, outside Italy. This
could act as a test run to be shown to the distributors in Italy. In addition to this Barilla would
ensure that its distributors outside Italy would already be accustomed to this idea so that there
would be no opposition offered later. If implemented and successful, this idea would result in
savings for Barilla in its export supply chain.
 Reduce SKUs: Currently, Barilla’s dry products are offered in 800 different SKUs. This large
amount leads to a lot of complexity in the order process, distribution as well as inventory and
thus increases costs and variability. Some of its famous products are offered in up to 8
different packaging options. Barilla should reduce the number of SKUs to around 500 for
better control. For example the 0.5kg packets could be phased out in favor of the 1kg
packets.
 Actual Point-of-Sales Data: As of now, the JITD system proposes to use the sales data from
the distributors as actual customer demand is difficult to obtain from the retailers due to their
sheer number. Barilla could eventually invest in technology and provide each of its retailers
with computers to have access to point-of-sales data. This would make the supply chain truly
centralized and would further reduce variability. However this would require a huge
investment form Barilla.

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 Barilla SpA (A)

Conclusion/Recommendations

The implementation of the new (JITD) system will allow for better operational success,
which includes lower inventory levels, accurate forecasting data, lower manufacturing costs, and
lower transportation costs. Implementing the (JITD) will also minimize the inventory levels that
each dry product is held in inventory in each warehouse. Installation of an online server system
that would have capabilities such as bar-code scanners linked with computers with network
capabilities for accurate sharing of data throughout the supply chain allowing for better
forecasting methods. It will reduce the time taken to manually count each good in stock if this
was implemented. After listing out the problems and studying them in detail, I have come up
with recommendations to reduce uncertainty in demand. In order to implement this system, the
distributors as well as Barilla’s Sales and Marketing have to be convinced that this proposal will
do more good than bad. After implementing the JITD system Barilla can look forward to a much
more efficient and profitable future. As a result of implementing these recommendations
concerning the JITD system: their demand would become more steady, easier to produce, and
transport, as well as their operating costs will be reduce and these savings would result in better
margins and the cycle times would decrease allowing the cash flow to become even throughout
the supply chain.