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Binus Business School,

MM Executive Batch 20

Presented by Group I

Alexander Christian

Dina Sandri Fani

Jenna Widyawati

Ridwan Martawidjaja

Case Study AnalysisBarilla SpA

Table of Contents

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Introductions

Barilla’s Issues

Detailed Analysis

About Barilla

Recommendations

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2

3

4

5

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Table of Contents

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Introductions

Barilla’s Issues

Detailed Analysis

About Barilla

Recommendations

1

2

3

4

5

Cas

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Barilla in Years

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• 1875 Founded by Pietro Barilla in Parma, Italy

• 1940s Run by Pietro & Gianni. Differentiated with a

high quality product supported by innovative

marketing programs

• 1968 Constructed a 1.25 mio sqm pasta plant in

Pedrignano

• 1971 Acquired by W.R. Grace, Inc.

• 1979 Grace sold the company back to Pietro Barilla

as failed to make its acquisition pay-off

• 1980s Successful return of the company. Enjoyed an

annual growth rate of over 21% (came from

both organic, i.e. existing business expansions

and non-organic, i.e. acquisition of new, related

business)

• 1990 Largest pasta manufacturer in the world with

35% of market share in Italy & 22% market

share in Europe

Barilla’s footprint in the pasta manufacturer industry in ItalyProven to be the world’s largest pasta manufacturer

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• Successful return of the company. Enjoyed an annual growth rate of over 21%

• Organic growth: expansion of existing business

• Non-organic growth: acquisition of new, related business

15 47

344456

609728

1,034 1,204

1,381

1,634 1,775

2,068

2,390

1960 1970 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Barilla Sales, 1960 - 1990in Lirre, Billions

Barilla’s footprint in the pasta manufacturer industry in ItalyHad 25 plant locations in total in 1989

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Map

Key

Plant

Location

Products

1 Braibanti Pasta

2 Cagliari Pasta

3 Foggia Pasta

4 Matera Pasta

5 Pedrignano Pasta, noodles, biscuits

6 Viale Barilla Tortellini, noodles, fresh

pasta

7 Caserta Pasta, rusks, breadsticks

8 Grissin Bon Breadsticks

9 Rubbiano Rusks, breadsticks

10 Milano Panettone, cakes,

croissants

11 Pomezia Croissants

12 Mantova Biscuits, cakes

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Map

Key

Plant

Location

Products

13 Melvi Snacks

14 Ascoli Snacks, sliced loafs

15 Rodolfi Sauces

16 Altamura Flour mill

17 Castelplanio Flour mill

18 Ferrara Flour mill

19 Matera Flour mill

20 Termoli Flour mill

21 Milano Fresh bread

22 Milano Fresh bread

23 Altopascio Fresh bread

24 Padova Fresh bread

25 Torino Fresh bread

Barilla’s footprint in the pasta manufacturer industry in ItalyHad 25 plant locations in total in 1989

Industry’s Background

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Origins of pasta is unknown

Originated from China and first brought to Italy by Marco Polo

Others claim that pasta’s origins were rooted in Italy

Pasta consumption

Nearly 18 kilos of pasta per year per capita consumption in Italy

Limited seasonality in pasta demand

Industry’s Growth

Flat growth of less than 1% p.a. with an estimated of 3.5 billion lire

Growing segment in semolina & fresh pasta

Export market rise as much as 20-25% per year.

Eastern Europe as an excellent export opportunity

Table of Contents

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Introductions

Barilla’s Issues

Detailed Analysis

About Barilla

Recommendations

1

2

3

4

5

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Barilla’s Business Model

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Customer Segments

Domestic Italy and International Mass Market through distributors, supermarkets, and small shops

Customer Relationships

Personal assistance to DOs by sales representatives

Semi self-service to GDs

Value Proposition

Offer highest quality and most sophisticated pasta, bread and biscuit

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Barilla’s Business Model

Key Resources

Physical asset in the form of pasta and bread factory, mill and warehouses

Key Activities

Produce pasta, bread and biscuits

Advertising campaign

Distribution and supply stock management

Key Partners

Wheat suppliers

Distributors

Advertising agency

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Barilla’s Business Model

Channels

Marketing through media utilizing high profile and well known athletes and celebrities

Supply and distribute products through distributors and direct to stores

Cost structure

Labor cost

Raw material cost

Manufacturing cost

Advertising cost

Warehousing and stock management cost

Revenue Streams

Profit from product sales

Barilla’s Manufacturing ProcessDetailed manufacturing process: from raw ingredients to packaged pasta

