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OSCM_Barilla SpA_Group I

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HBR Case Analysis on Barilla SpA case

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OSCM_Barilla SpA_Group I

  1. 1. 8/30/2014 Case Analysis – Barilla SpA 1 Case Study Analysis Barilla SpA Binus Business School, MM Executive Batch 20 Presented by Group I Alexander Christian Dina Sandri Fani Jenna Widyawati Ridwan Martawidjaja
  2. 2. Table of Contents 8/30/2014 2 Introductions About Barilla Barilla’s Issues Detailed Analysis Recommendations 1 2 3 4 5 Case Analysis – Barilla SpA
  3. 3. Table of Contents 8/30/2014 3 Introductions About Barilla Barilla’s Issues Detailed Analysis Recommendations 1 2 3 4 5 Case Analysis – Barilla SpA
  4. 4. Barilla in Years 8/30/2014 Case Analysis – Barilla SpA 4 • 1875 Founded by Pietro Barilla in Parma, Italy • 1940s Run by Pietro & Gianni. Differentiated with a high quality product supported by innovative marketing programs • 1968 Constructed a 1.25 mio sqm pasta plant in Pedrignano • 1971 Acquired by W.R. Grace, Inc. • 1979 Grace sold the company back to Pietro Barilla as failed to make its acquisition pay-off • 1980s Successful return of the company. Enjoyed an annual growth rate of over 21% (came from both organic, i.e. existing business expansions and non-organic, i.e. acquisition of new, related business) • 1990 Largest pasta manufacturer in the world with 35% of market share in Italy & 22% market share in Europe
  5. 5. Barilla’s footprint in the pasta manufacturer industry in Italy Proven to be the world’s largest pasta manufacturer Case Analysis – Barilla SpA 8/30/2014 5 15 47 344 456 Barilla Sales, 1960 - 1990 609 in Lirre, Billions 728 1,034 1,204 1,381 1,634 1,775 2,068 • Successful return of the company. Enjoyed an annual growth rate of over 21% • Organic growth: expansion of existing business • Non-organic growth: acquisition of new, related business 2,390 1960 1970 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
  6. 6. Barilla’s footprint in the pasta manufacturer industry in Italy Had 25 plant locations in total in 1989 Case Analysis – Barilla SpA 8/30/2014 6 Map Key Plant Location Products 1 Braibanti Pasta 2 Cagliari Pasta 3 Foggia Pasta 4 Matera Pasta 5 Pedrignano Pasta, noodles, biscuits 6 Viale Barilla Tortellini, noodles, fresh pasta 7 Caserta Pasta, rusks, breadsticks 8 Grissin Bon Breadsticks 9 Rubbiano Rusks, breadsticks 10 Milano Panettone, cakes, croissants 11 Pomezia Croissants 12 Mantova Biscuits, cakes
  7. 7. Case Analysis – Barilla SpA 8/30/2014 7 Barilla’s footprint in the pasta manufacturer industry in Italy Had 25 plant locations in total in 1989 Map Key Plant Location Products 13 Melvi Snacks 14 Ascoli Snacks, sliced loafs 15 Rodolfi Sauces 16 Altamura Flour mill 17 Castelplanio Flour mill 18 Ferrara Flour mill 19 Matera Flour mill 20 Termoli Flour mill 21 Milano Fresh bread 22 Milano Fresh bread 23 Altopascio Fresh bread 24 Padova Fresh bread 25 Torino Fresh bread
  8. 8. Industry’s Background Case Analysis – Barilla SpA 8/30/2014 8 Origins of pasta is unknown Originated from China and first brought to Italy by Marco Polo Others claim that pasta’s origins were rooted in Italy Pasta consumption Nearly 18 kilos of pasta per year per capita consumption in Italy Limited seasonality in pasta demand Industry’s Growth Flat growth of less than 1% p.a. with an estimated of 3.5 billion lire Growing segment in semolina & fresh pasta Export market rise as much as 20-25% per year. Eastern Europe as an excellent export opportunity
  9. 9. Table of Contents 8/30/2014 9 Introductions About Barilla Barilla’s Issues Detailed Analysis Recommendations 1 2 3 4 5 Case Analysis – Barilla SpA
  10. 10. Barilla’s Business Model Case Analysis – Barilla SpA 8/30/2014 10 Customer Segments Domestic Italy and International Mass Market through distributors, supermarkets, and small shops Customer Relationships Personal assistance to DOs by sales representatives Semi self-service to GDs Value Proposition Offer highest quality and most sophisticated pasta, bread and biscuit
