Supply Chain Management of Barilla SpA - Case Study Example

Barilla SpA Case Study Underlying causes of the difficulties the JITD program was created to solve. JITD was created to address "the growing burden(s) that demand fluctuations imposed on the company's manufacturing and distribution system" (p. 91). We can conclude from the case details that the so-called "burden" was characterized by unpredictability in pasta production and delivery schedules that eventually ate into the profit margins of manufacturers and retailers (p. 99). Their solution, according to Mr. Vitali, was "to take costs out of our distribution channel without compromising service." JITD had not effectively solved the problem. There was resistance inside and from the distributors because JITD did not address the underlying causes of the difficulties, such as: a. Complexity of product packages: Barilla's challenge was managing a complex supply chain while offering 800 different packaged stockkeeping units (SKUs) of dry products. Are all these SKUs necessary, profitable, and providing value to the company Many products may make good marketing sense, but Barilla's margins may be affected by the costs of the equally complex supply chain needed. b. Complacency of internal sales and marketing staff: If their reaction to JITD is any indication (p. 99-100), this may be most serious cause. Perhaps, they were just poorly managed because they did not buy the idea that a more efficient distribution system would result in higher sales and profits. Or worse, to satisfy unprofitable market demand and meet sales quotas, the sales team couldn't refuse requests of distributors and retailers even if the company's profitability suffered in the process. c. Old-fashioned distribution system: JITD was a partial solution superimposed on an existing distribution channel that proved non-scalable with sales volumes increases. JITD, by shifting control over buyer information from distributors to Barilla, marked a big difference in the dynamics of the supply chain to which existing players inside and outside the company found difficult to adjust. Poor planning and forecasting also shows how 'old-fashioned' (p. 96) is the distribution system that may have worked when sales volumes were still low and manageable. d. Poorly designed marketing incentive system: Marketing incentives should push the product and add predictability to market demand, but despite having a system in place every four weeks (p. 96-97), Barilla continued to experience variability in orders. Barilla has to address these underlying causes when implementing JITD that is, like all supply chain management systems, a support activity to major strategic decisions. 2. Discuss the benefits and drawbacks of the JITD program. a. The JITD was designed to give the following benefits to Barilla and its distributors: i. Better service to the end-customer who will get the product when needed. ii. Barilla and distributors can build a stronger partnership because of the mutual dependence created. Properly managed, this is good for both. iii. More stable timing of orders, generated on a predefined basis, assures better product quality. iv. Distributors will experience lower stockout and inventory levels and improved fill rates from Barilla and to the end customer. This means lower planning and ordering costs, and higher profits, for distributors as these costs are shifted to the manufacturer. v. Distributors can provide better quality service to end customers. vi. Barilla will find forecasting easier, plan its incentives better, and improve its inventory and procurement plans. Product returns will be lower as only those that could be sold given the stable end-customer demand will be delivered. b. However, JITD also has some drawbacks: i. Every employee at Barilla and distributors must fully understand and accept the program. Total participation is needed so that this change to the way things are done can be properly managed. ii. Close coordination between Barilla and distributors is needed as regards trade promotions and the gain or loss of large orders, both of which may affect normal ordering (and production) patterns. iii. Loss of control by distributors over its ordering information database may be misconstrued as loss of power because of the need to share such information. iv. Barilla and distributors must agree on what to do when there are ordering errors or how obsolete stocks are to be handled. v. Both parties must understand that JITD is a learning process and that many errors may happen during the adjustment period. Perfection takes time. 3. Conflicts and barriers internal to Barilla SpA, causes, and what Maggiali should do. The internal conflicts and barriers to the JITD program are: a. Lack of trust: the move could be seen by the sales force as a way to get more sales with less people, or to get more profits by cutting off the people in the middle. Either way, not being to sell the idea internally created a barrier of trust between the sales and marketing staff and senior and logistics management. b. Poor strategic mindset: senior management was unable to sell the program properly because of poor explanation of benefits gained by the company and its sales staff. By selling this program as a distribution solution rather than part of a strategic marketing initiative, management sowed the seeds for resistance within and without, as can be seen by distributor resistance to the concept. c. Lack of senior management buy-in: their job was to look at the supply chain initiative in the over-all context of the company, which means considering the fiefdoms that exist within the organization and suggesting ways to get everyone to adjust. Perhaps, the sales team was "protected" and assured that the program would not affect them. Maggiali must address the program as a strategic issue that affects not only sales, distribution, and production but also human resources, finance and administration, legal, and maybe what would have been the information technology department. Sharing databases, for example, would require policies on data security and confidentiality. He may also have to devote more resources to training employees and managers (its own and that of distributors) on the new system, help its sales people devise new incentive systems for distributors, and help distributors realize the lower costs and higher margins promised by JITD. 4. Discuss how you expect Barilla's customers to react. Why Barilla's main customers are distributors who buy the products and sell to retailers, who in turn sell to end-customers. JITD is a big change for the distributors, and adjustment always takes time. The distributors resisted because they could not see the benefits clearly, how they could earn higher profits by improving services to retailers and end-consumers. JITD is more than a distribution issue, since it requires that distributors shift control over the market to Barilla. Sharing power, much less ceding it to someone they expected to accommodate their request as a customer would (like 36-hour delivery times, p. 100), is difficult, but if Barilla showed how such would be profitable and would improve product quality, distributors would have accepted change. Besides, distributors used to Barilla keeping its promises would find no reason why they should change a system that works perfectly for them, and neither would they be willing to spend to fix something that works. As for retail customers, they need to change too and should be part of the JITD change management process so they could learn to manage inventories given their limited shelf space. Barilla should also consider internal customers - its salespeople - who have to sell JITD to distributors and retailers. JITD may have affected them by lower representation expenses perhaps, because they do not have to run after distributors for orders as much as they did, as this would be done directly. Barilla has to look for new ways for sales people to continue enjoying the benefits of being in sales, or if it is part of a cost cutting move to explain it as such. The problem was company-wide: lower margins, plant scheduling, complex product mix, deficient marketing systems, etc. The solution should have been developed, discussed, and viewed from a company-wide perspective. This, however, required a strategic decision. Making the supply chain efficient with JITD is only a part, though an important one, of the solution. 5. Was JITD a wise choice Next step What can be done to combat the difficulties Yes and No. Yes, the JITD program was a wise choice, but Barilla should have sold the idea internally, first to its senior management, other department managers, and then to its sales and marketing teams. Afterwards, it should have sold the program to its distributors and retailers. Everyone involved in the new system will need to know its benefits. At the same time, Barilla needs to review its complex product mix to discover the revenue and profit contributions of each, so that it can reduce complexity at the source before designing a JITD program. Making adjustments through strategic choices are best done before the system went live, and now that it has implemented the system partially, it is more challenging to make it work. Barilla has to overcome both internal and external resistance, and it should design the new JITD system to be scalable and superimposed on an existing structure that is gradually phased out. JITD also has to re-design its incentive scheme to include this new program, to include people in sales, its distributors, and retailers. This closer partnership will signal a new phase of the business relationship and can lead to better service, better products, and more satisfied customers, in Italy first and, much later, in the world. Bibliography: Hammond, J.C. (1994). Barilla SpA Case Study. Harvard Business School. In D. Simchi-Levi, P. Kaminsky, and E. Simchi-Levi (2002), Designing and Managing the Supply Chain (2nd ed.). New York: McGraw-Hill/Irwin, p. 91-100. Read More