Supply Chain of Barilla - Case Study Example

Running head: Barilla Supply Chain of Barilla ___________ ________________________ ________________ Supply Chain of Barilla Introduction "Barilla, originally established in 1877 as a bread and pasta shop in Parma, is today one of the most widely recognised Italian food Groups, a leader in the pasta business world-wide, in the pasta sauces business in Continental Europe, in the bakery business in Italy and crisp bread business in Scandinavia. Barilla owns 27 factories and production facilities (15 are in Italy and 12 abroad) of which 9 mills, directly managed, providing most of the raw materials for the production of pasta and bakeries. Barilla exports in more than one hundred Countries. Every year more than 1,400,000 tons of food products, with the brands Barilla, Mulino Bianco,Pavesi, Academia Barilla, Wasa, Misko (Greece), Filiz (Turkey), Yemina and Vesta (Mexico), are featured on dining tables the world over. The Number1 brand, a Group Company engaged in logistic activities and the First brand, engaged in retailing activities, come alongside the product brands". (The Barilla, 2007) This paper examines the supply chain concepts that weave the massive global operations of the Barilla group. Supply Chain at Barilla Supply chain management deals with the management of materials, information and financial flows in a network of suppliers, manufacturers, distributors and customers.(Lee,1999).This management runs the entire gamut of operations that involve getting ready the supplies and reaching them to consumers. Various layers of distribution and the logistic network assist vitally in the task of reaching the supplies to the consumers. However, it is important for the entire supply chain system to know as to when, how much of which product would be required in which particular outlet and market. The more extensive the supply chain network the more critical is this requirement. Barilla has a wide network and thus their requirement for gathering information and processing it meaningfully becomes more important. Barilla spa was the world's second largest pasta producer in 1990 It primarily produces 2 categories of products which are categorized as fresh and dry. Barilla accounted for about 35 percent of pasta sold in Italy and 22 percent of the pasta sold in Europe. Barilla mainly supplies the pasta to retail outlets such as small independent shops and supermarkets. In Barilla's supply chain Barilla's CDCs (centre distribution centre) and the production factory are located at places that exhibit maximum changes in demand patterns in the supply chain. The Barilla distribution layers include such outlets as GD(grand distributor, DO(organized distributor) and BD (i.e. Barilla-run Depots).These distribution layers receive orders from the supermarkets and shops, and, in turn, place consolidated orders to Barilla CDCs.Barilla CDC ,in turn, forwards the area consolidated figures to the Barilla factory. These distribution outlets serve the purpose of serving Barilla's overseas markets also. For instance Barilla products have a great demand in UK and most UK major supermarkets stock Barilla products through Barilla distribution outlets present in UK. In UK, retailers like Tesco and others generally depend on Barilla's third party distributors for its orders. In UK, Waissel's Ltd. is a major importer of Barilla's product. A long list of Barilla products are imported by Waissel's which includes Savouries, Biscuits & Cakes, Pasta Sauces and Pastas. The Barilla administration relies on computerized systems for its key functions including the supply management involving stock control. It has an excellent distribution service network throughout the UK. While it's administrative office is located in Harrow, its central warehouse is at Thamesmead, London for all of Waissel's worldwide incoming shipments as well as nationwide deliveries (Waissel's). However managing the information post transaction and on real time basis is quite different from forecasting information on a prudent basis .In order to make their supply chain management system more responsive and dynamic all distribution outlets comprised in the GDs, DOs and BDs must forecast the various supermarkets' and shops' demands as accurately as possible. However till recently Barilla was using rudimentary and basic periodic review inventory systems, which often resulted in inaccurate determination of the order quantities. Te main issue that lay central to Barilla forecasting problems was the fact that Barilla had limited access to information on customers' demand patterns and Barilla was basing its forecasts on the use orders placed by the supermarkets and shops. This exhibited wide variations when it came to actual supplies and resulted in stock delays and stock out positions. More critically nothing significant was done in this respect at the CDCs as well, which were now forced to carry more safety stock than their distributors ever required in order to maintain a higher level of capacity in anticipation of servicing distributors comfortably. These miscalculations brought about severe pressures on the linked Barilla factory which seesawed its production schedules between the two critical variables of the production lead-time and perish ability of product. Subsequently, down the supply chain, the orders lead time (weekly orders) as well as delivery lead time (average of 10 days) also got disturbed resulting in an almost significant and enhanced variability in Barilla's supply chain. When the Barilla management got to analyzing the pattern of customer's demand with that thrown up by estimating on distributors' orders they observed sharp differences. The company saw very wide fluctuations in the demand pattern of the distributors while the customer's response was much less sharp and unusual (Simchi-Levi, Kaminsky & E. Simchi-Levi, 1999).It was a bullwhip effect - a result of the structure of information flows and of communication in the supply chain-that was getting magnified. Lee (2001) states that, "Supply chain management has traditionally assumed that the demand pattern is exogenous. Hence, the demand for products or services is viewed as the key input to supply chain management. Demand is either a point forecast, or in more sophisticated settings, a forecast with mean and variance, based on statistical or other scientific methods. Many technology solutions exist to improve the accuracy of such forecasts and to use the characteristics of demand to drive the inventory, replenishment, production, and capacity plans of the enterprise". For an accurate demand forecasting system that collect and process information the quality