Question 1: What are the underlying causes of the difficulties that the

JITD program was created to solve?

1A. What are the underlying drivers of the fluctuations in Exhibit 12?
The fluctuations in weekly demand from Cortese Northeast DC are caused by
many factors.
Firstly the demand from customers can vary due to seasonality (e.g. more
lasagna is sold around Easter). This is largely predictable fluctuation.
Secondly, demand from distributors varies due to a number of factors, namely
promotions, transportation and volume discounts, long lead times (10 days), the
large variety of products and pack sizes and designs, and no minimum or
maximum order quantities. The distributors do not have forecasting tools or
systems. They will take advantage of a volume or transportation discount or
canvass promotional period to order stocks for weeks in advance and then
order less or nothing in the following weeks while they use up inventory.
Poor communication between retailers, distributors, sales, marketing and
manufacturing may be one other driver for the fluctuations, as well as a lack of a
forecasting system.
The supply chain is very complex. Distributors have different types of customer
(supermarkets vs small independent shops) and various different strategies.
There are many stages between the factory and the end-customer (large or
organized distributors with their own warehouses and brokers). This demand is
unpredictable (or at least it is at the moment, with no way to monitor real sell-out
in stores and with distributors and stores holding inventory). The fluctuating
demand causes the bullwhip effect, amplified variation in demand the more
steps in the supply chain (away from the end-customer) there are. This is most
noticeable in Exhibit 12 where we see 4-6 spikes in orders, followed by an
incredibly low order volume soon after.
1B. What is the impact of such fluctuation? What are the costs of
having an order pattern like this?
The impact of the fluctuations puts Barilla in a situation where its production is
insufficient or Barilla produces excess finished goods. These results imply that
either Barilla has stock outs or is holding excess inventory (or both). The costs
are related to direct revenue loss due to competition and inventory holding cost
respectively.
Due to fluctuations, the manufacturing and logistics operations are put under
pressure. At the distributors end, the impact of such fluctuation may cause them
to establish additional capacity to hold Barillas excess production (which is
expensive) or to buy any type of promotion.
Stockouts are also costly because they mean a loss of sales (customers will
presumably buy a competitor product) and we can see from Exhibit 13 that the

level of stockouts is still at or over 5%. Since margins are reducing, cost
reduction on the operations side would be beneficial to the company as a whole.
The large buffers of inventory cost money and may conceal other problems in the
process.
1C. To which extent is Brando Vitales JITD proposal a mechanism for
reducing these costs?
Vitales proposition to supply distributors with quantities chosen by Barilla,
instead of according to distributor orders, is designed to meet end-customer
needs more effectively and also distribute the workload of the factory and logistic
departments more evenly.
If he is right and the workload is distributed more evenly, the manufacturing and
logistics operations will not be under so much pressure. It means production will
operate more smoothly, only producing what is requested. Inventory and
stockouts should also be reduced at Barilla and at the retailer and distributor
sides.
According to Vitales proposal, information gathered from distributors will help
Barilla to estimate its production and inventory levels. Through forward
integration to the first tier customers (distributors), Vitale aims to strengthen its
competitive advantage in the market by reducing cycle time to manage the
bullwhip effect at the same time.
2. What internal conflicts or barriers internal to Barilla does the JITD
program create? What are the causes of these conflicts? As Giorgio
Maggiali, how would you deal with these?
Internal resistance comes from the sales and marketing departments. They were
concerned that if there were a strike or other interruption in production, the risk
of stockouts would increase. They also thought that sales figures would be
reduced (due flattened demand) and that the new system would not be flexible
enough to respond to changes, and that sales promotions would no longer be
possible. Another concern was that if the shelves in the distributors warehouses
were not full of Barilla products, their competitors will move in and fill the space
and then the distributors will push sales of competitor products instead of Barilla
products. The causes of these conflicts are the lack of sufficient flexibility in
production, and the reward structure for sales representatives. The flat sales
structure will take away the bonus for sales people and it will be hard to maintain
trade promotions under JITD. Also salespeople are worried that they will lose
power because the functioning areas of marketing and sales will be narrowed.
Maggiali should convince his own boss and the CEO of the value of the proposal,
because the implementation of JITD needs to be company-wide. The CEO and top
management should make clear to everyone that this is in the best interests of
the company and give them some time to get used to the new situation.
Company-wide, the view should be adopted that the relationship with distributors
is a long-term one, a partnership, and should be managed accordingly i.e. joint

learning, sharing successes, sharing and aligning long term expectations, and
having multiple points of contact through formal and informal channels. Vitali
sees JITD as a selling tool, so the sales team needs to be persuaded of the value
of this selling tool. The reward structure for salespeople could be reorganized, for
example some of their KPIs could be related to reduction in inventory, getting
accurate data from stores about sales. The jobs of the salespeople could be
redesigned to introduce more job commitment from sales; ideas to design
satisfaction into the job could include job enlargement (larger number of tasks
and more variety), job enrichment (greater autonomy), job rotation,
empowerment and team-working.

