Business Finance
Diagnose the underlying causes of the difficulties that the JITD program, homework help

Question Description

Write a case report( !) at least 3 pages.

Barilla Spa
1. Diagnose the underlying causes of the difficulties that the JITD program was created to solve.What are the benefits and drawbacks of this program?
2. What barriers or conflicts internal to Barilla does the JITD program create? What causes theseconflicts? As Giorgio Maggiali, how would you deal with these?
3. As one of the Barilla's customers, what would your response be? Why?
4. In the environment in which Barilla operated in 1990, do you believe JITD ( or a similar kindof program) would be feasible? effective? If so, which customers would you target next? Howwould you convince them that the JITD program was worth trying? If not, what alternativeswould you suggest to try to combat some of the difficulties that Barilla's operating system faces?

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9-694-046 REV: MARCH 25, 2008 JANICE H. HAMMOND Barilla SpA (A) Giorgio Maggiali was becoming increasingly frustrated. As director of logistics for the world’s largest pasta producer, Barilla SpA1, he was acutely aware of the growing burden that demand fluctuations imposed on the company’s manufacturing and distribution system. Since his appointment in 1988 as director of logistics, he had been trying to make headway on an innovative idea proposed by Brando Vitali, who had served as Barilla’s director of logistics before Maggiali. The idea, which Vitali called Just-in-Time Distribution (JITD), was modeled after the popular “Just-InTime” manufacturing concept. In essence, Vitali 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—those that would more effectively meet end-consumer’s needs yet would also more evenly distribute the workload on Barilla’s manufacturing and logistics systems. For two years Maggiali, a strong supporter of Vitali’s proposal, had tried to implement the idea, but now, in the spring of 1990, little progress had been made. It seemed that Barilla’s customers were simply unwilling to give up their authority to place orders as they pleased; some were even reluctant to provide the detailed sales data upon which Barilla could make delivery decisions and improve its demand forecasts. Perhaps more disconcerting was the internal resistance from Barilla’s own sales and marketing organizations, which saw the concept as infeasible or dangerous, or both. Perhaps it was time to discard the idea as simply unworkable. If not, how might he increase the chances that the idea would be accepted? Company Background Barilla was founded in 1875 when Pietro Barilla opened a small shop in Parma, Italy on via Vittorio Emanuele. Adjoining the shop was the small “laboratory” Pietro used to make the pasta and bread products he sold in his store. Pietro’s son Ricardo led the company through a significant period of growth, and in the 1940s, passed the company to his own sons, Pietro and Gianni. Over time, Barilla evolved from its modest beginnings into a large, vertically integrated corporation with flour mills, pasta plants, and bakery-product factories located throughout Italy. 1SpA (Società per Azioni) can be translated as “Society for Stockholders” and interpreted as “Inc.” ________________________________________________________________________________________________________________ Professor Janice H. Hammond prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1994, 2006, 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 694-046 Barilla SpA (A) In the 1960s, competing in a crowded field of over 2,000 Italian pasta manufacturers, Pietro and Gianni Barilla differentiated their company using a high quality product supported by innovative marketing programs. Barilla revolutionized the Italian pasta industry’s marketing practices by creating a strong brand name and image for its pasta, selling pasta in a sealed cardboard box with a recognizable color pattern, rather than in bulk, and investing in large-scale advertising programs. In 1968, to support the double-digit sales growth the company experienced during the 1960s, Pietro and Gianni Barilla began construction of a 1.25 million square meter state-of-the art pasta plant in Pedrignano, a rural town 5 km outside of Parma. The cost of this massive facility—the largest and most technologically advanced pasta plant in the world—drove the Barilla brothers deeply into debt. In 1971, they sold the company to the American multi-national firm W. R. Grace, Inc. Grace brought additional capital investment and professional management practices to the company and launched an important new Mulino Bianco (“White Mill”) line of bakery products. Throughout the 1970s, facing difficult economic conditions and new Italian legislation that both capped retail pasta prices and increased cost-of-living allowances for employees, Grace struggled to make its Barilla acquisition pay off. In 1979, Grace sold the company back to Pietro Barilla, who by then had secured the necessary funds to purchase it. The capital investments and organizational changes that Grace had brought to Barilla, combined with improving market conditions, helped Pietro Barilla launch a successful return to the company. During the 1980s, Barilla enjoyed an annual growth rate