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Input

Process

Output

Flour Water

Eggs Spinach

Core Ingredients

Additional Ingredients

1 Mixing ingredients 1 Dough

2Rolling dough

Enabler: pairs of roller2

Long, thin

continuous sheet

3 Extruding

Enabler: bronze die

screen

3 Distinct pasta

shape

4 Cutting

Enabler: cutting machine4 Specified length

of pasta

5 Drying, weighing, &

packing

Enabler: long tunnel kiln

5 High quality

pasta products

Barilla’s Manufacturing ProcessSpecialized by the type of pasta produced in the plant

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Pasta

’s m

anufa

ctu

ring p

lant

Composition of the pasta

Made with or without eggs or spinach

Dry or fresh pasta

Size & shape of the pasta

Short: macaroni or fusilli

Long: spaghetti or capellini

Barilla’s Product LinesRanging from fresh products and dry products

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Pasta: 21-day shelf lives

Bread: 1-day shelf life

Fresh products Dry products

Represented 75% of Barilla’s sales

Offered in 899 different packaged SKUs

Dry pasta

• 200 different

shapes & sizes

• Offered in > 470

different

packaged SKUsLonger shelf-life

bakery

Either made in the Northern CDC in Pedrignano or Southern CDC in Naple

Barilla’s Channel DistributionsDifferent channel distributions depending on product type

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Fresh products

Purchased from the two CDCs by

independent agents (concessionari)

Channeled through 70 regional

warehouses

Inventory days of 3-day in each

warehouse

Dry products

Purchased by distributors

Shipped the products mostly to

supermarkets (75%)

Remainder was distributed through 18

small Barilla-owned warehouses,

mostly to small shops

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Barilla’s Channel DistributionsBarilla’s products offered in 100 thousands retail outlets that consist of 3 type of outlets

Small independent

shops

35% of dry products

2 weeks of inventory

at the store level

Supermarket chains

70% of 65% of dry

products

10-12 days of inventory

Carried a total of 4,800

dry-product SKUs

Carry the product in only

one packaging option

Independent

supermarkets

30% out of 65% of dry

products

Barilla Supply Chain Process

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Dry

products

CDC

warehouse

GDs

DOs

Filled supermarkets’

order out2-week supply in

inventory

Ship the order24-48 hours after the

receipt of the orders

Order received at

the stores

Supermarket chain

Independent

supermarket

Centralized buyer for

a large number of

independent

supermarkets

Regional operations.

The retailers they

served usually

sourced product from

only a single DO

Barilla Sales & Marketing Model

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Advertising

Positioned Barilla as the highest

quality, most sophisticated pasta

product available

Modern, sophisticated settings in

major Italian cities instead traditional

Italian folklore

Use well-known athletes & celebrities

for a talent

Trade Promotions

10 or 12 canvass period with 4-5

weeks in length, each corresponding

to a promotional program

Discount offering for distributor:

attracting distributor to buy the product

as much as desired

Offered volume discounts, e.g.

incentives of 2-3% for FTL orders

Incentives for Barilla sales

representatives

Barilla Distribution

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Once a week placing order

behavior

Average lead time of

shipping: 10 calendar days

Distributors’ sales volume

varied: mostly used simple

periodic-review inventory

systems

Few had forecasting systems

or sophisticated analytical

tools for determining order

quantities

Table of Contents

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Introductions

Barilla’s Issues

Detailed Analysis

About Barilla

Recommendations

1

2

3

4

5

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Barilla’s Issues

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Unable to quickly match

demand with supply

Resulting in:

a. Not enough inventory:

revenue foregone for both

Barilla & retailers; or

b. Too much inventory: huge cost

involved; markdowns

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Barilla’s Issues

Low HighVolume

High Low

High LowVariation

High LowVisibility

Variety

The 4 Vs

The issue

lies here …

Propose JITD to overcome the

issues

Introduce accurate

forecasting (time series

analysis)

Match demand with supply

Move from capacity lagging

to capacity smoothing

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Introductions

Barilla’s Issues

Detailed Analysis

About Barilla

Recommendations

1

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Deciding The Right Supply Chain for Barilla

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Barilla used an

inappropriate supply

chain, i.e. responsive

supply chain due to

fluctuating demand

Recommend moving to

efficient supply chain

Efficient supply chain

will help Barilla to

respond quickly to

unpredictable demand in

order to minimize stock

out, forced markdowns,

and obsolete inventory.