  11. 11. Case Analysis – Barilla SpA 8/30/2014 11 Barilla’s Business Model Key Resources Physical asset in the form of pasta and bread factory, mill and warehouses Key Activities Produce pasta, bread and biscuits Advertising campaign Distribution and supply stock management Key Partners Wheat suppliers Distributors Advertising agency
  12. 12. Case Analysis – Barilla SpA 8/30/2014 12 Barilla’s Business Model Channels Marketing through media utilizing high profile and well known athletes and celebrities Supply and distribute products through distributors and direct to stores Cost structure Labor cost Raw material cost Manufacturing cost Advertising cost Warehousing and stock management cost Revenue Streams Profit from product sales
  13. 13. Barilla’s Manufacturing Process Detailed manufacturing process: from raw ingredients to packaged pasta Case Analysis – Barilla SpA 8/30/2014 13 Input Process Output Core Ingredients Flour Water Additional Ingredients Eggs Spinach 1 Mixing ingredients 1 Dough 2 Rolling dough Enabler: pairs of roller 2 Long, thin continuous sheet 3 Extruding Enabler: bronze die screen 3 Distinct pasta shape 4 Cutting Enabler: cutting machine 4 Specified length of pasta 5 Drying, weighing, & packing Enabler: long tunnel kiln 5 High quality pasta products
  14. 14. Barilla’s Manufacturing Process Specialized by the type of pasta produced in the plant Case Analysis – Barilla SpA 8/30/2014 14 Pasta’s manufacturing plant Composition of the pasta Made with or without eggs or spinach Dry or fresh pasta Size & shape of the pasta Short: macaroni or fusilli Long: spaghetti or capellini
  15. 15. Barilla’s Product Lines Ranging from fresh products and dry products Case Analysis – Barilla SpA 8/30/2014 15 Fresh products Dry products Pasta: 21-day shelf lives Bread: 1-day shelf life  Represented 75% of Barilla’s sales  Offered in 899 different packaged SKUs Dry pasta • 200 different shapes & sizes • Offered in > 470 different packaged SKUs Longer shelf-life bakery Either made in the Northern CDC in Pedrignano or Southern CDC in Naple
  16. 16. Barilla’s Channel Distributions Different channel distributions depending on product type Case Analysis – Barilla SpA 8/30/2014 16 Fresh products  Purchased from the two CDCs by independent agents (concessionari)  Channeled through 70 regional warehouses  Inventory days of 3-day in each warehouse Dry products  Purchased by distributors  Shipped the products mostly to supermarkets (75%)  Remainder was distributed through 18 small Barilla-owned warehouses, mostly to small shops
  17. 17. Case Analysis – Barilla SpA 8/30/2014 17 Barilla’s Channel Distributions Barilla’s products offered in 100 thousands retail outlets that consist of 3 type of outlets Small independent shops  35% of dry products  2 weeks of inventory at the store level Supermarket chains  70% of 65% of dry products  10-12 days of inventory  Carried a total of 4,800 dry-product SKUs  Carry the product in only one packaging option Independent supermarkets  30% out of 65% of dry products
  18. 18. Barilla Supply Chain Process Case Analysis – Barilla SpA 8/30/2014 18 Dry products CDC warehouse GDs DOs Filled supermarkets’ order out 2-week supply in inventory Ship the order 24-48 hours after the receipt of the orders Order received at the stores Supermarket chain Independent supermarket Centralized buyer for a large number of independent supermarkets Regional operations. The retailers they served usually sourced product from only a single DO
  19. 19. Barilla Sales & Marketing Model Case Analysis – Barilla SpA 8/30/2014 19 Advertising  Positioned Barilla as the highest quality, most sophisticated pasta product available  Modern, sophisticated settings in major Italian cities instead traditional Italian folklore  Use well-known athletes & celebrities for a talent Trade Promotions  10 or 12 canvass period with 4-5 weeks in length, each corresponding to a promotional program  Discount offering for distributor: attracting distributor to buy the product as much as desired  Offered volume discounts, e.g. incentives of 2-3% for FTL orders  Incentives for Barilla sales representatives
