1. What are the Barilla’s distribution strategies and sales and marketing strategies?

Please
briefly introduce them.
1. Distribution strategies
Barilla maintained different distribution systems for its dry and fresh products due to
their differences in perishability and retail service requirements. Fresh products were
purchased from the two CDCs by independent agents who then channeled the product through
70 regional warehouses located throughout Italy.
Barilla products were distributed through three types of retail outlets: small independent
grocers, supermarket chains, and independent supermarkets.

Barillas has manufacturing plants located all throughout Italy where each plant has a
dedicated product that they manufacture. At Barilla, raw ingredients are transformed to
packaged pasta on fully automated 120-meterlong production lines. Barilla's pasta plants are
specialized by the type of pasta produced in the plant. Barilla divided its product line into
"dry" and "fresh" product categories, representing 75% and 25% of Barilla's sales. Dry
products had either long shelf life of 18-24 months or medium shelf life of 10-12 weeks. Fresh
products had a 21-day shelf life or a one-day shelf life (bread). Most Barilla products were
shipped from the plants in which they were made to one of two Barilla (CDCs): the Northern
CDC or the Southern CDC. Fresh products moved quickly through the distribution System
(three days' worth of fresh product inventory was held in each of the CDCs). Each CDC held
about a month's worth of dry product inventory. Certain fresh products, such as fresh bread,
did not flow through the CDCs. Dry products and fresh products were maintained differently.
Fresh products were purchased from the two CDCs by independent agents who channeled the
product through 70 regional warehouses in Italy. Each of these warehouses held about three
days of fresh product in inventory. 2/3 of the dry products were for supermarkets and are first
shipped to one of the CDCs where they are purchased by distributors and after they shipped
the products to supermarkets. The remainder of the dry products were distributed through 18
Barilla owned depots. Barilla products were distributed though 3 types of retail outlets: small
independent grocers, supermarket chains, and independent supermarkets. Most distributors—
GDs and DOs alike—checked their inventory levels and placed orders with Barilla once per
week. Barilla product would then be shipped to the distributor over the course of the week that
started eight days after the order was placed and ended fourteen days after the order was
placed—the average lead time was ten calendar days. Most distributors used simple periodic-
review inventory systems and almost all had computer supported ordering systems.

Barilla's distribution strategy involved a network of distributors and retailers. Before

JITD, distributors would place orders based on their forecasts, leading to fluctuations in
demand. With JITD, Barilla aimed to take a more active role in distribution by using real-time
data to manage inventory levels and shipments.

2. Sales and marketing strategies

Its marketing and sales strategy was based upon a combination of advertising and
 promotions.
2.1 Advertising
Advertising copy differentiated Barilla pasta from basic commodity “noodles” by positioning
the brand as the highest quality, most sophisticated pasta product available. Advertising themes
were supported by sponsorships of well-known athletes and celebrities. In addition, Barilla
advertising focused on developing and strengthening loyal relationships with Italian families by
using messages such as “Where there is Barilla, there is a home.”
2.2 Trade Promotions
Barilla’s sales strategy relied on the use of trade promotions to push product into the grocery
distribution network. Barilla divided each year into 10 or 12 “canvass” periods, typically four to
five weeks in length, each corresponding to a promotional program. Barilla also offered volume
discounts.
2.3 Sales Representatives
In the store, sales reps helped merchandise Barilla product and set up in-store promotions. In
addition, each sales rep spent half a day in a regularly scheduled weekly meeting with the
distributor’s buyer. The rep would also spend a few hours a week at the CDC, discussing new
products and prices.

2. What do you think are the main causes for large fluctuations in orders observed at the Pedrignano
CDC? What are the impacts of such demand fluctuation?
Causes: Large fluctuations in orders were primarily due to the bullwhip effect, where small
fluctuations in demand were amplified as they moved upstream in the supply chain. Promotions, order
batching, and lack of communication were contributing factors.

Inaccurate demand forecasting: Barilla's distributors had limited visibility into downstream demand
and relied on their own sales forecasts, which often led to significant variations in order quantities.
Promotional activities: Barilla's promotional activities, such as discounts and special offers, often
resulted in demand spikes that were challenging to predict accurately.

Effects: These fluctuations led to high inventory levels, increased holding costs, production
inefficiencies, and challenges in meeting actual demand. It strained the supply chain's responsiveness
and created a need for better demand forecasting and order management.

The impacts of such demand fluctuations were:

Inventory imbalances: Large fluctuations in orders led to inventory imbalances, with stockouts
occurring during periods of high demand and excess inventory during periods of low demand.
Increased costs: Barilla incurred higher costs due to inefficient production planning, excessive
inventory holding, and expedited shipments to meet unpredictable demand.