3. As one of Barillas customers, what would your response to JITD be?

Why? How might Maggiali be more successful in persuading customers
to at least try the JITD program?
a. As one of Barillas customers, what would your response to JITD be?
b. Why?
c. How might Maggiali be more successful in persuading customers to at
least try the JITD program?
Barillas customers (third level SCM) that would be affected by the JITD program
are its customers of the dry products:
The distributors of supermarket chains, Grande Distributzione,
The distributors of independent distributors, Distributzione Organizzata.
The supermarkets themselves or the Signora Maria shops are not part of the JITD
program.
The root of all things good in managing a supply chain is cooperation. Only if
there is cooperation can all parties in the supply chain benefit from the
innovations in distribution that are achieved through cooperation. The incentive
for cooperation is a clear win for all parties involved (Barilla and its customers, a
win-win situation). This is where things start to get difficult.
From the case description there seem to be two aspects that are important to
distributors:
1. The optimizing of inventory increased fill rates to retail outlets but also
reduced inventory holding costs and improved service by having enough
variety and receiving orders fast.
2. Fulfilling the role of distributor independent from Barilla. A characteristic of
this independence is that the distributor manages the stock by itself.
3a. As Barillas customer my response to the JIDT program would therefore be to
ask:

1. how the program helps me improving on my performance measures:

prevent stock outs (dependability), increase variety (flexibility), reduce
delivery time (speed) at the lowest costs (costs)
2. how the program lets me fulfill my role as independent distributor, i.e. let
me manage my own stock.
3b. The independence issue is a valid argument, since Brando Vitali of Barilla
said that the JITD makes distributors more dependent on Barilla. The interesting
thing is that this dependency is viewed by Barilla as positive and a way to
improve relationships (Vitali p.9: it should improve the relationships rather
than harm them), whereas a distributor regarded the JITD program negatively,
because it results in getting too closely linked to Barilla and would be giving
Barilla the power to push product into our warehouses just so Barilla can reduce
its costs (p.10).
As a distributor I would like to know how I can improve my performance measures
without losing my independence from Barilla and obtain some of the cost savings
that is thought to go to Barilla.
This seems to be a choice where there is no win-win situation possible. However,
the distributor quoted in the case (p.10) made a counter proposal when asked to
participate in the JIDT program: Barilla would have to deliver within 36 hours.
Therefore, apparently there is another way to improve the supply chain. The
question is to what extent the JITD program and the need for faster delivery are
different. Perhaps both Barilla and the distributors want the same, but approach
the problem from different sides.
3c. In order to create a win-win situation, Giorgio Maggiali must address the
concerns of loss of independence and sharing some of the cost saving. There are
a number of alternatives possible:
1. Giorgio Maggiali should ask the distributors about their strategic objectives
and try to gear the JITD program in such a way that it helps the distributors
to meet these objectives. For example: if a distributor ranks dependability
as top performance measure, Maggiali could indicate that the JITD program
helps this distributor to improve his dependability by having the right type
of pasta in stock most of the time.
2. Maggiali could implement the JITD first in Barillas own depots, and then
present the findings to the customers.
3. As a sign of goodwill Maggiali could offer a guaranteed delivery time of 36
hours for distributors willing to participate in the JITD program. If results
are positive, they can be used to convince other distributors.
4. Maggiali could propose a joint venture with Barilla and the distributors as
shareholders that control the sales data from the distributors. By becoming
joint owner of this data both parties can benefit without the distributors
losing some of their independence.
5. Maggiali could ask an objective consultant trusted by both Barilla and the
customer to give their opinion.