of over 21% (see Exhibit 1). Growth was realized through expansion of existing businesses, both in Italy and other European countries, as well as through acquisition of new, related businesses. In 1990, Barilla was the largest pasta manufacturer in the world, making 35% of all pasta sold in Italy and 22% of all pasta sold in Europe. In Italy, Barilla offered pasta products under three brands: the traditional Barilla brand represented 32% of the market and 3% of market share was divided between its Voiello brand (a traditional Neapolitan pasta competing in the high-priced segment of the semolina pasta market) and its Braibanti brand (a high-quality, traditional Parmesan pasta made from eggs and semolina). About half of Barilla’s pasta was sold in northern Italy and half in the south, where Barilla held a smaller share of the market than in the north but where the market was larger. In addition, Barilla held a 29% share of the Italian bakery-products market. In 1990, Barilla was organized into seven divisions: three pasta divisions (Barilla, Voiello, and Braibanti), the Bakery Products Division (manufacturing medium to long shelf-life bakery products), the Fresh Bread Division (manufacturing very short shelf-life bakery products), the Catering Division (distributing cakes and frozen croissants to bars and pastry shops), and the International Division. (Exhibits 2 and 3 show the organizational structure of the company.) Corporate headquarters were located adjacent to the Pedrignano plant. Industry Background The origins of pasta are unknown. Some believe it originated in China and was first brought to Italy by Marco Polo in the 13th century. Others claim that pasta’s origins were rooted in Italy, citing as proof a bas relief on a 3rd century tomb located near Rome that depicts a pasta roller and cutter. “Regardless of its origins,” Barilla marketing literature proclaimed, “since time immemorial, Italians have adored pasta.” Per capita pasta consumption in Italy averaged nearly 18 kilos per year, greatly exceeding that of other western European countries (see Exhibit 4). ). Total pasta consumption was relatively consistent throughout the year. A few pasta types experienced some seasonality—for 2 Barilla SpA (A) 694-046 example, special pasta types were used for pasta salads in the summer and egg pasta and lasagna were very popular for Easter meals. In the late 1980s, the Italian pasta market as a whole was relatively flat, growing less than 1% per year. By 1990, the Italian pasta market was estimated at 3.5 trillion lire. Semolina pasta and fresh pasta were the only growth segments of the Italian pasta market. In contrast, the export market was experiencing record growth; pasta exports from Italy to other European countries were expected to rise as much as 20-25% per year in the early 1990s. Plant Network Barilla owned and operated an extensive network of plants located throughout Italy (see Exhibit 5), including flour mills, pasta plants, and fresh bread plants, as well as plants producing specialty products such as panettone (Christmas cake) and croissants. In Pedrignano, Barilla maintained stateof-the-art R&D facilities and a pilot production plant for developing and testing new products and production processes. Pasta Manufacturing The pasta-making process is similar to the process by which paper is made (see Exhibit 6). In Barilla plants, flour and water (and for some products, eggs and/or spinach meal) were mixed to form dough, which was then rolled into a long, thin continuous sheet by sequential pairs of rollers set at increasingly close tolerances. After being rolled to the desired thickness, the dough sheet was forced through a bronze extruding die screen; the die’s design gave the pasta its distinctive shape. After passing through the extruder, the pasta was cut to a specified length. The cut pieces then were hung over dowels (or placed onto trays) and moved slowly through a long tunnel kiln that snaked across the factory floor. The temperature and humidity in the kiln were precisely specified for each size and shape of pasta and had to be tightly controlled to ensure a high quality product. To keep changeover costs low and product quality high, Barilla followed a carefully chosen production sequence that minimized the incremental changes in kiln temperature and humidity between pasta shapes. After completing this four-hour drying process, the pasta was weighed and packaged. At Barilla, raw ingredients were transformed to packaged pasta on fully-automated 120-meterlong production lines. In the Pedrignano plant, the largest and most technologically advanced of Barilla’s plants, 11 lines produced a total of 9,000 quintals (900,000 kilos) of pasta each day. Barilla employees used bicycles to travel within this enormous facility. Barilla’s pasta plants were specialized by the type of pasta produced in the plant. The primary distinctions were based on the composition of the pasta, for example, whether it was made with or without eggs or spinach, and whether it was sold as dry or fresh pasta. All of Barilla’s non-egg pasta was made with flour ground from grano duro (high protein “hard” durum wheat), the highest-quality flour for making traditional pasta products. Semolina, for example, is a finely ground durum wheat flour. Barilla used flours made from grano tenero (tender wheat), such as farina, for more delicate products, like egg pasta and bakery products. Barilla’s flour mills ground flour made from both types of wheat. Even within the same family of pasta products, individual products were assigned to plants based on the size and shape of the pasta. “Short” pasta products, such as macaroni or fusilli, and “long” products, such as spaghetti or capellini, were made in separate facilities due to the different sizes of equipment required. 