The Barillas S.p.A. is amongst the world’s largest manufacturer of Italian spaghetti. It sells mostly to its Italian retail shops through a network of third-party distributors. Towards the late 1980s, the company faced numerous inefficiencies in its chain of operation. This, in turn, resulted in penalties in the costing of its product and a consequent fluctuation in the ordering patterns of the company’s product. There were reasons behind the changes in demand for Barilla’s products. They included discounts in terms of the volume to be distributed, reduction of promotional activity done by the company, product proliferation, poor communication to mention but a few.
As a result, Giorgio Maggiali the director of logistics suggested a system of distribution that he thought would counter this problem. He suggested the use of the just in the time distribution system. In this system of distribution, the mandate to distribute the company’s product would shift from the third party distributor to the company itself. Second, instead of just filling orders that the distributor had the company would supervise the flow of its product throughout the supply process and determine when and what to ship its product. In my opinion, the just in time distribution was not the right method to implement at that time. This is because it caused fluctuations in demand for the product from the distributors.
Some of the distributors thought that the company was self-serving and would only use their warehouses to maximize their own benefits. The logistics manager also needed to include the decision making the process a team effort and include the company top brass. This could have developed trust and enabled the distributors to see the logistics manager’s point of view.
The distribution chain that was in effect in the case of Barilla S.p.A. could be classified into various methods. I will discuss some of them below.
The company advertised its products extensively throughout Italy and the rest of the world. Its product was seen as a high-end product, not just a commodity that is for the middle and lower class of the economy.
2. Trade promotions.
The company was almost entirely reliant on trade promotions and trade fares. Since it distributes its product through third-hand distributors, the company took advantage of the trade promotions to put its product in the more lucrative grocery distribution network.
3. Canvass periods.
The company came up with periods in which the third-hand distributors could buy the products for current and future use. These periods comprised of four to five weeks in which all the distributors affiliated to the company would buy as much product as they deemed necessary to maintain their supply shops in between canvass periods.
The company offered sales incentives to the distributors who reached certain sales targets set by the company in the canvass periods.
5. Volume discounts.
The company offered volume discounts to the distributors who bought products of a certain amount. This in addition to the incentives given by the company motivated the distributors to buy the products from the company in large quantities so as to enjoy these benefits.
6. Ordering procedure.
The distributors who ordered product a week in advance got a head start of approximately ten days in which they had the advantage of hitting a sales mark within a canvass period and enjoy the benefits that came with it.
In the case of the Barilla spa company, the following reasons lead to its fluctuations in demand.
1. There was poor communication between the logistics manager and the company’s managers. This, in turn, led to poor communication between the company and the various factions of supply in the distribution network.
2. The trade promotions that the company carried out caused the distributors to wait for such scenes where they could maximize their profits. Consequently, in the periods without the trade promotions, the demand of the products went significantly lower than could have been wanted.
3. Volume discounts. During the periods that the company offered trade discounts, there was high demand from the distributors. These offers ensured that the distributors got the maximum benefits from trading in the company’s product. The lack of discounts created less demand for the product, hence the fluctuations.
4. Transportation discounts. The company offered transportation discounts to 70% of the distributor shops that the company did not own. This was only if these distributors ordered a certain volume of the company’s product. Distributors that did not order a certain amount of the product did not get these discounts and in turn, demanded more in order to get the discounts or less if they did not have enough consumers hence the fluctuations in demand of the product.