Barilla SpA Case Analysis
Group 5
Ankit Kumar-2016IPM015
Stephen Haokip 2019PGP542
Ipsita Manna 2019PGP179
Simran Rigzin 2019PGP405
Prabhat Shetty 2019PGP381
Tanmaya Jindal 2019PGP490
Overview-
Barilla, a vertically integrated large manufacturer of pasta, is facing a Bullwhip effect of
fluctuations in demand. As a result the distributors have to face low service level, frequent stock
out, higher inventory level. To avoid the Bullwhip effect caused by weekly demand fluctuation,
Barilla wants to implement Just in Time Distribution (JITD) by collecting data on what Barilla
products the distributors had shipped to the retailers the previous day. Implementation of JITD
would require an improved demand forecasting system as well as getting the distributors to
agree on sharing the relevant information.
Company Background-
Barilla is a large, family-owned pasta company functioning in Italy founded by Pietro Barilla in
1875. It is the world’s largest pasta producer with a 35% market share in Italy and a 22 %
market share in Europe. They deal in 2 product categories- 75% Dry and 25% Fresh. In addition
to pasta, it also manufactures cookies, sauces, biscuits, bread etc., holding a 29% market share
in Italian bakery products market.
There was a lack of customer demand information which resulted in buffer stocks at each level,
which in turn led to higher levels of inventory to meet the desired cycle service level. There was
a lot of variability in demand leading to higher cost in manufacturing. Barilla had 7 divisions-
1. Traditional pasta and sauces
2. Voiello (high priced segment of semolina pasta market)
3. Braibanti (high quality Parmesan pasta made of eggs and semolina)
4. Bakery products
5. Fresh Bread
6. Catering (croissants and cakes)
7. Barilla International
Industry Background-
Even though the origin of pasta is unknown, Barilla had advertised pasta as a delicacy of
Italians since time immemorial. With a per capita consumption of pasta being 18Kg/year, the
Italian market for pasta was estimated to be 3.5trillion lire. The Italian pasta market was
relatively flat, growing at 1% per year. The pasta exports from Italy to other European countries
were expected to grow at 20-25%
Plant Network-
Barilla maintained a vertically integrated corporation with flour mills, pasta plants, and bakery-
product factories located throughout Italy. Throughout the 25 plants across Italy, Barilla
maintained high quality of its products by each plant manufacturing its own specialized type of
pasta. Raw ingredients were transformed into packaged pasta on fully-automated 120-meter-
production lines.Barilla’s largest plant in Pedrignano, the most technologically advanced plant
with state-of-art R&D facilities, had 11 lines which produced 9000 quintals of pasta each day.
Channels of Distribution-
Barilla had a very complex distribution system. Distributors such as Grand distributor (GD),
organized distributor (DO) and Barilla-run Depots (BD) received orders from the supermarkets
and shops. They then placed orders to Barilla CDCs (Central Distribution Centers) who then
forwarded the production orders to the factory.
The warehouse of the distributor held 2 weeks of Barilla products in inventory. Inventory was
reviewed periodically at each level of the supply chain and orders were placed accordingly.
Distribution- Barilla divided its product line into two categories
1) Dry products (75%): Longer shelf life i.e. 18-24 months e.g.: Pasta and dried toasts.
Medium shelf life i.e. 10-12 weeks e.g.: cookies
● 800 different packaged SKU.
E.g.: pasta had 200 different shapes and over 470 SKU
2) Fresh Products: fresh pasta products which had 21 days shelf life and fresh breads
which had one day shelf life.
3) They had two central distribution centers (CDCs)
● Fresh products were move quickly in the system and only 3 days’ worth of fresh
product inventory was held
● They were purchased by 3rd party agencies (concessionari) who then channeled
the products through 70 regional warehouses.
● ⅔ of its dry products were destined for supermarkets.
● JITD focused solely on dry products sold through distributor
● Barillas products were distributed through three types of retail outlets;
Independent grocers, supermarket chains and independent supermarkets.
Sales and Marketing-
Barilla relied mainly on promotions and advertising and was positioned as a high quality brand
1. Promotion
● Relied on discounting in the canvas periods- 10 to 12 in a year
● The distributor could buy to meet both current and future periods at the provided
discount
● They also provided volume discounts
2. Sales Representatives main aim was to maximize sales during the canvass period and
used more DO’s than GD’s
● Setting up In-store promotion
● Making a note of competitor’s new launches, price change stockout etc. and
making necessary changes
3. Barilla SpA also bore the transportation cost and provided incentives of around 2% to
3% to Distributors if they ordered full truck loads.
4. If the distributors placed at least 3 truckloads of order, the sales representative gave
them a further discount of about 1000 Lira per carton
Problem faced by the Company
The Barilla supply chain suffered from high demand fluctuation, a phenomenon known as the
bull-whip effect. Some other problems were:
● There was a pressure to manufacturing in terms of production lead-time and perishability
of the products
● There was high Inventory Carrying Cost and also frequent stock outs that resulted in
backorders
● Unacceptable Cycle Service Levels
● Distributors were unable to carry a large number of SKUs
The Bull-whip effect:
Bull-whip effect is amplified variation in demand as one moves up the Supply Chain. It results in
either high inventory pile up or complete stock outs. The main causes for the bull-whip effect is
as follows:
● Inaccurate Demand Forecast
● The ordering batch size
● Lead times are long
● There is a lot of fluctuation in price (here due to promotional sales offered by Barilla)
● Inflated orders when there is high estimation of orders
Decisions taken to reduce Demand fluctuation and reduce Bull-whip effect
1. Uncertainty was mainly due to information asymmetry. So reduce uncertainty and Lead
time through sharing and centralizing information
2. Decision to go with JITD (Just-In-Time Distribution)- a vendor managed Inventory
concept
3. The main basis shifted from distributor order to focus on customer demand
4. The distributor was to provide data on the shipment and current stock levels for each
Barilla SKU
5. The Decision-making authority to determine shipments will be primarily with Barilla
Resistance faced by Barilla against JITD
Like any other change, JITD too faced resistance due to the following reasons:
Internal resistance:
● Sales Rep feared that their responsibilities would reduce and they would in turn lose
their jobs
● Sales levels would flatten
● Since shipment adjustment decisions was with Barilla, there would be a risk of inability to
adjust shipments quickly should there be a stock out
● There was a lack of infrastructure to support JITD
● Competitor shelf space at distributor would increase
● As distributors would lose their incentive to order, running trade promotions would not be
possible
External resistance:
● The distributors were unwilling to share warehouse data
● The distributors perceived this change as the power transfer to Barilla
● There was a lack of trust in Barilla to manage their inventory
Recommendations- What could Barilla do to tackle this resistance?
Internal resistance:
1. Get upper management on board which would make it easier to convince the sales
department
2. Sales staff should be involved in all stages and reassured that their jobs are secured
3. Focus incentive more on the overall profit of the company instead of just individual sales
4. The shelf space that is freed could be used by introducing more products
5. Trade promotions could be replaced by everyday low pricing so that distributors still turn
to Barilla
External resistance:
1. Show the distributors that they can earn higher profits with reduced costs
2. Barilla could be more transparent with the distributors in terms of sharing information
and plans to build trust
3. Initiate joint decision-making and keep distributors involved and offer them better
incentives under the new system to make them feel involved and less worried about
Barilla having all the power.
4. Betterment of demand forecasting system so that stock outs can be reduced after
implementation of JITD