and timeliness of the collected data become very critical. Processed data results in information and information provides the decision maker with the power to run the business more effectively and efficiently. Information is integral to supply chain management. However, as the information moves along the supply chain, it gets distorted Barilla SpA provides an example of the bullwhip effect and looks at implementation of a continuous replenishment program which they call Just-in-Time Distribution (JITD). Supply chain of Barilla SpA has been a case of study for the revolutionary changes it made in late eighties and early nineties of the last century. With UK being one of the major markets of Barilla's product, Barilla's action of reducing the distributor's control over the shipment quantity while taking the larger portion of the responsibility has now become an ever guiding policy of supply chain management. These steps were taken in order to reduce to minimize the bull whip effect and streamline the inventory control procedures so as to result in timely delivery of needed products at various outlets and markets. The first and the most important way to counter bullwhip effect is to follow just one forecast. Multiple demand forecast updates gives varying predictions and hence may lead to confusion (Nagi, 2005). The underlying demand data can be obtained though movement of actual data upstream. Operational efficiency with long re-supply lead times can help in reducing the undesired fluctuation in demand. Use of information technology tools helps immensely in that cost and processes of placing orders should get reduced to a minimum. Fast interchange of data can help in getting over any confusion that may get up in between the two stages (Nagi, 2005). The continuous interchange is of great use when there is a need of multiple discussion and problems in the process of supply chain. Stockpiling is normally observed when the manufacturer provides discounts on wholesale price. These practices should be made less frequent. Similarly, return policy should either be less generous or be eliminated so that the retailers will think not just twice but thrice before canceling any order (Nagi, 2005). Barilla did just the above corrections in its information flows in the supply chain management system. The improved system was called the Just in Time Delivery (JITD) system. In Barilla, JITD or "Just in Time Demand" brought great success and helped in getting over bullwhip effect. The same process was latter named VMI. The process proved to be beneficial for both retailers and suppliers. Retailers were the obvious beneficiaries. The process made the supplier to share greater responsibility in maintaining the product availability and reducing the quantity of safety stock. Large retailers like Tesco and Wal Mart have thousands of products at their shelf and thus have to tackle many suppliers like Barilla. With improved interface at Barilla their task of inventory management became easier The VMI will reduced their responsibility by a substantial margin. In addition, this freedom from inventory management concerns enabled the retailers to consider spending more efforts in marketing and sales rather than forecasting and purchasing activities. Take for instance Waissel. It is indulging in various rounds of forecasting and order creation for Barilla products, however, now it has to concentrate only on data and information. The supplier's interest in maintaining the product availability and preventing stock out situations cause increase in sales and customer's interest (Molane, 2001). Moreover Waissel's forecasting will be more accurate. With better retailer forecasts the overall quality of Barilla's data improves the visibility and results in overall better forecasting. The forecasting at the end supplier reduces the chance of making mistakes and hence will lead to the reduction of return or cancellation of order. The vendor doesn't wait for the order from retailer's side. They generally make projection on their own with retailer's data and hence maintain the sufficient stock in their warehouse. And most of the time, they are ready with the fresh stock thereby minimizing the lead time. The better service from the side of supplier encourages extended cooperation and partnership from the side of both retailer and vendor (Molane, 2001). On the raw materials side of the supply chain management; Barilla obtains its main ingredients of wheat and wheat flour through in-house production facilities located in its various mills. Barilla corporate website states, on the matter, as follows," Barilla operations are based on 27 production facilities including pasta factories, bakery plants and mills. The6 mills owned by Barilla provide approximately 70% of the semolina needed in the production cycle. The high quality of the Barilla pasta is based on a very easy but demanding idea: the direct management of the basic raw material, the durum wheat semolina, from the mill. Barilla owns 3 mills in Italy, one in Volos, Greece, one in Bolu, Turkey and one in the United States which is perfectly integrated into the adjacent production facility in Ames. The Galliate mill in Italy is designed to be used in the grinding of soft wheat, to obtain special flours used for bakery products. The mills in Celle, Germany and Filipstad, Sweden, commonly grind rye, principal ingredient of crisp-bread produced with the Wasa brand". (Operations, 2007) Thus major supply chain concerns at Barilla appear to be in reaching the final products to consumers all over the globe. Barilla has improved and fine tuned its systems and the reformed system has assumed the visibility of an industry best practice. References The Barilla Group.(2007). Retrieved on January ,2007 from http://www.barillagroup.com/thebarillagroup/index.htm. Lee,H.(1999). Stanford Supply Chain Forum website Simchi-Levi, D Kaminsky, P & Simchi-Levi, E. (1999). Strategic Partnering in Supply Chain Management. Retrieved on January 31, 2007 from http://virtual2002.tau.ac.il/users/www/17723/strat.ppt . Lee,H.(2001). Ultimate Enterprise Value Creation Using Demand-Based Management. Stanford Global Supply Chain Management Forum SGSCMF- W1-2001.September, 2001 Operations and Production.(2007). Retrieved on January 31 ,2007 from http://www.barillagroup.com/Operationsand production/index.htm. Nagi, R (2005). Production Planning and Control Supply Chain Management Retrieved on January 31 ,2007 from http://www.acsu.buffalo.edu/%7Enagi/courses/505/ch6.pdf Malone, R. (2001). VMI: Managing Supply Based on Demand. Retrieved on January 31,2007 from http://www.inboundlogistics.com/articles/supplychain/sct1001.shtml Read More