Barilla Case Study

3439 WordsMar 26, 201314 Pages
Barilla SpA * The spaghetti incident - Maastricht University School of Business and Economics International Executive Master of Finance and Control 20 April 2012 Course – Logistics Prof. Dr. Allard van Riel Pauline Henselmans Jetse van de Kamp Ze Zhu Thiago Barros de Oliveira Rene Lorrier Contents 1. Reasons for the increase in variability in demand in Barilla’s supply chain 3 1.1 Distributed inventories, local optimization 3 1.2 Lack of inventory information and sales forecast information 3 1.3 Promotions and quantity discounts 4 1.4 Lack of sophistication at the retailer and distributor level 4 1.5 Barilla’s large number of SKU’s 4 1.6 Barilla’s production process 4 2. Solutions 5 2.1…show more content…
The lack of inventory and sales forecast information across the entire supply chain of Barilla increases the bullwhip effect. As very little data is observed, the estimates of the mean and standard deviation of customer demand are not regularly modified. Since safety stock and base stock levels are dependent on the estimates of the mean and standard deviation of customer demand, sales orders have to be changed regularly which increases variability. 1.3 Promotions and quantity discounts Barilla deploys a sales strategy that relies on the use of trade promotions to push its products into its distribution network. On top of the promotional discounts, Barilla offers volume discounts providing incentives to order full truck loads. Finally, Barilla heavily uses advertising campaigns to stimulate end-customer demand, the effects of which are currently hard to measure. The effects of the trade promotions and the quantity discounts are twofold. First, retailers tend to stock up inventory when the price of a certain Barilla product is low, a phenomenon also known as forward buying. Second, the quantity discounts further magnify the effect since buyers are pushed to order large quantities and/or full truck load in order to obtain additional discounts. Next to this, Barilla does not apply minimum or maximum order quantities, so

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