6. Maggiali could propose a simulation which could be carried out over a fixed
time frame, in which Barilla would continue to replenish the distributor
stocks in the old way, but at the same time records figures of how they
would replenish the same customer differently in the new way, and then
compare the inventory and frequency of stockouts at the end of the period.
This should prove the benefits of the JIDP.
4. Replace yourself in the position of Barillas management. What
would you do? (What would be your strategy and what would your
implementation plan be?)
First of all, although the case focuses on domestic (Italy) distribution-related
operational issues, the Barilla management team should define their operation
strategy for the near future that covers both domestic and international markets
in alignment of Barillas market vision.
The operation strategy should identify the order of importance of the five KPIs,
and explain managements expectations clearly from operations.
From our perspective, Barillas management team should order the KPIs as
follows (most important to least);
- Cost
- Speed
- Dependability
- Flexibility
- Quality
In terms of cost, defined as the most important KPI in the operation strategy, the
management team should listen to the concerns of Mr. Maggiali and ask for more
details and expected numeric and financial results on the curse of inventory.
Based on the given information in the case, we are not able to come up with
exact financial numbers for the curse of inventory. But all the concerns Mr.
Maggiali has, clearly show that focusing on inventory and distribution chain
management can result in major cost savings.
With all the issues, and management teams operational strategy in mind, we
came up with the action items below.
Short term:
- Involve top level management and look for their buy-in that the high
inventory and demand fluctuation is not an operational issue but a
company-wide (First Level[1]) and even distribution chain-wide (Third
Level[1]) problem.
-

Focus on First Level (company internal, inter-department) issues in

distribution.
o Involve sales team in inventory / distribution management. Some
changes in bonus calculation of sales teams can help;
Reward for less average SKU in the CDCs and Depots.

Cut bonuses for fluctuations (if standard deviation > X)

Currently a very accurate and up-to-date market analysis flow from stores
by Barilla sales representatives into CDCs exists. This information flow is
used for new products, pricing, promotions, competitor analysis, etc. but
not integrated into inventory and production management. However this
information bypasses DOs and GDs and does not provide any indication on
GD and DO inventory or orders; it should be integrated into order
forecasting for Barillas operations management and can be used as a
powerful indicator of actual demand.

To create awareness on the inventory and distribution chain issues in

organizations, organize workshops (maybe on an academic level) and
invite other departments like sales, marketing, finance to participate

Mid-term:
- Look at ways to speed up delivery; currently the average lead time is 10
days and varying from 8 to 14 days. If the lead-time can be shortened, and
the orders fulfilled quicker, DOs and GDs will start keeping less inventory
and probably start ordering more often.
-

Change sales practices which cause demand fluctuations. Move away from
large, batch orders at discounted prices, and introduce periodic orders at
agreed prices.
o Discontinue periodic trade credits
o Discontinue canvass periods
o Discontinue volume discounts
o Arrange long term distributor agreements covering:
Fixed pricing year-long (Every Day Low Pricing practice)
Order limits (min-max order levels)
Encourage periodical orders (i.e. if distributor agrees to order
twice a week for the coming 12 months, then the fixed price
on the contract can be arranged at a lower rate)

Run JITD experiment with one of the Barilla owned depots.

Long term:
- The ultimate goal of Barilla to realize JITD should be leaning towards
Vendor Managed Inventory for all channels, as much as possible.
-

Create a Third Level[1], (Distribution Chain Level) information network to

better focus and analyse the demand.
o To gain trust and convince distributors that their independence is
not in jeopardy, Barilla could propose a joint venture with Barilla and
the distributors as shareholders that control the sales data from the
distributors. By becoming joint owner of this data both parties can
benefit without the distributors losing some of their independence.
o Barilla could ask an objective consultant trusted by both Barilla and
the customer to give their opinion.

Convince DOs and GDs that the information sharing results in a winwin case by proposing a simulation that could be carried out over a
fixed time frame, in which Barilla would continue to replenish the
distributor stocks in the old way, but at the same time records
figures of how they would replenish the same customer differently in
the new way, and then compare the inventory and frequency of
stockouts at the end of the period. This should prove the benefits of
the JIDP.

Build trust by looking for strategically aligned relationships with

individual DOs and GDs. Explore how Barilla can help its distributors
to meet their strategic objectives.

If the DOs or GDs do not want to share data, offer a closely working Barilla
representative to be present at DO or GD premises who monitors the
inventory and sales figures and advises on the ordering (similar practice is
currently performed in supermarkets)

For really skeptical distributors on information sharing, develop and roll out
a Barilla Demand Forecasting System where DOs and GDs can order
based on the outcomes of the forecasts. However this will still not fulfill all
the required information for Barilla to flatten the demand, both Barilla and
the distributor will benefit from better forecasted orders and decreased
inventory.

References
[1]
Prof. dr. Jack A.A. Van der Veen, Operations & Supply Chain Management
Course slides, Week 5, Slide #7