Product From The Barilla Cdcs example essay topic

Just-In-Time Distribution and Barilla SpA Anybody who knows something about business had heard the term Just-in-time (JIT) inventory. It involves producing only what is need, when it is needed. The principle of Just in time is to eliminate sources of manufacturing waste by getting the right quantity of raw materials and producing the right quantity of products in the right place at the right time. (1) In this way, manufactures receive parts and materials "just in time" to meet the day's manufacturing quota with hardly any extra. (3) JIT is a manufacturing management method developed in Japan during the 70's to meet customer demands. The individual most credited with the development of JIT is Taichi Ohno, the vice president of Toyota Motor Company.

After Toyota introduced JIT and was proven to be successful, it was tried by other companies shortly after and now today is widely used by many companies. JIT can be applied to almost any type of industry and channel relationships. JIT could someday become the norm of the business world. Before the introduction of JIT, there were a lot of manufacturing defects in the system such as inventory problems, product defects, risen cost, large lot production, and delivery delays.

Some other problems also included equipment breakdowns, and uneven production levels. The inventory problems included unused inventory that was unproductive and the extra effort of storing and managing it. To store inventory, it costs money called a Carrying Cost, which can be expensive. However, with the use of the JIT system, inventory costs can be reduced by as much as 50 percent if not more. For product defects, the manufactures knew that a single product defect can cause breakdown the producer's creditability so they must have a defect-free process. Instead of a large lot production, manufactures decided they should produce more than just one good and have a diverse line of products.

And finally, the way they were running things did not manage well for the fast delivery request, so there was a need to have a faster and reliable delivery system in order to handle customers' needs. (1) With the use of the JIT system, these problems were solved and made things run a lot more smoothly with a lot less cost. To make the JIT system successful the cooperation between manufacture and its channel members and a good logistics system is a must. Besides the few that I mentioned above, JIT has a wide range of benefits, such as: reduced inventory, improved quality, lower costs, reduced space requirements, shorter lead time, increased productivity, greater flexibility, better relations with channel members, simplified scheduling and control activities, increased capacity, better use of human resources, and more product variety. One study showed that the average benefits accrued by US manufactures over 5 years from using the JIT system were extraordinary. There was 90 percent reduction in the manufacturing cycle time, 70 percent reductions in inventory, 50 percent reductions in labor costs, and 80 percent reductions in space requirements.

(2) All these benefits affect the channel relationship in some way and will benefit the end user, whether it's the cost of the product or the quality. Now that I've given a little overview on the JIT system, I want to talk about a new concept that a company called Barilla SpA wanted to try called, Just-in-time Distribution (JITD). But before I talk about JITD I want to tell you a little about the company. Barilla SpA was founded in 1875 when Pietro Barilla opened a small shop in Parma, Italy. Connected to the shop was a small laboratory that Pietro used to make the pasta and bread products that he sold in his store. Eventually over the years, the company grew and was handed over to Pietro's grandchildren, Pietro and Gianni.

Over this time, Barilla evolved from the small shop into a large corporation with flour mills, pasta plants, and bakery-product factories that are still today located throughout Italy. With a lot of competition in the pasta industry, Pietro and Gianni differentiated their company from the others with a perceived high quality product supported by strong innovative marketing programs. Barilla revolutionalized the Italian pasta industry's marketing practices by creating a strong brand name and image for its pasta and by 1968 hit double-digits in sales growth. Due to their size and amount of products, Barilla was organized into seven divisions: three pasta divisions, a bakery products division, the fresh bread division, the catering division, and the international division.

By 1990, Barilla became the largest pasta manufacture in the world (which it sill is today). (4) Barilla SpA had a couple different channels of distribution. (Illustration shown on last page of report.) First of all, Barilla divided it entire product line into two general categories: 1.) Fresh products, which included fresh pasta products that had a 21 day shelf life and fresh bread that had a one day shelf life and 2.) Dry products, which included dry pasta that had long shelf life of 18 to 24 months and longer shelf-life bakery products such as cookies, flour, etc. that had a medium shelf life of 10 to 12 weeks. Most of Barilla's products were shipped from the plants in which they were made to one of two central distributions centers, the Northern CDC or the Southern CDC. Other fresh products were moved quickly through the distribution system in which only three days of fresh product inventory and a month's worth of dry product inventory was held in each CDC. Barilla maintained separate distribution systems for its fresh and dry products due to their differences in perishability and retail service requirements.

Fresh products were purchased from the two CDC's by independent agents who then channeled the product through 70 regional warehouses located throughout Italy. Nearly two-thirds of the dry products were destined for supermarkets which were first shipped to one of Barilla's CDCs, purchased by distributors and then shipped to the supermarkets. It is estimated that Barilla's products were offered in nearly 100,000 retail outlets in Italy alone, whether it was small independent grocers, supermarket chains, or independent supermarkets. (4) With the small independent shops Barilla distributed some dry products from its internally owned regional warehouses to the shops, which usually held 2 weeks of inventory at the store. The store owners only had to deal with brokers that dealt with Barilla's purchasing and distribution personnel, so it is a fairly short channel. (4) With the supermarkets, it was a longer channel of distribution and different depending on whether it was supermarket chain or an independent supermarket.

