Barilla SpA (A) Group 8: Chengjiao Gan, Kenneth Chua, Weishu Mo, Yuchen Cheng

Q1) What are the underlying problems that the JITD program is supposed to solve? What causes them? What are the potential program benefits? Problems JITD will help to solve JITD was created to solve the underlying problem of the effects of fluctuating demand (Bullwhip Effect), resulting in instances of stock-out that have strained Barillas manufacturing and logistics operations. Causes of the underlying problem The causes of demand fluctuations are transportation discounts, volume discount, promotional activities, and no minimum or maximum order quantities. These four factors directly affect the price customer offers, customers pay lower prices when these discounts happen, so this will cause demand fluctuation. Another factor that has resulted in demand fluctuations is the proliferation of products. Product proliferation occurs when organizations market many variations of the same products. This allows the firm to diversify as it is able to capture a bigger portion of the market by catering to different market segments. However, it can also be considered that marketing so many new products leads to economic resources being wasted; the customer becomes confused and mistakes are made in the purchase of products. Additionally, it is well known from inventory theory that the delivery lead time of a supplier affects the inventory and order decisions of its customer. Generally, a higher average lead time as well as higher lead time variability of a supplier would cause its customer to stock a higher level of inventory. Therefore, the delivery time performance of a supplier would affect the order quantities of its customers, while the customer order quantities would in turn determine the delivery time performance of the firm. Other factors that could contribute to demand fluctuations include infrequent update of demand forecast and poor communication with customers. Potential program benefits Barilla can make better delivery decisions and improve its demand forecasts, be more effectively meet end-consumers need and more evenly distribute the workload on its manufacturing and logistics systems. The inventories of Distribution Centers (customers) could be reduced.
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Also, the JITD system working with the following innovative techniques brings extra benefits. Collaborative Planning: Barilla and the distributors can work as a team and plan on different issues to smoothen out the creases in the supply chain. Demand Management: Barilla should not only forecast demand but also should try to shape and influence it. This can be done using market surveys to determine the needs and expectations of the consumers and designing products to satisfy them. Forecasting would become much easier and reliable if the demand can be managed and if techniques were put in place to reduce uncertainty. Aggregate Demand: As Barilla is going to decide order quantities for all distributors, it can aggregate the demand and thus ensure better forecasts and reduced costs. This is due to the fact that even if some of the distributors demand more than what was forecasted, the slack in demand from others would offset this increase.

Q2) What are the objections to the JITD program within Barilla? As Giorgio Maggiali, how would you deal with them? What are the objections to the JITD program within Barilla? Resistance from the Distributors: Managing stock is my job; I dont need you to see my warehouse or my figures. I could improve my inventory and service level myself if you would deliver my orders more quickly; I would place my order and you would deliver within 36 hours. We would be giving Barilla the power to push products into our warehouse just so that Barilla can reduce its costs. Resistance from Sales and Marketing: Our sales levels would flatten if we put this program in place. How can we get the trade to push Barilla product to retailers if we dont offer some sort of incentive? If space is freed up in our distributors warehousesthe distributors would then push our competitors product more than ours. the distribution organization is not yet ready to handle such a sophisticated relationship. Overcoming Internal Resistance Before trying to convince the distributors, Giorgio Maggiali has to convince everyone at Barilla that the JITD system will be a success. If everyone within the company is convinced and they provide a single front to the distributors, Barilla has a better
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chance of convincing the distributors. Some of the steps that have to take in this regard are: a) Convince and use the senior management: if they are convinced of its feasibility, they will offer full support in trying to convince the Sales department. It will make a lot of difference if the senior management talks to the Sales people than if just their Logistics peers talk to them. b) Involve the Sales Department in all stages: to make the sales people feel important and wanted, involve them in all stages of the JITD proposal. They should be made to feel that they would have lots to do even after the system comes into effect. c) New Compensation System: the Sales department should be informed that they would still be rewarded for good performance, except that in this case it was the performance of the entire company as a whole and not just they individually. The new system would award a percentage of Barillas profits to the employees as a bonus. They should be shown that the reduction in costs that would be brought about by the JITD system would ensure greater margins for the company and that would then be passed on to the employees.