  20. 20. Barilla Distribution Case Analysis – Barilla SpA 8/30/2014 20  Once a week placing order behavior  Average lead time of shipping: 10 calendar days  Distributors’ sales volume varied: mostly used simple periodic-review inventory systems  Few had forecasting systems or sophisticated analytical tools for determining order quantities
  21. 21. Table of Contents 8/30/2014 21 Introductions About Barilla Barilla’s Issues Detailed Analysis Recommendations 1 2 3 4 5 Case Analysis – Barilla SpA
  22. 22. Barilla’s Issues Case Analysis – Barilla SpA 8/30/2014 22 Unable to quickly match demand with supply Resulting in: a. Not enough inventory: revenue foregone for both Barilla & retailers; or b. Too much inventory: huge cost involved; markdowns
  23. 23. Case Analysis – Barilla SpA 8/30/2014 23 Barilla’s Issues The 4 Vs Volume Low High Variety High Low Variation High Low Visibility High Low The issue lies here … Propose JITD to overcome the issues  Introduce accurate forecasting (time series analysis)  Match demand with supply  Move from capacity lagging to capacity smoothing
  24. 24. Table of Contents 8/30/2014 24 Introductions About Barilla Barilla’s Issues Detailed Analysis Recommendations 1 2 3 4 5 Case Analysis – Barilla SpA
  25. 25. Deciding The Right Supply Chain for Barilla Case Analysis – Barilla SpA 8/30/2014 25  Barilla used an inappropriate supply chain, i.e. responsive supply chain due to fluctuating demand  Recommend moving to efficient supply chain  Efficient supply chain will help Barilla to respond quickly to unpredictable demand in order to minimize stock out, forced markdowns, and obsolete inventory. It will invest on reducing lead time aggressively  JITD can enable this
  26. 26. Fluctuating Demands resulted to Inefficient Supply Chain … thus, identification of the underlying drivers of fluctuations became extremely important Case Analysis – Barilla SpA 8/30/2014 26 “Pasta consumption was relatively consistent throughout the year” yet “Extreme demand variability” The bullwhip effect (Lee and Padmanabhan, 1997) ‘In a supply chain for a typical consumer product, even when consumer sales do not seem to vary much, there is pronounced variability in the retailers’ orders to the wholesalers’ Caused by:  Heavy promotions in the form of price, transportation, and volume discounts  Existing compensation system: encouraged the sales reps to push more products  Large number of SKUs lead to greater complexity  Bad forecasting from distributors due to the absence of forecasting systems  Long lead times of 10 days
  27. 27. Analyzing the root cause of the costs of poor coordination Case Analysis – Barilla SpA 8/30/2014 27 Distributors & Retailers  Impact of cost of poor coordination would be costs of carrying inventory  Reflected from Barilla’s logistics manager discussion on retail inventory pressure at distributor & retailer side Barilla  Impact of cost of poor coordination would be greater costs for its manufacturing & logistic operations  Reflected from below comment “As I see it, they are realizing they do not have enough room in their stores and warehouses to carry the very large inventories manufacturers would like them to. Think of shelf space in retail outlets. You cannot easily increase it. Yet, manufacturers are continuously introducing new products, and they want retailers to display.” “As the 1980s progressed, Barilla increasingly felt the effects of fluctuating demand. Orders for Barilla dry products often swung wildly from week to week. (exhibit 12.) such extreme demand variability strained Barilla’s manufacturing & logistics operations.” Yet, even with large inventories at distributors, Barilla products still have stock outs. (exhibit 13)
  28. 28. Minimizing the cost of poor coordination Case Analysis – Barilla SpA 8/30/2014 28  Support Vitali’s idea to request distributor to provide the following data:  Detailed Barilla products it had shipped out of its warehouse to retailers during the previous day  Current stock level for each Barilla SKU  Introduce accurate forecasting (time series analysis)  Match demand with supply  Move from capacity lagging to capacity smoothing
