Barilla SpAThe Value of Information

Case De-Brief

Nitin Lahoti

Situation

Barilla Product Range Pasta, Bakery Products, Fresh Bread, Catering

Products

Pasta Market Share 1990 Worlds Largest Pasta Producer 35% Market share in Italy ▪ 32% Traditional brand Barina▪ 3% Voiello & Braibanti

About 50% of its pasta was sold in North and the rest in south

22% Market in Europe

Situation Barilla Plants Specialized on the Pasta Types Pasta Types

Fresh / Dry▪ Fresh Products

▪ Have a shelf life of 21 days.

▪ Dry Products had long to medium Shelf Life ▪ Long Shelf life 18-24 months (Eg: Dried Toasts, Pasta)▪ Medium Shelf Life 10-12 Weeks (Eg: Cookies)

Pasta With or Without Egg+Spinach Pasta - Short (Macaroni / Fusilli) / Long (Spaghetti / Capellini)

Different Equipment used for different types

Barilla Pasta Brand Positioning Premium Brand for a modern sophisticated man About 470 pasta SKUs (Dry Products)

▪ 200 different types of Pasta▪ Pasta type▪ Shapes and Sizes

Situation

Manufacturing Mix Flour + Water + {Eggs + Spinach}

(in some cases) Produce Sheets Extrude through Dies Cut into required lengths Dry it in the Kilns (4 hours)▪ Specific temperature & Humidity settings for

each type Packaging

Situation

Distribution of Dry Products All the products (except for Fresh Bread and such others) moved

from Factory to Central Distribution Centers (CDC) - One CDC each in North & South

CDCs stored▪ Dry products - about 1 month of Inventory▪ Fresh Products - Max 3 days.

Dry Products▪ 2/3 of the dry products were sold through the Super-markets. Distributors

purchased the Dry products and then supplied the products to Super-Markets (JITD proposal was for this)

▪ Remaining 1/3 sold to small shops through 18 small Barilla owned warehouses

Barilla Dry Products selling outlets in Italy numbering close to 100,000

Situation

Distribution (contd..) Super-Market (65% of dry products)

▪ Chains (70% of supermarkets)▪ Distribution thorough the chains Distribution Organization (grande Distribuzione - GD)

▪ Independently owned Super-markets (30% of Super-markets)▪ Distribution thorough the Organized Distributors (Distribuzione Organizzata - DOs)

▪ Typically inventory levels at the store would be in the range of 10-12 days of Inventory. Super-market ordering frequency was 'daily'. The replenishment would occur in 24-48 hours after the order was received

Small Independent Grocers▪ 35% of Dry Products sold via this route (south 40% and South 30%). Supplied by

Barilla's 18 regional warehouses. Retailers dealt with Barilla through Brokers. ▪ Stores stored inventory of on an avg - about 2 weeks of demand.

Ordering for Supermarkets▪ Both DOs and GDs ordered once a week▪ Periodic review was done and orders placed if the stocks were below the min level▪ Barilla's supply started from the 8th day after the order placement and completed by

the 14th Day. Avg supply time - 10 days after ordering

Sales & Marketing relied on Advertisements and Promotoions▪ Promotions▪ Relied heavily on discounting in the canvas periods▪ Customers could buy for current and the future periods▪ Sales Reps incentive was to maximize sales during the canvass period

▪ Barilla bore the transportation cost. It provided incentives of about 2 to 3% to Distributors to order full truck loads. Further if the

▪ Distributors placed at least 3 truckloads of orders - the sales rep used to give a further discounts of about 1000 Lira pre carton.▪ (Italian Lira was the currency between 1861 and 2002 before Euro was

adopted as the official currency. Around 28 Feb 2002, the conversion was 1 Euro = 1,936.27 Lira)

Problem

Problems Stock-outs

High Inventory

Wildly Swinging demand hurting Barilla

Problem

Fluctuation in Demand. So what...? Meeting the wildly swinging demand is difficult▪ May not have capacity to meet the demand. Results in Stock-outs▪ One batch of one type of Pasta - min of 5 hours; Change over time

say about 1 hour; 5 to 6 hours per batch ▪ While meeting a spike in demand, you can have stock out of

another product being produced by the same plant. Results in Stock-outs

▪ Running Overtime is expensive. Leads to high costs.▪ Entire system (the facility, suppliers, logistics etc) have to work

harder. Leads to high costs ▪ Accumulation of Inventory in the SC. Raising carrying costs and risk

of obsoletion Barilla, Distributors and the Retailers all loose money. All this when the consumer demand at the retail level is

rather level and is not varying that wildly…..

Solution

Options…

Solutions

Solution

What can contribSute to the problems? Time to Order Forecasting Methods Promotions Siloed Decision making / Demand

Visibility

Solution