Barilla SpA

Case Analysis

Marketing II

Sec D Group 9 Name AGARWAL ROHAN RAJENDRA ANJEL JOSEPH ISHANSH NIRANJAN KAMBLE SANDEEP MARUTI MOHIT SHITAL RAJARSHI BISWAS Roll Number 2012PGP016 2012PGP043 2012PGP140 2012PGP151 2012PGP207 2012PGP291

Problem at hand:
A new idea Just-in-time Distribution (JITD), a vendor managed inventory concept, has been suggested by Brando Vitali in order to effectively meet consumers end needs and also make the production planning and logistics systems more efficient. Maggiali, Director of logistics, has tried to implement the idea for two years but it has not worked yet. The challenge is to convince the Sales representatives and the Distributors to adapt to this model for everyones benefit along with dealing with the internal and external resistance.

Channel Distribution for Dry products (cookies, biscuits, flour, bread sticks, and dry toasts):

35%

Barilla Plants

65%

Barilla CDCs 90% Northern/Southern

1 months Inventory

10% 70% 30%

Grande Distribuzione

Distribuzione Organizzata

Barilla-Run depots (18)

2 weeks Inventory

2 weeks Inventory Chain Supermarkets Independent Supermarkets Signora Maria Shops (small independent grocers)

Handling Internal Resistance: Argument by Sales Representatives

JITD will lead to delay in responding to quick changes in selling patterns or increased promotions

Counter Argument
Since JITD will enable to forecast the demand from the end-user level to the distributor level, the company can predict the demand levels more precisely. Also it will help the distributors to effectively manage their inventories in instances of trade promotions Although it will take some time for the entire distribution chain to align with the JITD, but once they realize the benefits of JITD in terms of better inventory management, quick response to demand, and improved margins, they would like to continue with JITD Since Barilla is offering an additional service at no extra cost, this will improve the relationship between Barilla and its distributors which will improve Barillas visibility with the trade and make distributors more dependent on them. This will enable Barilla to extract more information regarding the supply at the distributors warehouses that would permit Barilla to improve their own planning procedures Implementing JITD will streamline the entire distribution channel which will reduce Barillas manufacturing and inventory management cost, which will enable Barilla to pass the extra margin to distributors which in turn will incentivize the distributor to provide trade promotions to push the product to retailers

Distribution organization is not yet ready to handle a sophisticated relationship that the JITD would demand

Risk of giving our competitors more of the distributor shelf space

JITD will hamper trade promotions by inhibiting the incentives to distributors to push Barillas product to retailers

Handling External Resistance: Argument by Distributors

Distributor argued that they can improve their inventory and service levels on their own in Barilla delivered the order in short time span instead of pushing JITD

Counter Argument
Widely varying demand for Barillas dry product strained their manufacturing and logistics operation which made it difficult for them to match unexpectedly high demand. Additionally, holding high inventory to match demand fluctuations was extremely expensive which they had to further pass on to the distributors which would reduce the distributors margins JITD will fill the gap between fluctuating demand and supply which will not only help Barilla to manage their costs but also lead to backward streamlining of entire supply chain giving distributors the advantage of decreasing their inventories and improving their fill rates to their stores reducing stock-outs.

JITD will give Barilla the power to push its products into distributors warehouses

Advantages/Disadvantages of going ahead with JITD: Advantages For Barilla:

Lower strain on manufacturing and logistics operations Distributors will be able to stock more SKUs of Barilla Barilla can aim for higher margins They can take costs out of their distribution channels Distributors will become more dependent on Barilla Improve the planning procedures JITD will help Barilla minimize the Bullwhip Effect Sales representatives would feel that their responsibilities would be diminished It runs the risk of giving the competitors more shelf space Disruption in the supply process would increase the risk of customer stock out The current trade promotions would not be applicable with JITD The manufacturing process might not be able to handle the JITD mechanism

Disadvantages

For Distributors:
No need to carry additional inventory Distributors might not be comfortable sharing the ordering process

Increase margins for the distributors Demand forecasting service will be provided free of cost

Distribution Organisation may not be able to handle such a sophisticated relationship Distributors will be overly dependent on Barilla for their orders

Suggestions:
Modifying the current responsibilities on the sales representatives so that : They can be an integral part of JITD and contribute by collecting the data required for forecasting They can be motivated and reassured that their responsibilities are not diluted Focus on implementing JITD on SKUs coming from a particular plant facility. Advantages of doing this are : The distributors need not fully give up on ordering from Barilla and hence their responsibilities are not threatened Gives Barilla a chance to show the distributors the benefits of implementing JITD Barilla can better understand how to change their manufacturing procedure to suit JITD It will be easier to get the distributors to share information regarding a few SKUs rather than all the SKUs Improving the Sales Compensation Systems to be more in line with JITD Prove the credibility of JITD by implementing it with smaller retail shops that is run by Barilla Run Depots. This will be a good place to start since the distributor is a part of the firm and hence does not need much convincing Include a neutral third party (like a consultant) who will be in a better position to explain to the distributors the advantages of using JITD