What are the underlying problems that the JITD program is supposed to solve? What causes them? What are the potential program benefits? Our framework will be the following. We will try to list all the problems that are faced by Barilla and the distributors and that the JITD program is supposed to solve, while relating them to their main roots. The main problem in this case is the fluctuating demand whose main causes include: • Promotions: Barilla’s sales strategy relied heavily on promotions, be it through price, transportation and volume discounts. They divided the year into 10 to 12 “canvass” periods, during which different products were offered at discounts with prices ranged from 1.4% to 10%. This obviously made the demand fluctuating as a function of prices but also turning final consumers to strategic ones as dry products have a very long shelf life, allowing consumers to store huge quantities and therefore to buy them at certain periods. Moreover, an intrinsic uncertainty accompanies this fluctuating demand with such consumer behaviour. • Sales Representatives compensation model: The compensation system for the sales representatives was based on sales volume. The main issue with this compensation system is that the sales representatives would push more products during the promotional period to get a bonus, while not being able/willing to push as much during non-promotional periods. This led to wide variations in demand and made forecasting even more difficult. • Large number of SKUs: Barilla’s dry products (which accounted for 75% Barilla’s revenues and are the focus of the JITD proposal) were offered in 800 different packaged Stock Keeping Units (SKUs). These large numbers led to greater complexity and consequently to an aggregated uncertainty since different SKUs were naturally treated separately when managing inventory, while at the end of the day, the different SKUs could somehow cannibalize one another. This large number of SKUs, coupled with promotions schemes that could differ from canvass to canvass, taking into account potential cannibalization, makes forecasting at the individual SKU level an extremely complex task, leading whatsoever to high standard deviations. • Bad forecasting and inventory management by distributors: The distributors not only had no efficient forecasting systems but they also did not have sophisticated analytical tools for determining optimal order quantities based on those forecasts. This could therefore result into excess inventory levels as well as high stock outs. Indeed, exhibit 13 shows average inventory levels much higher than the orders average (exhibit 12) _ an approximate estimate would be an average of 2.5 WOS held in Cortese Northeast DC. The following figure highlights this excess inventory. Moreover, a thorough analysis of stockout levels, shows that the average stockout level is around 6.1%
Barilla SpA, the world’s biggest pasta manufacturer, has continuously experienced problems with increased costs and inefficiencies in their operation. The fluctuations in demand have caused Barilla SpA’s manufacturing costs, inventory costs, and distribution costs to go up. Issues that influenced the demand fluctuations are the discounts Barilla SpA offers on both price and transportation, the compensations for sales representatives that is based on the volume of goods they sell to the distributors, and long lead times between time of order and time of delivery – just to name a few.
The idea of JITD is to allow sales and inventory data to be shared along the supply chain. By doing so, Barilla SpA can use that data from its distributors to better understand the demand of its products and perform better forecasting. The results would be lower transportation costs due to better shipment planning, increase manufacturing efficiency, reduce inventory costs, and less stock outs for its distributors. This will benefit both Barilla SpA and its distributors, but resistance from the distributors and Barilla SpA’s internal opposition makes it difficult to implement such strategy. Barilla SpA’s sales representatives were afraid of losing their jobs because they felt with the JITD in place; they will no longer be needed. Also, it would essentially eliminate the current compensation system, meaning they would make less money. As for the distributors, the idea of providing sales data to others was unheard of at the time. The distributors did not trust Barilla SpA with their private information, and felt that they would lose control of their own operations if they had agreed with Barilla SpA.
Despite of all the internal and external resistances and doubts, I still think JITD is feasible for Barilla SpA, and they should continue to try and implement it due to the large savings and increased efficiency that JITD will bring to both Barilla SpA and its distributors. In order to succeed, Barilla SpA must convince its distributors that the JITD strategy will work, and that it is also beneficial to everyone.
Before trying to convince the distributors, I believe Barilla SpA must convince its sales representatives first because they are the ones the distributors talk to the most, and can have an influence in a distributor’s decision. An example of that is the Macaroni GD in the case, where its sales representative had some influence on Macaroni’s decision. Barilla SpA must communicate to its sale representatives that even with JITD in place, they will still be needed. Their responsibilities will be changed from trying to sell high volumes to selling the JITD idea and to maintain a good relationship with the distributors. The sales representatives will be the first ones to help solve any problems that the distributors has, and they will be involved in other logistic responsibilities that the JITD will require. Also, convince them that the more money the company saves, the more the company will profit; therefore a higher bonus can be given to employees. This may change Barilla SpA’s sales representatives’ perception to Pro-JITD.
As for the distributors, there are a few ways that will help Barilla SpA convince them that JITD will be beneficial for everyone. Instead of trying to convince the distributors just by talking to them and telling them about JITD, Barilla SpA should develop some kind of an analysis that they can show the distributors just how it can benefit them. Show them the high costs and cons of the current strategy, and compare it to the costs savings that JITD will bring across the supply chain.
Next, Barilla should implement JITD in a number of the Barilla-owned regional warehouses first. Since they own the warehouses, they will be able to test JITD with them. After a period of time, Barilla can use the information gathered to show the distributors (only if it was successful), that the implementation of JITD is a good thing. Showing the distributors the improved efficiency and cost savings that resulted from it may help win them over.
One other thing that Barilla SpA can do to gain its distributors’ confidence to agree to the JITD program is signing some kind of a contract. It will be an agreement between Barilla SpA and its distributors that Barilla SpA will basically guarantee the positive results of the JITD program. If the JITD does not work, and in turn cause the distributors to lose money due to increased costs incurred by the distributors or increased stock outs (which leads to lost of sales), then Barilla SpA will be responsible to pay them that amount. This will show the distributors that Barilla SpA is confident that this JITD program will benefit the distributors, and will help convince the distributors to sign up for JITD.
The JITD strategy will result in less fluctuation in demand, and allow Barilla SpA to reduce costs and become more efficient. It will also benefit others in the supply chain as well and not just Barilla SpA. Barilla SpA must be able to convince both its internal sales representatives as well as the distributors. Once JITD is implemented, it will improve communication, cooperation, and relationship between Barilla SpA and its distributors. It will allow Barilla SpA to become more competitive and grow bigger than it already is, and its growth will benefit the distributors that trusted Barilla SpA and agreed to the JITD.