Q3) If you are a customer of Barilla, what would be your response to JITD? Given that JITD is a new concept, a customer of Barilla, particularly distributors, would naturally be cautious about a program that they are not familiar with. For starters, to enable information flow throughout the supply network, substantial funds must be invested into electronic data interchange systems. This might give distributors the impression that they need to invest in costly systems to help solve Barillas problems. Second, the corollary to participating in the JITD program is that Barilla would gain access of customers information, such as inventory flow. This would, however, eliminate the need for promotions, which used to take place every 4 or 5 weeks. As customers might feel shortchanged that they can no longer enjoy lower prices, steps must be taken by Barilla to mitigate their concerns. Third, customer made remarks such as we would be giving Barilla the power to push product into our warehouse just so Barilla can reduce its costs. Clearly, customers were wary of Barillas true intentions. As such, the customers might not wish to share information because they were afraid that this would vest Barilla too much power over their processes, and most importantly that Barilla would not manage inventory as well as they are doing presently. This is not ideal as information exchange needs to be free-flowing in order for JITD to work. Fourth, customers would always want manufacturers to produce more so that the former will always be able to meet spikes in demand and avoid stock-outs, thereby
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raising profitability. Hence, customers would never want to tell the manufacturers their real demand and sales data in the absence of additional incentives.

Q4) Do you believe that JITD would work for Barilla? If so, which customers would you target? How would you convince them to try the program? If they dont agree, what alternatives would you suggest that might alleviate some of the problems that Barilla faces? JITD a solution for Barilla The primary driver to Barillas present problems is the Bullwhip effect, which is characterized by uncertainty, high variability in demand, long lead times in the ordering of goods, and fragmented relationship with downstream customers. JITD could help to mitigate the Bullwhip effect and bring about benefits, which have been discussed in Q1. Customers that Barilla should target The customers that Barilla should target are the distributors, who are their current customers. However, the distributors are very reluctant for several reasons. First, the essence of the change of the distribution system is as Vitali put it, Both manufacturers and retailers are suffering from thinning margins; we must find a way to take costs out of our distribution channel without compromising service. So JITD will essentially hurt distributors profit. As explained in Q3, the more manufacturers produce, the more profit downstream distributors get. In order to compel manufacturers to produce more, distributors will never want to provide the exact sales information to Barilla. Nevertheless, as distributors are Barillas current customers and that they have a deep relationship with supermarkets and other important retailers, they should be our main target. At the same time, we could also consider cooperating directly with retailers, such as large supermarket chains. How would you convince them to try the program? In terms of distributors, we could try to convince them by the following ways: a) Share the benefit of JITD with them. Barilla can make some profit sharing contracts with distributors. With every extra profit Barilla gets from JITD, Barilla should share a certain percentage with the certain distributor who share sales and demand information. If the distributors can make more money in this way, they could give it a shot. b) Address trust Issues: This is one of the major issues between Barilla and its distributors. Giorgio can work out some confidence building measures which would prove to the distributors that Barilla was worth trusting. Some of the
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measures are: Barilla can make a transparent policy and share its plans with the distributors. Instead of sending the Logistics personnel to talk to the distributors, Barilla should send the Upper Management. This would make the distributors feel important and would help in convincing them better. Barilla should initiate joint decision-making and planning with its distributors to show respect and want them to be involved in the process.

As for supermarket chains, cooperation with Barilla can bring them benefits by eliminating the cost of distribution and increase the margin of their own. So probably it would be easier for Barilla to collect the on-time demand and sales information of the retailers and establish the JITD directly with them. Then, Barilla could enlarge its Barilla-Run Depots and build more distribution channels, and probably integrate distribution channels in the future. Alternatives to the problems that Barilla faces, if customers dont agree a) Make experiment and example. If the customers cannot believe Barillas plan can bring benefit to them, Barilla could consider find one customer who wants to try and show to the others the advantages they can get. b) Introduce competition to distributors. Currently there are only two major distributors linking Barilla and the retailers. They have too much monopoly power. So one way to eliminate their power is to introduce competitors. For example, Barilla can support another small distributor and help it to grab more business from the current two. c) Vertical Integration. Another way to eliminate the control of distributors and improve the overall margin of the supply chain is to buy retailers. Then Barilla can control the supply and demand of the two links on the chain. This will largely benefit Barilla. d) Reduce demand uncertainty. a. 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. If implemented and successful, this idea would result in saving for Barilla in its export supply chain. b. Reduce SKUs: Currently, Barillas 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.

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