Supply Chain Management
The director of logistics suggested the implementation of Just-in-Time Distribution (JITD), with Barilla’s distributors to address the problem of demand fluctuations. Under the proposed JITD system, decision-making authority for determining shipments from Barilla to a distributor would transfer from the distributor to Barilla. Specifically, rather than simply filling orders specified by the distributor, Barilla would monitor the flow of its product through the distributor’s warehouse, and then decide what to ship to the distributor and when to ship it.
So we see that information serves to lessen the effect of variability. If a firm is striving to meet a given level of stochastic customer demand, then it can use information, capacity, and inventory as substitutes. Better information leads to lesser need for inventory, or allows the firm to operate with less capacity. Thus, sharing of information reduces the total supply chain cost. At the outset, the benefits of JITD might be more apparent when we look from the position of Barilla.
As a customer of Barilla, one has to evaluate the JITD system from the point of view of a distributor of Barilla products (in this case only dry products). Thus there is a need to look at the Pro’s and Con’s of JITD system to a distributor. The benefits of the program seem to supercede the drawbacks. In the present market scenario of decreasing margins, increasing competition, increasing customer awareness and their ever increasing expectations, cost cutting is a must for survival.
Since, JITD aims at the reduction of the costs of the entire supply chain, there is a strong case in going in favor of this program. Another way this can benefit a distributor is that the information management system which will be in place once JITD is implemented can be easily extended for other in-house products and lead to better management for those products as well. One more important positive side effect of JITD will be identifying areas where cost reductions in operations can be achieved. This will be possible by having an interchange of ideas between the various partners.
The major form of assistance or co-operation that a distributor can provide is by the way of sharing data relating to the movement of materials with the manufacturer. This will. Among other things, also improve inventory management practices of distributors’ own stocks and will also be useful for other manufacturers’ products that a distributor might be dealing with. The various disadvantages of JITD for distributors that have been listed out can be debated upon. E. g. , loss in bargaining power and control is not as acute as it has been made out to be.
One may argue that the distributor becomes the most important source of market information for the company. It is this very information that forms the core of the all JITD activities. In that sense, a distributor shall assume all the more importance for Barilla. Again, price promotions can be introduced in alternate forms where all the channel members may be benefited and the schemes are passed onto the retailers as well. Question 4) Which customers would you target? How would you convince them that the JITD program was worth trying?
If not, what alternatives would you suggest to combat some of the difficulties that Barilla’s operating system faces? There are three types of retail outlets for “Dry Products”, namely; Small independent stores, Independent supermarkets and Supermarket Chains. Small independent stores account for 35% of Barilla’s dry products which are distributed by internally owned warehouses to brokers and passed on to the retail outlet. These are small outlets which do not have the relevant technology to keep the company informed of the demand status on a real time basis. So, they cannot be targeted for JITD.
Independent supermarkets account for 30% of sales of dry products through supermarkets and the products are channeled through DOs which act as a central buying agency for a large number of independent supermarkets. Dry products for supermarket chains on the other hand are distributed through the chains own distribution organization called GD. Both DOs and GDs purchased products from Barilla’s CDCs and maintained two weeks inventories in their own warehouses. These are the main customers of Barilla and serve the dominant supermarket stores and handle the major portion of retail and end-customer demand.