3 694-046 Barilla SpA (A) Channels of Distribution Barilla divided its product line into "dry" and "fresh" product categories, representing 75% and 25% of Barilla's sales, respectively. • Dry products included dry pasta and longer shelf-life bakery products such as cookies, biscuits, flour, bread sticks, and dry toasts. Dry products had either “long” shelf lives of 18 to 24 months (e.g., pasta and dried toasts) or “medium” shelf lives of 10 to 12 weeks (e.g., cookies). In total, Barilla dry products were offered in about 800 different packaged SKUs. Pasta was made in 200 different shapes and sizes and was sold in over 470 different packaged SKUs (see Exhibit 7). The most popular pasta products were offered in a variety of packaging options; for example, at any one time Barilla’s #5 spaghetti might be offered in a 5-kg package, a 2-kg package, a 1-kg package with a northern Italian motif, a 1kg package with a southern Italian motif, a 0.5-kg “northern-motif” package, a 0.5-kg “southern-motif” package, a special promotional package with a free bottle of Barilla pasta sauce, and a display pallet. • Fresh products included fresh pasta products, which had 21-day shelf lives, and fresh bread, which had a one-day shelf life. Most Barilla products were shipped from the plants in which they were made to one of two Barilla central distribution centers (CDCs): the Northern CDC in Pedrignano or the Southern CDC in the outskirts of Naples (See Exhibit 8). Fresh products were moved quickly through the distribution system—only three days worth of fresh product inventory was typically held in each of the CDCs; in contrast, each CDC held about a month’s worth of dry product inventory. Certain fresh products, such as fresh bread, did not flow through the CDCs. Barilla maintained different distribution systems for its dry and fresh products due to their differences in perishability and retail service requirements. Fresh products were purchased from the two CDCs by independent agents (concessionari) who then channeled the product through 70 regional warehouses located throughout Italy. Each of these warehouses held about three days of fresh product in inventory. Nearly two-thirds of Barilla’s dry products were destined for supermarkets; these products were first shipped to one of Barilla’s CDCs, from which they were purchased by distributors. The distributors in turn shipped the product to supermarkets. Brando Vitali’s JITD proposal focused solely on dry products sold through distributors. The remainder of the dry products was distributed through 18 Barilla-owned “depots” (small warehouses), mostly to small shops. Barilla products were distributed through three types of retail outlets: small independent grocers, supermarket chains, and independent supermarkets. In sum, Barilla estimated that its products were offered in 100,000 retail outlets in Italy alone. 1. Small Independent Shops Small shops were more prevalent in Italy than in other Western European countries (see Exhibits 9 and 10). Through the late 1980s, the Italian government had supported small grocers (often referred to as “Signora Maria” shops in Italy) by restricting the number of licenses provided to operate large supermarkets. In the early 1990s, the number of supermarkets began to grow as governmental restrictions abated. 4 Barilla SpA (A) 694-046 Approximately 35% of Barilla’s dry products (30% in the north of Italy and 40% in the south) were distributed from Barilla’s internally-owned regional warehouses to small independent shops, which typically held over 2 weeks of inventory at the store level. Small shop owners purchased product through brokers that dealt with Barilla purchasing and distribution personnel. 2. Supermarkets The remaining dry products were distributed through outside distributors to supermarkets—70% to supermarket chains and 30% to independent supermarkets. A supermarket typically held from ten to twelve days of dry-grocery inventory within the stores, and on average carried a total of 4,800 dryproduct SKUs. Although Barilla offered many pasta products in multiple package types, most retailers would carry the product in only one (and at most two) packaging options. Dry products destined for a supermarket chain were distributed through the chain’s own distribution organization, known as a “Grande Distribuzione” (Large Distributor) or GD; those destined for an independent supermarket were channeled through a distributor known as a “Distribuzione Organizzata” (Organized Distributor) or DO. A DO acted as a centralized buying organization for a large number of independent supermarkets. Most DOs had regional operations, and the retailers they served usually sourced product from only a single DO. Due to regional preferences and differences in retail requirements, a typical distributor might distribute 