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Barilla Spa Case – the Value of Information

BARILLA SpA Case The Value of Information COMAPNY BACKROUND ? Founded by Pietro Barilla in 1875 ? O Opened shop i Parma, Italy d h in l ? Subsequently run by son Ricardo, passed to his own sons Pietro & Gianni ? 1990 ? Largest Pasta maker in world g ? During 1960 constructed . 25 million sq. m. Pasta sq m Pasta plant in Pedrignano Background cont……… ? 1971 ? company sold to W. R. Grace,Inc. USA p y , ? 1979 – Grace sold the company back to Pietro ? 1980 – annual growth rate of 21% ? Growth achieved through expansion of existing business & acquisition of new business ?

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Brands – BARILLA, VOIELLO & BRAIBANTI ? 1990 – 7 Divisions – 3 Pasta division, Bakery Product di i i P d division, F h b d di i i C Fresh bread division,Catering i division & International division INDUSTRY BACKGROUND ? Origin of pasta unknown ? Per capita Pasta consumption in Italy averaged 18 kilos per year ? 1980 – market grew by less than 1 % ? 1990 – Semolina & Fresh Pasta only growth segments ? export market was experiencing record g growth PRODUCTS ? Fresh Products –Fresh Pasta shelf life of 21 days,fresh days fresh bread shelf life 1 day ?

DRY Products – Medium shelf life of 10 to 12 weeks or Long shelf lif of 18 to 24 months k L h lf life f h CHANNELS OF DISTRIBUTION SALES & MARKETINGS ? Advertising ? Trade Promotions d i ? Sales representatives JITD Program ? 1980 – Barilla witnessed Fluctuating demand ? Extreme demad variability strained Barilla manufacturing and logistic operatons ? 1987 – Brando Vitali then Barilla director of logistics felt both l i i f l “ b h manufacturers & retailers f il were suffering fron thinning margins” ? Early 1988 he thought of JITD Program

JITD cont…. ? Rather than send product to the distributor as per their internal Planning ? He suggested they should send only what is needed at the stores ? To consider distributor shipment data for forecasting ? He suggested sending product only as it is needed rather than building huge inventory at both areas JITD cont…. ? He suggested they reduce distribution & inventory cost to ultimately reduce manufacturing costs ? R i Resistance f from within the company S l & i hi h Sales marketing Personnel Remarks of Sales & marketing Our sales level would flatten ? We run risk of not being able to adjust our shipment sufficiently quickly to meet demand ? objection from distribution channels ? we would not be able to run Trade promotions with JITD ? It is not clear what cost would be reduced Vitali Counter to concerns ? JITD should be considered selling tool ? We offer coustomers extra service at no extra cost ? Program will improve Barilla Visibility ? It would improve relations with Distributors ? Distributor data would improve our Planning p g process Change 1988 – Giorgio Maggiali appointed as director of logistics as Vitali promoted ? Maggiali appointed Vincenzo to help develop JITD Program ? I l Implementation was diffi l as manager of i difficult f one distribution said “ managing my stock is my J b” Job” Two Important Issues ? Extreme variations in distributors order patterns have caused severe operational inefficiencies and cost penalties for Barilla ? In JITD program Barilla’s own Logistics organisation will specify delivery quantity to distributor whereas normal process is reverse.

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