It will invest on reducing

lead time aggressively

JITD can enable this

Fluctuating Demands resulted to Inefficient Supply Chain… thus, identification of the underlying drivers of fluctuations became extremely important

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“Pasta consumption was relatively

consistent throughout the year”

yet

“Extreme demand variability”

The bullwhip effect (Lee and

Padmanabhan, 1997)

‘In a supply chain for a typical

consumer product, even when

consumer sales do not seem to

vary much, there is pronounced

variability in the retailers’ orders to

the wholesalers’

Caused by:

Heavy promotions in the form of price,

transportation, and volume discounts

Existing compensation system:

encouraged the sales reps to push

more products

Large number of SKUs lead to greater

complexity

Bad forecasting from distributors due

to the absence of forecasting systems

Long lead times of 10 days

Analyzing the root cause of the costs of poor coordination

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Distributors & Retailers

Impact of cost of poor coordination

would be costs of carrying inventory

Reflected from Barilla’s logistics

manager discussion on retail inventory

pressure at distributor & retailer side

Barilla

Impact of cost of poor coordination

would be greater costs for its

manufacturing & logistic operations

Reflected from below comment

“As I see it, they are realizing they

do not have enough room in their

stores and warehouses to carry

the very large inventories

manufacturers would like them to.

Think of shelf space in retail outlets.

You cannot easily increase it. Yet,

manufacturers are continuously

introducing new products, and they

want retailers to display.”

“As the 1980s progressed, Barilla

increasingly felt the effects of fluctuating

demand. Orders for Barilla dry products

often swung wildly from week to week.

(exhibit 12.) such extreme demand

variability strained Barilla’s

manufacturing & logistics

operations.”

Yet, even with large inventories at

distributors, Barilla products still

have stock outs. (exhibit 13)

Minimizing the cost of poor coordination

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Support Vitali’s idea to request

distributor to provide the

following data:

Detailed Barilla products it

had shipped out of its

warehouse to retailers

during the previous day

Current stock level for each

Barilla SKU

Introduce accurate forecasting

(time series analysis)

Match demand with supply

Move from capacity lagging to

capacity smoothing

Managing Conflicts with regards to JITD implementation

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Internal Resistance

The Sales & Marketing team were

vocal in their opposition to the plan

Felt their responsibilities would be

diminished

Concerns rise about the sales level

External Resistance

Coming from the Distributors

Concerns rise regarding the idea of

giving much control to Barilla

Similar Causes

Perceived loss of power/

influence

Fear of job losses

Risk aversion – distrust of

change

The “human factor”

Overcoming Internal Resistance

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Clear communication campaigns needed to

allay fears

Consider co-locating teams to improve

communication

Human solution to a human issue

Change Sales and Marketing

role into JITD customer

relationship and development

managers :

Performing role as the

communication bridge between

the company and the

distributors

A system would be installed in

the representatives' portable

computer by which more

information at the distributor

warehouse level could be

collected

Play a vital role in the new

system

New compensation system:

award a percentage of the

company’s getting from JITD

implementation to the

employees

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Overcoming External Resistance

Show them the money

Evidenced-based

approach: should be shown

that the costs of the system

would reduce so much

Address Trust Issues

Build a transparent policy

Send the upper management

instead of sending the Logistics

personnel to talk to

Initiate joint-decision making and

planning

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Overcoming External Resistance

Current distribution pattern Proposed distribution pattern

Customers’ Response with regards to JITD Implementation

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Skeptical that it could

improve distributor’s

inventory level (reduce

inventory carrying costs)

and improve service level

JITD would at first be

disconcerting because

will be losing control of

my inventory

Need to convincingly

demonstrate the specific

benefits that JITD will

have for me

Would JITD be feasible? Whom to be the target market?

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Yes, JITD would be feasible in 1990, it could be effective to minimize costs

of carrying inventory at manufacturer side, distributor side, and retailer side. It’s

also effective minimizing stock out and suitable for functional product as in

Barilla case. In order to be effective it is very important to be combined with

“everyday low price” policy.

Next customer to be targeted will be biggest supermarket chain customers,

followed by independent supermarkets and ‘signora marias’

In order to convince sales & marketing function that JITD is effective. It could

be applied as pilot project for Barilla run depots (35% of shipping.) If such

pilot project is successful to achieve its objective in optimizing its inventory

level, therefore we believe sales & marketing function would “switch sides” to

become ambassador for JITD for 3rd party distributors (GD & DO.)

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Introductions

Barilla’s Issues

Detailed Analysis

About Barilla

Recommendations

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Conclusions & Recommendations

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JITD initially identified by Vitali -

drawback is lack of computer

systems among retailers

800 different SKUs currently

offered

Fluctuating demands

Start with biggest supermarket chain

customers

Consider subsidizing computer

systems for them

Then roll out to independent

supermarkets and ‘signora marias’

Reduce range = fewer

changeovers = more predictability

Issues/Ideas Recommendations

Introduce discount for most

consistent orders month on month

Restructure dependency on trade

promotions

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