150 of Barilla’s 800 dry-product SKUs. Most distributors handled products coming from about 200 different suppliers; of these, Barilla typically would be the largest in terms of the physical volume of product purchased. Distributors typically carried from 7,000 to 10,000 SKUs in total. However, distributors’ strategies varied. For example, one of Barilla’s largest DOs, Cortese, carried only 100 of Barilla’s dry products and carried only 5,000 SKUs in total. Both GDs and DOs purchased product from the Barilla CDCs, maintained inventory in their own warehouses, and then filled supermarkets’ orders out of their warehouse inventory. A distributor’s warehouse typically held a two-week supply of Barilla dry products in inventory. Many supermarkets placed orders with distributors daily; the store manager would walk up and down the store aisles and would note each product that needed to be replenished and the number of boxes required (the more sophisticated retailers used hand-held computers to record order quantities as they checked store shelves). The order would then be transmitted to the store’s distributor; deliveries were typically received at the store 24 to 48 hours after the receipt of the order at the distribution center. Sales and Marketing Barilla enjoyed a strong brand image in Italy. Its marketing and sales strategy was based upon a combination of advertising and promotions. Advertising Barilla brands were heavily advertised. Advertising copy differentiated Barilla pasta from basic commodity “noodles” by positioning the brand as the highest quality, most sophisticated pasta product available. One ad campaign was built on the phrase: “Barilla: a great collection of premium Italian pasta.” The “collection” dimension was illustrated by showing individual uncooked pasta 5 694-046 Barilla SpA (A) shapes, as though they were jewels, against a black background, evoking a sense of luxury and sophistication (see Exhibit 11). Unlike other pasta manufacturers, Barilla avoided images of traditional Italian folklore, preferring modern, sophisticated settings in major Italian cities. Advertising themes were supported by sponsorships of well-known athletes and celebrities. For example, Barilla engaged tennis stars Steffi Graf to promote Barilla products in Germany and Stefan Edberg to promote Barilla products in Scandinavian countries. Luminaries such as Paul Newman were also used to promote Barilla products. In addition, Barilla advertising focused on developing and strengthening loyal relationships with Italian families by using messages such as “Where there is Barilla, there is a home.” Trade Promotions Barilla’s sales strategy relied on the use of trade promotions to push product into the grocery distribution network. A Barilla sales executive explained the logic of the promotion-based strategy: We sell to a very old-fashioned distribution system. The buyers expect frequent trade promotions, which they then pass along to their own customers. So a store will know right away if another store is buying Barilla pasta at a discount. You have to understand how important pasta is in Italy. Everyone knows the price of pasta. If a store is selling pasta at a discount one week, consumers notice the reduced price immediately. Barilla divided each year into 10 or 12 “canvass” periods, typically four to five weeks in length, each corresponding to a promotional program. During any canvass period, a Barilla distributor could buy as much product as desired to meet current and future needs. Incentives for Barilla sales representatives were based on achieving sales targets set for each canvass period. Different product categories were offered during different canvass periods, with the discount depending on the margin structure of the category; typical promotional discounts were 1.4% for semolina pasta, 4% for egg pasta, 4% for biscuit ...
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Final Answer


1. Diagnose the underlying causes of the difficulties that the JITD program was
created to solve. What are the benefits and drawbacks of this program?
The main causes of the difficulties that the JITD program was meant to solve include;

Fluctuations in demand that greatly impaired the firm’s manufacturing and distribution


Inability to effectively match demand with supply. The company had difficulties
delivering the right quantities that would meet the needs of end-user consumers in the
most effective manner.


Uneven distribution of workload on the company’s manufacturing and logistics systems.
Stock out issues due to variability in demand greatly strained the entire manufacturing
and logistics systems as the company Barilla used to experience shortage of stock or too
much inventory (Hammond, 2008).

Benefits of the JITD program
The JITD program is advantageous as it will enable the company to make accurate
demand forecast thus leading to efficient delivery decisions. The program will help in meeting
the needs of end-user consumers more effectively. It will lead to even distribution of workload to
the manufacturing and logistics systems and reduces customer inventories which leads to overall
reduction in the costs of holding inventory. The program will further improves the company’s
visibility and trade and mak...

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