Barillas Best Route
How to implement
Pietro Barilla, who used to make and sell his pastas and breads in his own stores, founded Barilla in 1875. The quality of his pastas and breads that he sold drove the popularity of his products and the success that he had. Pietro then passed his company to his son in the 1940’s; Barilla then grew into a number of facilities all around Italy. The success in the 1960’s lead the owners to build a state of the art pasta manufacturing plant, this plant was the largest and most technologically advanced in the world. The financial burden of the plant and the decrease in business forced the owners to sell the company to W.R. Grace in 1971. This proved to be a bad financial choice for W.R. Grace, because in 1979 the cost could not justify the purchase so they sold the company back to Pietro Barilla. With the advances that Barilla gained from W.R. Grace and the leadership of Pietro, Barilla was able to become the largest pasta manufacture in the world. With this the successful growth the problems grew too; in this paper I will discuss the problem that occurred and the solutions that Barilla could have taken to fix them.
Barilla had a problem that we see throughout the food industry; Barilla had a hard time in forecasting the fluctuation of demand (Schulz, 2012). As discussed in Principals of Supply Chain Management, today’s society has turned into a “pull” environment. This means that the end “consumer dictates to the supplier what products they desire and when they need them delivered” (Wisner, 2012). This type of environment is very difficult to produce for; this is why companies try to calculate the demand they will experience (demand forecasting). Demand forecasting is done in attempt to lessen the effects of the bullwhip effect. The bullwhip effect is “the unexpected distortion of the supply chain caused by demand oscillations that can have a negative effect on business performance, such as inventory disruptions, quality control problems, diminished customer service, and increased costs of materials and manpower” (WebFinance, 2013). Barilla could use quantitative forecasting methods to help to lessen the bullwhip effect. “Quantitative forecasting uses mathematical models and relevant historical data to generate forecasts” (Wisner, 2012). In order for Barilla to correctly forecast demand, Barilla would need access to the sales records of the retail outlets. I found this information to be invaluable when I was conducting the Beer Game simulation. I found that because I was able to see what the retailer was expecting, inventory on hand, lead and transit times in the whole supply chain, this information helped me to lessen the bullwhip effect. Barilla would need to build a better relationship with their retail stores to gather the information needed to calculate an accurate forecast model, or they may purchase the data that is needed from the stores. This information combined with more transparency within the whole supply chain would allow Barilla to fix the segmented broken supply chain that they currently have.
The main problems that Barilla is having can all be traced back to the broken, or lack of supply chain that Barilla has. Barilla lets their distributors make the decisions on how much they will carry and deliver, as well as how much Barilla will produce. This combined with the lack of technology and transparency causes an ineffective and dysfunctional supply chain. Barilla made a big mistake letting their distributors make the decision, and then tell Barilla how much they were going to carry in their distribution center. When asked how much product they had and other invaluable information needed for demand forecasting, Barilla was told, “Managing stock is my job”; Barillas customers had a similar response. The attitude that Barilla was meant with buy their customers proved that Barilla needed to strengthen their customer relationship management.
Barilla could have approached their issues in a number of different ways; the following are a few different approaches.
- Barilla could work with the distributors to the way that they think would work, and then implement or leave it the way they want.
- Barilla could gather information through a customer relationship management (CRM), and implement an ERP system that would include data from the CRM system, while updating the ordering process with the distributors, and or building their own distribution centers to handle Just in time distribution (JITD) while combining all this with vertical integration.
- Barilla could give their distributors an ultimatum to meet what they want or they will find others.
Barillas Best Route
First we have the option that Barilla could allow their current distributors to give their input on the actions they should take and then implement their decisions. This would be great for CRM, however this would be extremely costly for Barilla. Barilla would still be allowing their distributors to call the shots when it came to ordering and even controlling the flow of product. This in turn would not fix anything, and the bullwhip effect would continue to get worse and cost Barilla a lot of time and money.