A Proper Pattern of Supply Chain Management

Posted on | by Laureen
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There were several aspects of pasta making that would play a significant role in the supply chain. One of the big things is the amount of space it takes to mass-produce pasta. Due to the number of different machines needed for different shapes of pasta, the number of raw materials used on a daily basis, and the space required for the drying process. All of these limit the flexibility of the company to meet significantly varying order needs. There isn’t just the issue of the workforce to meet increased production needs, but rather there’s not the physical space to increase production. Another important issue in terms of supply management concerns the amount of financial investment in the production of pasta, i.e., the cost manufacturer is to pay in order to launch the production process on demand. Thus, it is of crucial importance for the company to establish a proper pattern of supply in order to develop a beneficial and scheduled system of manufacturing process instead of starting the process any time demand emerges.

One of the main problems the JITD program was designed to solve was the huge demand variations, also known as the bullwhip effect. These variations resulted in several problems, including distributor-customer stock-out rates of about 6%, the strain on the manufacturing to meet varied demand, and high inventory levels for both Barilla SpA centers and distributors. This was all significantly cutting into profit. Subsequently, the overall process of manufacturing has begun to affect the profit rate, as the scope of manufacturing is quite large and expensive to sustain. With the increasing impact of the bullwhip effect, the patterns of manufacturing have become inconsistent, and the paradigm of supply-demand and in-stock storage has become vague.

With a large variety of dry products (more than 800 SKUs) and constant promotions, Barilla’s demand variability remains high. As shown in Exhibit 12, the weekly demand for one of Barilla’s distribution centers has a mean of 300 quintals and a standard deviation of 227 quintals. To counter the demand variations, both Barilla and its distributors implement high safety stock, which merely covers the weakness of the system at the cost of inefficient inventory management. However, Barilla’s buyers still experience recurrent stock-outs. As shown in Exhibit 13, one of Barilla’s distribution centers experiences as high as a 9% weekly stock out rate.

Manufacturer’s Perspective
Benefits Disadvantages
Supply consistency Increase of competition in the market
Fewer expenses on the manufacturing process Responsibility allocation uncertainty
A better perspective of the market and product demand More rigid risk management framework, i.e., inability to respond to the force majeure supply demand
Distributor’s Perspective
Benefits Disadvantages
Supply consistency Privacy concerns
Shared responsibility on the supply management Extremely high dependence on the supplier
More efficient management of the stock inventory Risky cooperation model, necessity to develop explicit risk management strategies
Problem Internal/External How to Address
Lack of buy-in from GDs and ODs External This was probably the main issue brought up in the case. Barilla was unable to get enough support from any of their distributors to test the idea. I think there are two things Barilla could do to address this issue. The first would be to use the information Marconi was willing to sell Barilla to start developing their JITD system. The other would be to use the Barilla run depots as a proof of concept to convince outside distributors of the benefits of the system.
Lack of support from Barilla sales employees Internal The company met a lot of resistance from internal employees regarding this idea. Similar to the problem above, the best way to address this is to discuss their reservations, explain the benefits, and then back up the claims with a proof of concept.
Lack of proper forecasting tools within the company Internal Considering the scenario that some of Barilla’s GDs and ODs are willing to cooperate, the enterprise has a problem implementing the proper forecasting system that would work efficiently. In order to resolve the issue, Barilla’s management has to conduct thorough research on the existing databases within the GDs and ODs working with the company. In such a way, potential clients will find it more beneficial, as they would have the ability to work with a familiar system and synchronize the data efficiently.
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