2.1 Main causes.

Bullwhip effect.. The amplification of demand fluctuation along the upper stream of the supply
 chain is known as bullwhip effect. The reasons of causing the bullwhip effect in the Barilla case
are as following.
1. Poor forecast capability: The demand variability is huge but the production line of Barilla
cannot afford frequent changes in order amount due to the long setup process. As
Barilla’s forecast capacities are poor and unreliable, they will either need to build up
huge inventory or lose the customer fill rate, none of them is favorable. The Barilla
customers will face stock out due to the low fill rate of Barilla.
2. Batch order: Barilla’s marketing policy encourage customer to order huge amount. The big
order policy (refer to Conflicts internal to Barilla) makes GD/DO stock outs by buying the
wrong product a lot but having no extra space or money to buy the correct product to meet
the demand.
3. Lead-time: there is a long production line setup time.
4. Sequential decision process: order decision reflects the demand long time age.
5. Price variation: the price are not fixed, customer sometime delay their order for better price or stock
inventory.
6. High Inventory at distributors and No Space or further investment available: The distributors have
huge inventory and stock outs rate, which indicates that new product keeps coming out while old
products still keep their spaces.

Causes: Some of the causes of demand variations are:

There are lead time issues due to delays in shipping and manufacturing. The case states that it
takes ten days for Barilla SpA to deliver orders to distributors. There are also delays in production
due to specific steps followed to produce a particular type of pasta, thus increasing lead time.
The distributors place orders weekly, thus creating variations in demand. As mentioned in the
case, large distributors order five truckloads in a week to take advantage of transportation
economies, such as full truckload quantities, and small distributors place orders in small amounts
per week. This may result in unexpected high or low orders.
There are inaccurate forecasts due to the use of a periodic review inventory system or
manually counting inventory. The case notes that retailers review the list for a specific product
every Tuesday, and if inventory is low, then an order is placed. This makes it challenging to know
the optimum level of inventory and leads to errors in stock replenishment and forecasts.
Barilla offers promotional and large-volume discounts to increase demand for its products.
Consumers take advantage of these discounts provided during a short period, resulting in irregular
production and disturbing regular buying patterns.
Barilla sometimes overreacts or underreacts to demand expectations, producing too much or
less inventory. The case highlighted that Barilla faced unexpectedly high demand for special types
of pasta while their quantities were low.
Also, Barilla’s manufacturing and logistics personnel often ask distributors to carry more of
their inventory for fear of lockouts.
Finally, there is limited coordination and communication between the sales personnel and the
Grand distributors’ warehouse, unlike the Organized distributors.
 This is because most distributors checked their inventory levels and placed orders with Barilla
once per week. Barilla product would be shipped to the distributor over the course of the week that
started eight days after the order was placed and ended fourteen days after the order was placed. Thus
for example, a large distributor that ordered every Tuesday might order several
2truckloads that would be delivered from the following Wednesday through the following Tuesday.
Distributors' sales volumes varied; small distributors might order only one truckload per week whereas
the largest warranted deliveries of as many as five truckloads per week.

2.2 impacts:
Because of such extreme demand variability strained Barilla's manufacturing and logistics
operations. For example, a specific sequence of pasta production necessitated by the tight heat and
humidity specifications in the tunnel kiln made it hard to produce a specific pasta quicklyhad been
sold out because of unexpectedly high demand. On the other hand, holding enough finished goods
to meet the distributor's requirements was highly expensive when the weekly demand fluctuated
so much so it was difficult to predict. Some manufacturing and logistics personnel actually asked
distributors or retailers to carry additional inventory to dampen the fluctuation in distributors'
orders, noting that with their current inventory levels, many distributors' service levels to the
retailers were unacceptable. Others felt that the distributors and retailers were carrying too much
inventory. There's also a lot of pressure for distributors to increase inventory of items they already
stocked and to add items they currently did not carry and both manufacturers and retailers are
suffering from thinning margins.

Some of the effects of demand variations are:

There are excess or insufficient inventories. Barilla SpA’s distributors and retailers are forced
to carry too much inventory, taking up their storage spaces. Lack of enough inventory results in
unfulfilled orders, causing customer dissatisfaction.
There are increased inventory holding costs. The case states that supermarkets carried an
average of 4,800 dry-product SKUs and held the products for 10-12 days.
Keeping inventory for a long time leads to the obsolescence of stock, and distributors or
retailers may be forced to offer deep discounts to clear up space, leading to lost revenues.
Poor product planning and scheduling also occur. It is hard for Barilla to fulfill different orders
efficiently without interruptions or delays in manufacturing.

