An Illustration

• P&G, the maker of Puffs tissues, traditionally sells these

tissues for $9.40 per case
– where a case contains 8 boxes
• A retailer’s average weekly demand is 25 cases of
particular Puffs SKU (color, scent etc.)
• P& G has decided to change its pricing strategy by offering
two different plans
• With one plan, the retailer can purchase that SKU for the
every-day-low-wholesale price of $9.25 per case
• With the other plan, P&G charges the regular price of
$9.40 per case throughout most of the year
– but purchases made for a single delivery at the start of each quarter
are given a 5% discount
• The retailer receives weekly shipments with a 1-week lead
time between ordering and delivery
 Illustration Continues …
• Suppose with either plan the retailer manages inventory
– so that at the end of each week there is on an average a 1-week
supply of inventory remaining
• Holding costs are incurred at the rate of 0.4% of the value
of inventory at the end of each week
• Assume 52 weeks per year
• Questions?
– Suppose the retailer chose the 1st plan ($9.25 per case throughout
the year). What is the retailer’s expected annual purchasing and
inventory holding cost?
– Suppose the retailer chooses the 2nd plan and only buys at the
discount price ($9.40 is the regular price and a 5% discount for
delivery at the start of each quarter). What is the retailer’s expected
annual purchasing and inventory holding cost?
– Consider the 1st plan and propose a new everyday-low wholesale
price. Call this the 3rd plan. Design your plan so that both P&G and
the retailer prefer it relative to the 2nd plan.
Barilla SpA

Rohit Kapoor
 Case Background
• Barilla SpA
– pasta producer
 Observation Question
• Is the Bullwhip effect present in Barilla?
– Exhibit 12 & 13
 Causes
• What are the causes of Bullwhip effect
here?
– Order Synchornization?
– Order Batching?
– Reaction & overreaction?
– Shortage Gaming?
 Order Batching
• Transportation discounts
 Trade Promotions
• ?
 Internal Factors
• Sales compensation
• Poor integration
 Sales People Concerns
• “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 don’t offer some sort of incentive”
 Finally
• Suppose one wants to implement JITD!
A Numerical Illustration
Number of Days until
SKU Days of the next scheduled
Number Stock replenishment
1 0 2
2 1 2
3 2 2
4 3 1
5 3.5 2
6 1.6 2