  29. 29. Managing Conflicts with regards to JITD implementation Case Analysis – Barilla SpA 8/30/2014 29 Internal Resistance  The Sales & Marketing team were vocal in their opposition to the plan  Felt their responsibilities would be diminished  Concerns rise about the sales level External Resistance  Coming from the Distributors  Concerns rise regarding the idea of giving much control to Barilla Similar Causes  Perceived loss of power/ influence  Fear of job losses  Risk aversion – distrust of change  The “human factor”
  30. 30. Overcoming Internal Resistance Case Analysis – Barilla SpA 8/30/2014 30  Clear communication campaigns needed to allay fears  Consider co-locating teams to improve communication  Human solution to a human issue  Change Sales and Marketing role into JITD customer relationship and development managers :  Performing role as the communication bridge between the company and the distributors  A system would be installed in the representatives' portable computer by which more information at the distributor warehouse level could be collected  Play a vital role in the new system  New compensation system: award a percentage of the company’s getting from JITD implementation to the employees
  31. 31. Case Analysis – Barilla SpA 8/30/2014 31 Overcoming External Resistance Show them the money  Evidenced-based approach: should be shown that the costs of the system would reduce so much Address Trust Issues  Build a transparent policy  Send the upper management instead of sending the Logistics personnel to talk to  Initiate joint-decision making and planning
  32. 32. Case Analysis – Barilla SpA 8/30/2014 32 Overcoming External Resistance Current distribution pattern Proposed distribution pattern
  33. 33. Customers’ Response with regards to JITD Implementation Case Analysis – Barilla SpA 8/30/2014 33  Skeptical that it could improve distributor’s inventory level (reduce inventory carrying costs) and improve service level  JITD would at first be disconcerting because will be losing control of my inventory  Need to convincingly demonstrate the specific benefits that JITD will have for me
  34. 34. Would JITD be feasible? Whom to be the target market? Case Analysis – Barilla SpA 8/30/2014 34 Yes, JITD would be feasible in 1990, it could be effective to minimize costs of carrying inventory at manufacturer side, distributor side, and retailer side. It’s also effective minimizing stock out and suitable for functional product as in Barilla case. In order to be effective it is very important to be combined with “everyday low price” policy. Next customer to be targeted will be biggest supermarket chain customers, followed by independent supermarkets and ‘signora marias’ In order to convince sales & marketing function that JITD is effective. It could be applied as pilot project for Barilla run depots (35% of shipping.) If such pilot project is successful to achieve its objective in optimizing its inventory level, therefore we believe sales & marketing function would “switch sides” to become ambassador for JITD for 3rd party distributors (GD & DO.)
  35. 35. Table of Contents 8/30/2014 35 Introductions About Barilla Barilla’s Issues Detailed Analysis Recommendations 1 2 3 4 5 Case Analysis – Barilla SpA
  36. 36. Conclusions & Recommendations Case Analysis – Barilla SpA 8/30/2014 36 Issues/Ideas Recommendations JITD initially identified by Vitali - drawback is lack of computer systems among retailers   800 different SKUs currently offered  Fluctuating demands  Start with biggest supermarket chain customers  Consider subsidizing computer systems for them  Then roll out to independent supermarkets and ‘signora marias’  Reduce range = fewer changeovers = more predictability  Introduce discount for most consistent orders month on month  Restructure dependency on trade promotions
  37. 37. Case Analysis – Barilla SpA 8/30/2014 37

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