Barilla: What Is the Impact of Fluctuating Demand on Operations?

distributors would have to submit their Stock Keeping Unit (SKU) so that Barilla can control it.

L.L. Beans approach to a one shot order increases the risk of lost sales due to insufficient inventory as well as increases the risks of higher costs due to excessive inventory. The case indicates that lead times are significantly long from their suppliers (in the order of 8 to 12 weeks). We are not clear on the size of these orders but assuming these are mostly a one shot batch, it is feasible to estimate that these lead times would be reduced for a smaller quantity per order and more frequent orders. Although this approach would increase the transactional costs with suppliers (because a higher volume of individual orders would be placed at the supplier) it might generate significantly more impactful benefits such as:

Barilla, the leading pasta manufacturer in Italy, faces increasing problems related to demand fluctuation. Their distributors also suffer from high inventory holding costs and low service levels on the other hand. This report explains, why the company and their distributors are troubled with this situation and how Barilla intends to solve it. The problem Barilla experiences is called the “Bullwhip Effect”, i.e. that demand variability increases when moving up the supply chain. Several factors enforce this Bullwhip Effect, e.g. high lead times, poor demand forecasting, and batch ordering. In this report we will point out, that exactly those aspects can be identified as the underlying reasons for Barilla’s problems. In a

During the game, I realized that wide gaps in orders of every role in the supply chain such as factory, distributor and retailer create inventory management challenges. For example, distributor records 0units between week1-week 4 compared to retailer within the same period. The retailer records 3units, 5units, 2units and 2units between weeks 1- week 4. The same applies to factory with 0units from weeks 2-4. Addressing inventory management problems requires developing an average unit level to avoid disappointing customers when demand

The high demand for the company products resulted in difficulty filling orders for its cus- tomers. Because of the rapid inventory turnover in the retail grocery trade, customers demand delivery within one week with a maximum allowance of 10 days. It generally takes four to five days lead time for Prairie Winds Pasta to put a specific product into production and an average of 4 days to ship the product to the customer. The 30 different varieties of pasta and rapid inventory turnover resulted in high levels of non-production time required to switch production from one type of pasta to another. Prairie Winds was experiencing difficulties satisfying existing customers on a timely basis. Several of the large grocery store chains had indicated that they might switch sup- pliers if they could not get a reliable shipment of goods.

In the effort of keeping with the extremely unpredictable demand the production cost may rise dramatically as a result of diseconomies of scale. In addition the set up cost for producing different products in the production line is heavy and Barilla has an enormous product line of different products. The production plant in Pedrignano is big and technologically advanced but at the same time the pasta production is a complicated process and especially the drying of different types of pasta required precision in temperature and humidity levels that could not be changed

Clearly, the company appears to know how and when its “aggressive inventory management” can and will at full capacity deal with assortments that may change quickly. At that point, customers have already gone through the previous learning curve of buying “what they like when they see it.” Much like a small but opportunistic window to buy at that very right moment the customer sees and most likely envision ownership of a given product at the store rather than delaying the purchase for a next time. Clearly discounts of at least 60% in current merchandise appear to be in agreement with the company’s reviews that “85% of what the stores sell is from the same season and same year it was designed for, and 85% is purchased directly from manufacturers.” As such, product line reviews would seem to be aligned with what stores are to sell from the same season and same year of design of the

One of the underlying causes of the difficulties that the JITD program was created to solve was the effects of inconsistent demand that came from Barilla’s distributors. The extreme demand variation strained Barillas manufacturing and logistics, and made very hard for Barilla to meet that demand. For example, as noted on the case “the specific sequence of pasta production necessitated by the tight heat and humidity specifications in the tunnel kiln made it difficult to quickly produce a particular pasta that had been sold out due

At the core of L.L.Bean’s pricing and promotion strategy lies its inventory strategy. L.L.Bean’s inventory strategy segments its products into ‘core’ and ‘non-core’ items. Core items are products in constant high demand, those the company never want to be out-of-stock. These include items like Bean Boots, the Deluxe Book Pack, their Barn Jackets, and the ever-popular Boat and Tote bag. These items sell year-round and are not influenced by seasonal shopping behaviors (Cooke, 2011).

Economic factors: pasta sales are expected to grow by at least 10% for the next years. One of the reasons for this is the increase in number of hours people are working, which has resulted in more number of people eating out. Based on economic forecasts, the business believes that interest rates are coming down which will creat more disposable income, and therefore, more

The second alternative of implementing a limited everyday low pricing strategy is really dependent on whether or not the option is complemented with an increase in advertising. Without advertising, market share would be contingent on the customer’s awareness of the increase in ‘loss leaders’ at Superior Supermarkets; with advertising, on the other hand, the likelihood of increasing market share with this option would certainly rise. However, with an increase in advertising would come a decrease in Superior Supermarkets’ contribution margin; one must also consider that the high-volume, traditionally popular products that are newly marked with an everyday low pricing strategy would carry more implication towards a decrease in contribution margin then would low-volume ‘loss leaders.’

In September there was another offer of a $1.00 cash refund, with the proof of purchase for two 5 lb. boxes, which lead to an increase in gross sales of RBS, too. The $2 cash refund for the purchase of RBS plus four additional Household Division brands in January 2006 increased the gross sales even by more than 100% from $9.3mio to $20.6mio, a total net incremental contribution of $619,562. These coupons were advertised in women’s magazines, in a Sunday newspaper supplement, on the company website, and in point-of- purchase material the latter of which has a relatively high response rate of 2%. The event in June, that included a shrink wrapped twin pack of the 1 lb. boxes and a $1.00 cash refund inside the pack with proof of purchase from two 1 lb. boxes encouraged consumers to keep one box in the fridge and one in the bathroom, so that most of them bought two boxes of RBS which led to rising sales volumes Considering the significant increase in sales, RBS should focus on investing in print and online advertisement by increasing their budgets by 10% in this sector. To conclude and thinking long-term, budgets for consumer promotion should be raised by 10% to ensure that RBS continues selling high volumes. Due to missing information of the response rate of advertising in TV, RBS should maintain the budget in this sector constant.

Barilla’s products are divided into Fresh products and Dry products. The demand for these two distinct kinds of products is quite different, and the order, shipment and delivery methods for them are also various.

Even though direct competition has decreased, the tendency of retailers to get their products directly from manufacturers puts the company in a position of relooking its competitive edge as a distributor. The marketplace is shifting from an individuality to supply chain performance – the ability to meet end-customers needs through product availability and responsive and on-time delivery. Supply chain performance crosses both functional lines and company boundaries. Brunswick must change their way to fill customer orders faster and more efficiently than the competition.

The AAA region was hit by a period of economic uncertainty caused by the slowdown of Chinese growth, instability of Middle East and economic recession in Russia. The Barilla brand market share in value terms increased in all of the key markets in this area: confirmed position as leading competitor at national level in Russia, market leader in Turkey, and further expansion in Middle East and Israel markets with an aggressive dedicated strategy. The substantial investment in the Solnecnogorsk (Russia) for pasta manufacturing will significantly improve flexibility and profitability in this area (Barilla,