What Are The Reasons For The Increase In Variability In Barilla’s Supply Chain?
Reasons for increase in variability of demand in barilla’s supply chain:
- Weekly variation in customers demand for the pasta products.
- Lack of access to customers demand data at each level of supply chain made retailers, wholesalers, distributors and suppliers to make their own demand forecasts and place the orders which considerably increased the inventory levels in the two facilities of the barilla. This is bull-whip effect.
- Each level in the supply chain maintained their own inventory levels and placed their orders with barilla once a week. Also most distributors used a periodic inventory model to control their inventory and ordered when the inventory level is below the reorder point, but this model is beneficial only for small scale industries but not for a huge company like barilla. Also even though this model has track of number of merchandize sold it does not give any information regarding the kind of item sold.
- Barilla offered volume discounts for the retailers ordering full truck load quantities which made retailers to order more than necessary thereby increasing their inventory levels.
- Barilla thought that orders were an unchangeable input and responding to these unstable orders were their priority but it has to realize that recognizing the customer demand data and placing orders in view of demand data is an important factor.
- No use of better forecasting methods to analyze customers demand.
- Reluctance of the retailers to share customer demand data of the fear that Barilla would decrease its inventory and the sales.
- The maximum number of orders placed by the distributor to satisfy the customer and future needs is not restricted.
- And the incentives to the sales representatives.
How Can The Firm Cope With The Increase In Variability?
The firm can cope with increase in variability by:
- Adopting a strategic relationship between the buyers and the suppliers which can have major effect on the supply chain performance. Vendor Management Inventory is one of the techniques used. In this the supplier will predict the demand in all the levels in the supply chain and will deliver the amount of products accordingly thereby reducing the inventory and also reduces the probability of out of stock in the business. One of the key factor to adopt VMI work is its risk shared i.e., even if the product is not sold by the retailer it does not sit with retailer anymore the supplier will repurchase them all which is quite beneficial for a large supplying company such as Barilla.
- The Barilla manufactures products depending on the demand from its CDS’s; instead it should start relying on the centralized actual demand data of the customer from the retailer. This reduces the variability in whole supply chain. Also this enables the Barilla not only to know what the real demand for the product is and supply accordingly but also helps in eliminating the inventory at all levels in the supply chain.
- It can reduce the variability in customers demand by adopting cross-docking in which goods are directly shipped to stores without sitting in the inventory making possible to offer everyday low prices to customers.
- The distributors use the periodic Inventory review policy by which the order quantities are not matching from the true demand causing large variability in order pattern. So in a case where the retailers are not willing to share the customer demand data then Barilla should incite its distributors DO’s and GD’s to adopt better forecasting tools and analytical tools to calculate the order quantities.
- And finally by controlling lead time it can cope with increasing variability. Lead time can be of two types the Order Lead Time and the Information Lead time. The order lead time is the time to produce and ship which can be reduced by having better production, planning and transportation mechanisms. And Information lead time is the time to process an order can be reduced by exchanging information within the supply chain.
What Is The Impact Of Transferring The Demand Information Across The Supply Chain?
- · By doing so all the levels in the supply chain can effectively plan, produce and deliver the appropriate order quantities to the end customer. This helps in reducing the inventory and its holding costs of the whole supply chain to a great extent.
- · To counter uncertainties in supply and demand we make use of safety stock. But with sharing demand data the amount of safety stock can be reduced thereby reducing holding costs and boosting the increase in profits, also decrease the number of products which can spoil or expire during the warehousing process.
- · Distributors no longer needs to maintain excess capacity than needed as discussed in 1.
- · Reduce Lead time as discussed above.
- · Reduce wastage.
- · Close working (strategic partnerships) among all levels in supply chain increasing its performance.
- · Discourages bulk ordering, reducing the transportation costs to a large extent.
- · Improves customer satisfaction.
- · Helps in better forecasting thereby increasing sales.
- · One of the key impact is Bull-Whip effect is reduced i.e., since there is effective demand information the inventory levels will be considerably reduced.
- · And Increase in production efficiency.
Can The VMI Strategy Solve The Operational Problems Faced By Barilla?
If the retailer is willing to share the demand information and let the supplier control his inventory then VMI:
The VMI strategy can solve the operational problems faced by Barilla since:
- With the VMI the inventory at all the levels in the supply chain is at the supplier, the Barilla. Therefore company has the opportunity of knowing information about their products and also the real customer demand of various products in produces, with the help of which it can improve the demand forecast of products significantly. With the information regarding the real time customer demand it can increase its planning and production efficiency, increase its customer service levels to a greater extent.
- VMI integrates the production, planning, manufacturing, sales and marketing departments enabling in close working and information sharing which is one of the strategic relationships, which improves performance of the whole supply chain.
- With the VMI there is lot of top management commitment since everything is in control of the supplier.
- With the VMI in place there will be no uncertainties in supply and demand therefore no more safety stock levels and no increase in inventory, which helps increase in sales and profits.
- The lead time (Order and Information) will also be reduced since Barilla will not produce any unwanted products and there is enough information sharing in all the levels of supply chain.
- VMI allows risk sharing i.e., if the products are not sold by the retailer they get back to supplier. This also increases mutual trust between the buyer and the supplier.
How Can The Supply Chain Meet The Conflicting Goals Of Different Partners And Facilities?
The supply chain can meet the conflicting goals of different partners and facilities with the help of improved information sharing as we have seen in the example of P&G. Without no information sharing each level in the supply chain would have its own estimates for the demand of the products and order as desired increasing inventory levels to a great extent. Also each level would look for their own costs and schedules rather than for a globalized supply chain.
We noticed in Barillas supply chain that due to reluctance of retailer to share demand data disturbances in downstream-created large changes all through the supply chain (Bull-Whip). Therefore Globalized supply chain can drive all the networks to focus towards a common goal- improve overall value of supply chain and increase customer levels. With this in mind each partner and facility will communicate with each other and come up with solutions for their existing problems and manage the entire supply chain.
Wrapping up supply chain can meet conflicting goals with:
- Sharing information among all facilities.
- Co-ordination among all facilities.
- Working towards Global Supply Chain.
- Better forecasting.