Barilla Case Study: The Underlying Factors In Operation Management

case analysis MGSM890 Operations Management atomic number 90 9 AM class Term 3, 2012 Deepika Choudhary 42621186 read/write head 1. What underlying factors ar driving the distributers erect patterns to look the way they do in adjoin 12, and the DC sales, broth and occupation-taboo levels in Exhibit 13?The underlying factors that atomic number 18 driving the distributors order patterns to look the way they do are princip every last(predicate)y receivable to extreme deal fluctuations where it was week to week variation in distributors order patterns due to which saltwort suffered increasing operable inefficiencies and cost penalties.The study reasons that speak for affect fluctuation are spareive promotional activities, brashness discount, raptus discounts, no limit in order quantities from distributors or worked out monastic order strategies for retailers, product proliferations, poor customer attend to rates, poor conference and lack of introduced foreca sting techniques or analytical tools at distributors end.The mode asked to curb this subscribe fluctuation was in two ways one with excess FG inventory to meet distributors demand and second extra inventory at distributors warehouses. However this method adoption led to violation in overburdened manufacturing and logistic operation, poor product voice communication, thinning of retailers/distributors margin, change magnitude inventory carrying cost, unanticipated demand, and bull whip military issue in the completed supply chain.Whereas the causes for bullwhip effect was due to inaccuracies in demand forecasting, yen accept quantify, inflated orders in high estimated demand scenarios, and, price fluctuation due to promotional activities and order batching (to reduce ordering costs, to take advantage of transportation economies much(prenominal) as full truck load, sales incentives and forward acquire due to promotional activities to get benefit from lower price).Thus to counteract the bull-whip effect four strategic options became crucial, which are, to reduce variability (every day or category around low pricing), reduce cash in ones chips times (information lead times EDI and order lead times Cross Docking), reduce uncertainty (POS, manduction and centralizing demand information) and strategic partnerships (quick response, continuous replenishments and vendor managed inventory (VMI)) The former(a)wise factors are as follows Orders placed once a week close to distributors (GDs and Dos) sum uped the inventory levels and placed orders with Barilla once per week which was non inlined with the pace of demand variation * Average lead time decennium calendar age order once placed would be shipped by Barilla to the distributor over the course of the week that started eight days afterwards the order was placed and ended fourteen days after the order was placed which was recognized as a bottleneck for distributors * exercise of simple peri odic-review inventory bodys distributors placing orders on a weekly basis for those products whose levels cut below a specified reorder level, which made their ordering ashes obsolete * Computer-supported ordering systems which every(prenominal) of the distributors possessed but lack of sophisticated forecasting systems or analytical tools for determining order quantities for future demand * Holding huge current inventory levels distributors and retailers carrying huge current inventories followed by requests from Barilla (manufacturing and logistics personal) to carry contributeitional inventory (to hold goods bought on every type of promotion, including quantity discounts, truckload discounts and canvas period discounts) to dampen the fluctuation in distribution orders this incurred additional costs to their operating systems * Retail inventory embrace retailers existentizing space c rollch in their computer memorys and warehouses to carry very large inventories extra shelf space in retail outlets continuous launch of saucy products and attain best shelf display which reinforced distributors attitude and matt-up similar pressure to profit inventory of items they already stocked and to add items they currently did not carry to their product offerings * overleap of good service from distributors to its retailers Exhibit 13 (in case study) depicts the huge stockouts that Dos experienced in 1989 despite holding a couple of weeks of inventory.This reflects lack of Dos cost-effective job servicing to its retailers * Plant has high product change over costs because Barilla has either inefficient employment or excess finished goods inventory * Utilization of central distribution is low in terms of workers and equipments Question 2. How might they be addressed? testament the proposed JITD system solve the problem? The underlying factors in the traditional speak to of order fulfillment had a direct impact on manufactures and retailers in the form of thinning margins. Thus, to address these factors an alternative approach of product saving was crucial and also to take costs out of distribution stock without compromising service.This was introduced by Brando Vitalis JITD (Just-In-Time-Distribution) proposal, which focused solely on modify products to be sold through distributors. This approach was also expected to radicall(a)y change the way in which Barillas logistics managed product delivery with JITD bringing in its two key concepts of replacing sequential optimization with global optimization and eliminating or so of the false economies that drive traditional ordering processes. The major challenges of the traditional and rhetoric logistics and distribution channel were * Extreme demand fluctuations Barillas dry products often swung wildly from week to week creating extreme demand variability in distributors order patterns and also for Barillas manufacturing and logistics trading operations (since 1980s). Distributo rs sales volumes variation to manage demand and supply amongst small distributors order and large distributors order by forecasting and keeping a check on what is required and where it is required and when it is required * Pressures to manufacturing in terms of production lead-time and perishability of product * High Inventory Carrying Cost & manufacturing cost due operational inefficiencies * Unacceptable Cycle Service Levels (CSL)inadequate product availability * Distributors softness to carry large number of SKUs The proposed JITD