3. How does JITD work? Does it address the entire supply chain (internal or external) or just
manufacturing and distribution at Barilla?
3.1 JITD should look at all of the distributors' shipment data and send only what is needed at the
stores—no more, no less. Right now they operate where it is impossible to anticipate demand
swings so they up having to hold a lot of inventory and do a lot of scrambling in their distribution
and manufacturing to meet the demands of the distributor. And even if they do, the distributors
don't do a great job at servicing the retailers. Every day each distributor would provide them data
on what Barilla products it had shipped out of its warehouse to retailers during the previous day, as
well as the current stock level for each Barilla SKU. Then they could look at all of the data and
 make replenishment decisions based on their own forecasts. they would actual retail sell-through
data.

3.2

JITD Working: JITD involves using real-time data from point-of-sale (POS) systems to
allow Barilla to manage product distribution directly to retailers. It aims to synchronize production
and distribution with actual demand, reducing the need for distributors to forecast and place
orders.
Scope: JITD primarily addresses the manufacturing and distribution aspects of Barilla's supply
chain. It focuses on optimizing the flow of products from production to retail shelves, aiming to
minimize inventory levels and improve overall efficiency.

JITD is a supply chain management strategy proposed by Barilla. It aims to improve supply
chain efficiency by allowing Barilla to directly manage the inventory levels at its distributors'
facilities. Under JITD, distributors would share their sales data with Barilla, who would then
determine the appropriate product quantities and delivery schedules. Barilla would deliver
products to the distributors' facilities based on the actual consumer demand data.
JITD primarily focuses on the coordination between Barilla and its distributors, addressing the
manufacturing and distribution aspects of the supply chain. It does not directly involve upstream
suppliers or downstream retailers.

4. What internal and external conflicts or barriers might the JITD program create? If you
were Giorgio Magglia, how would you deal with these?

Internal conflicts or barriers that the JITD program might create include resistance from
Barilla's sales and marketing teams who may perceive a loss of control over promotions and
product availability. Additionally, Barilla's production team may face challenges in adjusting
manufacturing schedules in response to fluctuating demand.
External conflicts or barriers may arise from distributors who may be resistant to sharing
sensitive sales data or who may perceive a loss of autonomy in determining their own inventory
levels.

Internal Conflicts:

Employee Resistance: Some employees may resist the change in the traditional order
management process. Communication and training programs can help address this.
Training Costs: Implementing JITD may require additional training for employees. Allocating
resources for effective training is crucial.
External Conflicts:
Supplier Relations: Suppliers may face challenges adapting to more frequent and smaller
shipments. Collaborative negotiations and support can mitigate these concerns.
Customer Reactions: Customers may be unhappy with changes in delivery schedules or product
availability. Transparent communication and managing expectations are key.

Conflicts internal to Barilla

· The current promotion and discount policy VS. JITD:
Currently Barilla divides each year into 10 or 12 "canvass" period with each corresponds to a
promotional program. The incentives for the Barilla’s sales representatives lie on achieving sales goal
for each canvass period. Therefore, they are actually welcoming distributors to buy as much as
possible. Besides, one of the representatives’ sales tools is volume discount for both full-truck-load
and larger volume orders. This, to some extent, encourages distributor to order less frequently with
larger order quantity every time.
But the JITD promoters think that although the above two aspects decrease Barilla's CDC inventory
level at current period, the distributor's inventory level will increase considerably. And, if distributors
are ordering more at a time and less frequently, it actually will cause demand fluctuation from a long
term point of view.
[Solution]
Instead of giving discount for big order volume, we would give discount for stable long-term orders
(EDLPP). By doing so we could have many reliable long-term orders to fill the market demands, and
the fluctuation could be reduced considerably.
· The sales representatives’ role in the DO system:
With the current system, the sales representatives are playing important roles in DOs, which take about
20% (0.65*0.3) of Brilla’s dry product sale. They coordinate among DOs, CDCs and distributor
buyers to solve problems and settle disputes. The sales representatives will be concerned that their
responsibilities in managing inventory and setting up promotion would be reduced if JITD is put in
place. The JITD may even threaten their job opportunity.
[Solution]
We can define the new role of sales representative as JITD customer developing and customer
relationship management. Therefore they are not only sell products but also providing service to
customers. The representatives can participate in the JITD program as the communication bridge of
the company and the distributors helping them implement the JITD program.
Since each representative carries a portable computer for imputing the distributors’ orders, we could
install a system by which more information at the distributor's warehouse level could be collected by
the sales representative working at thefront line. By doing so, the sales representative will still play an
important role inthe new system, meanwhile saves the distributors’ work in implementing the JITD,
and therefore encourages them to participate in JITD. We just need to get the distributors’ permission
for releasing data, and our sales representatives will do the data collecting and inputting work.
To make them feel secure, we can demonstrate the benefit the can gain from the JITD program that
JITD is used for reducing their job burden not replacing their role.

