Supply Chain of Barilla Spa - Case Study Example

Barilla in UK Barilla SpA is an Italian Company and is very famous for its pasta. It is in the business of for more than 125 years. This Italian manufacturer is very much dependent on its distributors for the supply of its product to its retailers (Barilla). 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 Brailla's product. Looking into the list of product which Waissel's import from Barilla are Savouries, Biscuits & Cakes, Pasta Sauces and Pastas. The 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 (Waissl's). Supply Chain Management 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. The supply chain in Barilla requires the involvement of many third-party distributors. They are the major link between Barilla and the retailers who were the actual person getting customer's interest and their feedback. The Barilla management analyzing the pattern of customer's demand and that of distributors has 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). In the world where globalization as a matter of discussion is making rounds of talk and competitors are from all over the world, it's the supply chain management that is greatly used as management tool to win over competition in retail sector. Supply chain design for a particular product is different than that of others. So, supply chain for supplying or delivering pasta is different from supply chain for fashion jewelry or apparels. Supply chain design for producing and delivering pasta deals with productivity and efficiency. Waissel's being UK's leading importer receives all its inbound shipment from all over the world in its central ware house located at Thamesmead, London. The Wiassel's now uses its nationwide supply network to provide products to retailers. The products of Barilla are also delivered to retailers like Tesco in the same manner. Waissel's has the responsibility that after receiving the order from the retailer, it has to deliver the product directly to the retail store or to its ware house. The long distribution channel with distributor's importing shipments in their warehouse and then using their network of logistical support to supply the product to retailers are basically forecast-driven. The reason behind this much forecasting is the rarity often seen in the stability factor of customer's demand. Forecast is very important because it is the only way to manage a balance in positioning the inventory and other resources. But this forecasting is still not more than a mathematically calculated data so it has its own limitations and most of the time it deviates from actual outcomes (Nagi, 2005). The forecasting errors are normally covered through buffer or safety stock. The supply chain from the simple end-user to raw material provider and producer are all because of being a part of the complete set of supply chain normally see greater variation in demand and hence the safety stock. The actual effect is visible when the lower end supply chain participant increases and decreases its order to higher one according to the orders from the participant lower to it. This causes Bullwhip effect. The effect can be understood by the amplification seen in the quantity demanded by each of the participant while moving upstream in the supply chain. Other reason behind this Bullwhip effect is the separate ownership of different stages of the Supply Chain. The separate ownership is also the main reason behind the amplification of profit at each of the stages. This step wise amplification results in decrease in overall profitability of the complete supply chain. Technically speaking the main reason behind this Bullwhip effect is none other than the lack of proper information system as well as channel between what's going at the customer's end and what's at the manufacturer's end (Nagi, 2005). Bullwhip effect: the major cause & possible solution Though the Bullwhip is the outcome of forecasting method but the complete analysis led to the identification of four major causes: Demand forecast updating in which demand from each of the participant tend to place its demand according to the forecast at its level, order batching which is actually caused due to the effort by the person involved in placing order with an intention to reduce ordering cost and taking advantage of transportation economics, price fluctuation due to profit amplification at each of the stage of supply chain depending on demand and supply, and rationing and shortage gaming which generally get observed when the order made during short supply is more than what is actually needed (Lee, Padmanabhan & Whang, 1997). Though no matter how much precaution the company and the elements of supply chain take, Bullwhip effect can't be reduced to zero level. 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 demand data can be obtained though movement of actual data upstream. Operational efficiency with long resupply lead times can help in reducing the undesired fluctuation in demand. Use of information technology tools so 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). JITD and VMI as Supply Chain Solution Vendor Managed Inventory or VMI has now become an ultimate need in retail business processes (Kumar & Kumar, 2003). Heavy competition and consumer awareness have made retail business very tough. The supply chain management has now become a need and retailers are implementing every process that will reduce their costs, reduce inventory levels and increase profits. Efficiency in supply chain management is very much dependent on rapid and accurate transfer of information throughout a supply system. The purpose of VMI is to facilitate that information transfer and providing saving benefits both in terms of time and cost to suppliers or manufacturers as well as retailers customers (Molane, 2001). Vendor Managed Inventory enabled information system helps the retailer in supplying the vendor with all the necessary information so that it has enough resources to meet customer demand. This enables the supplier to make better projections and in anticipating the amount of product the inventory has to be put into effect for the purpose of production or to supply. 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 are the obvious beneficiary. The process made the supplier to share greater responsibility in maintaining the product availability and reducing the quantity of safety stock. Now retailers like Tesco and Wal Mart have thousands of products at their shelf and thus have to tackle as many suppliers. The VMI will reduce their responsibility by great deal. Apart from this, the retailer will now consider of spending more of its effort in marketing and sales rather than forecasting and purchasing activities. With Waissel's doing rounds of forecasting and order creation for Barilla products, the retailer 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). At Waissel's end, accurate forecasting will now be easier. Greater access to retailer's data improves the visibility and results in 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). Limitations of VMI and possible solutions The VMI approach of solving supply chain problems has its own limitations. A supplier cannot expect all of its retailers to come under VMI program. In that case, irrespective of need or any other case, the companies have to give priority to those who are the part of VMI program (Kumar & Kumar, 2003). So this sometimes causes straining of the relationships which has been cultivated after years of efforts. System integration again plays an important role and both overwhelming and lack of it may result in incomplete visibility. But the most important of all is the existence of trust. This system is of any use only in case of faith and honesty not only from the side of supplier but also from the retailers (Kumar & Kumar, 2003). The limitations of VMI can be overcome with some effective implementations. VMI should be introduced with some incentive programs with giving emphasis to partnership programs. Proper training sessions are a must and any future modification in the system must be followed with a full fledged training program (Kumar & Kumar, 2003). Stronger partnerships with the management of the retail units should be the focus point while stressing the need of effective communication and active sharing of information. Finally, the VMI should have encouraging effect and must be implemented with taking all the retailers in confidence with assuring them to have solutions for exceptions (Kumar & Kumar, 2003). References Malone, R (2001) VMI: Managing Supply Based on Demand http://www.inboundlogistics.com/articles/supplychain/sct1001.shtml Simchi-Levi, D Kaminsky, P & Simchi-Levi, E. (1999) Strategic Partnering in Supply Chain Management, Retrieved from http://virtual2002.tau.ac.il/users/www/17723/strat.ppt Kumar, P & Kumar, M (2003), Vendor Managed Inventory in Retail Industry, Tata Consultancy Services. Waissel's Ltd, http://www.waissels.com/about_us/index.htm Barilla Ltd, http://www.barillaus.com Lee, H. L., Padmanabhan, P & Whang, S. (1997) Operations Management and research, Spring http://sloanreview.mit.edu/smr/issue/1997/spring/7/ Nagi, R (2005). Production Planning and Control Supply Chain Management http://www.acsu.buffalo.edu/%7Enagi/courses/505/ch6.pdf Read More