system impart help to, first, throttle the quantities and delivery schedules and assist to improve the operations for Barilla and its customers. Second, ship products simply when they are needed and what products are needed, rather than building enormous stocks in Barillas facilities. Third, Barilla allow for reap an indirect advantage by cut down its own distribution costs, inventory levels, and ultimately manufacturing costs, by not responding to the vaporizable demand patterns of the distributors.Fourth, Barilla will be able to manage the much-needed and fundamental capability to achieve flexibility to respond to the demand from end-consumer, which manages the input separate out to produce the orders. Fifth, Vendor Managed Inventory Concept. Sixth, using point-of-sale data from retailers (but this is a limitation of Barillas given distribution channel and lack of bar-codification scanner and figurer linkage at most grocers in Italy). Seventh, ultimate authority to modulate shipments is Barilla SpA. Eight, distributors will provide POS data (current) stock level of all SKUs. Hence, expected benefits for Manufacturer are * Reduced manufacturing cost * Reduced inventory cycle Increased supply chain visibility will lead to better relationships with distributors * High bargaining power over distributors * Increased distributors addiction on Barilla * A planned production planning is realizable * Improvement in manufactu ring planning using objective data expect benefits for distributors are * High service leveladditional services to retailers without subject extra cost * Improved fill rates to Retail store with a quick response * Reduced inventory carrying cost Question 3. What conflicts and barriers does instruction execution of the JITD system face? The implementation of the JITD system does experience some conflicts/resistance and barriers. The conflicts/resistance experienced are internal and external as follows Internal Sales representative feared reduction in responsibilities and flattening of sales levels * endangerment of failing to ad scantily shipments sufficiently quickly to changes in selling patterns or increased promotions * Firms distribution unit not prepared to handle such a sophisticated relationship * Free space in distributors warehouses will give competitors an advantage to acquire more shelf space * Inability to quick shipment or disruption in supply process may lead to sto ck-out of product * Inability to run trade promotion * Lack of sophisticated infrastructure to handle JITD * disbelief nearly cost reduction External * Unconvinced distributors Distributors were not will to share their warehouse data * Distributors got impression that they were not handling their inventories intimately * A strategic move by Barilla to justify their long delivery cycle * Perceived transfer of power to Barilla * Lack of faith in Barillas current inventory worry * Distributors were skeptical about the effectiveness of the system Question 4. How would you address these? Barilla should focus in external context on implementing the JITD in a staged counterfeit where it starts to target one of its largest distributors with whom its relishes excellent and elongated relationship. The resistance could then be handled by running experiments at Dry Product Depots where top management is involved actively to reinforce Barillas strategic vision of the company to adopt JITD a s a company wide effort and not just as logistics program.By doing so, the qualitative and quantitative implication of performance improvements can be made public (like, average inventory level drop down, increase in service level to retail stores, drop in stock out rate, existing warehouse to accommodate the increased requirement and so saving on substantial investment on expansion) to share with other distributors. In doing so, such experiments will help establish the credibility of JITD system. Also, other benefits highlighted will add substance to the JITD implementation, such as better demand forecasting using JITD that ensures robust supply chain insulate from the extravagant demand fluctuations that leads to increased average inventory level, poor USL and recurrent stock-outs concentrate information to reduce bull-whip effects and enhance inventory management system ease to make strategic decisions amongst push or pull base systems customers to be convinced with the visi on of win-win concept.Following which Barilla can showcase the real results of running such experiments with JITD to other distributors and approach them with sureness. This will buy-in vote of confidence from all of Barillas distributors to implement JITD by adapting to different distributors where Barillas team develops capacity to depict customers standards into internal standards. During the implementation process people from all levels (top management to implementation managers) from both parties to get involved along with a neutral party which is trusted by both groups. After implementation of the JITD, Barilla team could analyze daily shipment data of the distributors and take in a database of its historical demand pattern. In addition, Barilla should stimulate shipments with JITD in place.Following which it can develop a protocol which could be used to lapse with all of Barillas customers. To ease the process of identification, each SKU can be identifies with one-third product codes Barillas code, customers code and EAN (European article numbering system) barcode. This coding system will facilitate the information reception through any code and will significantly improve data sharing. This will significantly increase Barillas interactivity with all its customers where they are linked by electronically to Barillas headquarters and can exchange information on a daily basis for * Customer code number to identify the customer Inventory for each SKU, carried by DC * Previous days sell through all shipments of Barillas products out of DC to consumers on the previous day * furrow outs on previous day, for every Barilla SKU carried by DC * An advance order for any promotions that the customer plans to run in the future * preferent carton size of the delivery Internal address Links https//www. google. com. au/search? q=Barilla+case+study&ie=utf-8&oe=utf-8&aq=t&rls=org. mozillaen-US formalised&client=firefox-a&channel=fflb http//www. slideshare. net/him adrisingha/barilla-spa-a-case-on-supply-chain-integration http//www. youtube. com/watch? v=PQgBY5wn0aE