External conflicts
As one of Barilla’s customer, the response to Barilla’s JITD proposal would be a combination of the
following emotions:
· Sense of defense. How could Barilla demand sales data from us, which are considered confidential?
Does Barilla have the authority to do this? Are they intending to monopoly the supply chain? If we
release our sales data to Barilla, will this
information go to our competitors? These doubts will result in defensive actions
such as procrastination in responding to Barilla’s request or refuse to cooperate.
· Sense of losing control. If it is left for Barilla to decide how much we need and
how much should be shipped to us, we will lose control of our inventory and advantage to negotiate
better price and service. Besides, Barilla will base its daily
distribution amount to us on the information of our sales amount and inventory
level as well as similar information from our peer distributors. This does not
seem to be a robust approach because their criteria for “quota” distribution are
vague and subjective. It is easy to cause unfair treatment. What if we need to order more due to a
sudden market surge? Will we be granted more shipment? As a
protection, we might intentionally alter sales data and inventory level reported to
Barilla whatever is advantageous to us.
· Sense of burden. Barilla requires us to report to them our inventory level and
sales amount everyday, which contradicts our periodic/weekly review policy and
will add extra burdens to our staff. Will Barilla pay for the extra cost incurred?
We might require Barilla to pay for the extra staffing cost. Besides, since information is money, Barilla
needs to pay for our regularly provided information.
· Sense of distrust. It seems that Barilla thinks that it can do a better job than us in
managing our inventory. Their greatly reduced shipping amount to our company
indicates that they think our predictions in the past are not correct. As a counter
action, we might refuse to provide past sales data to Barilla so that they will have
difficulties in predicting the market demand.
Solution:
Convince the customers that this is a win-win concept. We will convince them that JITD
is worth trying because it is a win-win process for all stake-holders by reducing the inventory and
accelerating the delivery process through synchronization and transparency. Also try to convey the
message that a part of the benefits from the JITD program
will be passed-on to them.

4.1 internal conflicts

A number of sales representatives felt that their responsibilities would be diminished if such a
program were put in place. A range of concerns were expressed from the bottom to the top of the
sales organization.
Solutions: They can be persuaded because this JITD should be considered a selling tool, rather
than a threat to sales. They are offering the customer an additional service at no extra cost. The
program will improve Barilla's visibility with the trade and make distributors more dependent on
Barilla. it should improve the relationships between Barilla and the distributors rather than harm
them. The information regarding the supply at the distributors' warehouses
3would provide them with objective data that would permit them to improve their own planning
 procedures.
4.2 external conflicts
Barilla's customers so resistant to its JITD idea. A lot of them believed that idea was taking their
job. There were conversations saying 'Managing stock is my job; I don't need you to see my
warehouse or my figures. I could improve my inventory and service levels myself if you would
deliver my orders more quickly. In fact, I'll make you a proposal—I'll place the order and you
deliver within 36 hours.' Another distributor expressed concerns about becoming too closely
linked to Barilla. 'We would be giving Barilla the power to push product into our warehouses just
so Barilla can reduce its costs.' Still another asked, 'What makes you think that you could manage
my inventories any better than I can?'
Solutions: To convince the distributors, they had conversations with them. Their first discussion
was with Marconi. In this conversation they made it clear that they planned to provide them with
great service that could both decrease their inventories and improve their fill rate to their stores.
The logistics group thought it sounded great and was interested in conducting an experimental run
of the program. But as soon as Marconi's buyers heard about it, they were not happy. Finally,
Marconi agreed to sell Barilla the data they wanted. This wasn't the relationship they were looking
for and when talking to other distributors they weren't any more responsive.

Solution: Conduct thorough internal communication and education programs to explain the benefits of
JITD to the sales, marketing, and production teams.
Collaborate closely with distributors, addressing their concerns and emphasizing the mutual benefits
of improved supply chain efficiency and reduced costs.
Offer incentives to distributors for participating in the JITD program, such as providing them with
access to real-time demand data and customized promotions.
Pilot the JITD program with a select group of willing distributors to demonstrate its effectiveness and
gain support before scaling it up gradually.

In this system, the goods were to be sent to the distributors as per the demand

forecasts done by Barilla and not based on the internal planning system of the

distributors JITD system will help to maintain an adequate amount of inventory

in both the facilities and thereby reduce the problem faced due to demand

fluctuations.