Dry products going to a supermarket chain were distributed through the chain's own distribution organization, known as a Grand Distributor (GD). Then those that were going to an independent supermarket were channeled through a different set of distributors, know as Organized Distributors (DO). Both GDs and Dos purchased product from the Barilla CDCs, maintained inventory in their own warehouse, and then filled supermarkets' orders out of their warehouse inventory in which they usually held a two week supply of inventory. Then many supermarkets placed orders with distributors daily. Each day the store manager would walk up and down the store aisles and take note of each product that needed to be ordered. The order would then be received by the store's distributor.

After that the orders were usually received at the store 24 to 48 hours after the receipt of the order at the distribution center. (4) Most of the distributors, however, checked their inventory levels and place orders once a week. Barilla would then ship its product to the distributor over the course of the week that started 8 days after the order was placed and ended 14 days after the order was placed. The average lead time was ten calendar days.

(Example below) At the supermarket levels, there were times of the year, usually the beginning or end of each month, when the stores would run out of inventory completely because of a promotion that Barilla would put on. Each month Barilla put out a different promotion for a different product in hopes that people and distributors would buy a lot of their product. People would then stock up and wouldn't buy again for a while. The orders for dry products swung wildly from week to week. This in time caused fluctuation demand and created a bull whip effect. This made the director of Logistics for Barilla, Giorgio Maggiali, frustrated and he wanted to do something about it, an alternative approach to order fulfillment must be found.

Giorgio seriously thought about and supported implementing an idea proposed by Brando Vitali, the former director of Logistics. The idea was called Just-in-time Distribution (JITD) which was modeled after the Just-in-time manufacturing concept. JITD proposed that rather than follow the traditional practice of delivering product to Barilla's distributors on the basis of whatever orders those distributors placed with the company, Barilla's own logistics organization would instead specify the appropriate delivery quantities, ones that would more effectively meet end consumer's needs yet would also more evenly distribute the work load on Barilla's manufacturing and logistics systems. (4) Barilla would look at all of the distributors's hip ment data and send only what is needed that the stores-no more, no less. He believed that it could improve operations for them and the customers if Barilla were responsible for creating the delivery schedules.

They would be able to ship products as needed rather than building enormous stock in both of their facilities. However, the logistics organization couldn't do it all on its own, they would need the distributors help. Each day each distributor would provide 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 product. Then the data would be used to make replenishment decisions based on Barilla's forecasts.

(4) However, when it came time to implementing the idea, Maggiali was faced with many questions, resistance, and dead ends. It seemed that Barilla's customers were unwilling to give up their authority to place orders as they pleased and some didn't want to give the data. The most resistance seem to come from the sales and marketing organizations. They felt that their responsibilities would be diminished if such a program were put in place. Others had the following to say: "Our sales levels would flatten if we put this program in place."We wouldn't be able to run trade promotions with JITD.

How can we get the trade to push Barilla product to retailers if we don't offer some sort of incentive?"We increase risk of having our customers stock out of our product if we have disruption in our supply chain". These concerns were replied with, "I think JITD should be considered a selling tool, rather than a threat to sales. We are offering the customer additional service at no extra cost. It will make distributors more dependent on us and should improve the relationships between Barilla and the distributors rather than harm them. (4) I think the biggest factor that all these people don't want to implement JITD is because they don't like change.

However, change is good for a company and necessary to grow. JITD would be good for this company and should be implemented. However, in order to do this, the distributors and the sales and marketing people at Barilla will have to be convinced that this proposal will do more good to them than bad. The distributors and channel members will have to be given incentives to join the bandwagon. The channel member will need to come together and work as a team to discuss different issues and smooth out the creases in the supply chain. The distributors are worries that Barilla's forecasts will be incorrect so Barilla is going to have to come up with a sophisticated forecasting technique and prove it to the other channel members.

Barilla needs to show facts and show good reasons for why this is and will work. Another option may be to find new targets and try the program out on them to prove that it works. New customers / target markets are easier to get their cooperation during negotiations and to reinforce agreements. Being a new customer they are open to new ideas, whereas the current distributors and customers are more reluctant to change. Such target markets could include the small independent shops.

Barilla isn't the only case that has tried to implement JITD. It is being use for perishables because they have such a short shelf life and need to be shipped out fast with little to no storage. Overall, I think JITD could be useful to the right companies. Who knows maybe someday it will be as popular as the famous JIT.

Bibliography

1.) Wong, Nancy, "Conceptual Theory", Iowa State University, web Wing / Public/JIT tutorial. html 2.) Russell, Roberta S., and Taylor, Bernard W., Operations Management, 4th Edition, ch. 11, pg. 511-535.3.) Rosen bloom, Bert, Marketing Channels, 7th Edition, 2004, pg.
405-406.4.) Harvard Business School, "Barilla SpA (A) ", Boston, MA; Harvard Business School Publishing, 14 June 1994.
5.) "Just in Time distribution: the time is right". , Supermarket News, 19 August 1991.