Marketing II

Problem at hand:

A new idea – Just-in-time Distribution (JITD), a vendor managed inventory concept, has been suggested by Brando Vitali in order to effectively meet consumer’s end needs and also make the production planning and logistics systems more efficient. Maggiali, Director of logistics, has tried to implement the idea for two years but it has not worked yet. The challenge is to convince the Sales representatives and the Distributors to adapt to this model for everyone’s benefit along with dealing with the internal and external resistance.

Channel Distribution for Dry products (cookies, biscuits, flour, bread sticks, and dry toasts):

35%

65%

1 months Inventory

90%

10%

70% 30%

2 weeks Inventory

2 weeks Inventory

Barilla Plants

Barilla CDCs Northern/Southern

Barilla-Run depots (18)Grande

DistribuzioneDistribuzione Organizzata

Chain Supermarkets Independent Supermarkets

Signora Maria Shops (small independent

grocers)

Handling Internal Resistance:

Argument by Sales Representatives Counter ArgumentJITD will lead to delay in responding to quick changes in selling patterns or increased promotions

Since JITD will enable to forecast the demand from the end-user level to the distributor level, the company can predict the demand levels more precisely. Also it will help the distributors to effectively manage their inventories in instances of trade promotions

Distribution organization is not yet ready to handle a sophisticated relationship that the JITD would demand

Although it will take some time for the entire distribution chain to align with the JITD, but once they realize the benefits of JITD in terms of better inventory management, quick response to demand, and improved margins, they would like to continue with JITD

Risk of giving our competitors more of the distributor shelf space

Since Barilla is offering an additional service at no extra cost, this will improve the relationship between Barilla and its distributors which will improve Barilla’s visibility with the trade and make distributors more dependent on them. This will enable Barilla to extract more information regarding the supply at the distributor’s warehouses that would permit Barilla to improve their own planning procedures

JITD will hamper trade promotions by inhibiting the incentives to distributors to push Barilla’s product to retailers

Implementing JITD will streamline the entire distribution channel which will reduce Barilla’s manufacturing and inventory management cost, which will enable Barilla to pass the extra margin to distributors which in turn will incentivize the distributor to provide trade promotions to push the product to retailers

Handling External Resistance:

Argument by Distributors Counter ArgumentDistributor argued that they can improve their inventory and service levels on their own in Barilla delivered the order in short time span instead of pushing JITD

Widely varying demand for Barilla’s dry product strained their manufacturing and logistics operation which made it difficult for them to match unexpectedly high demand. Additionally, holding high inventory to match demand fluctuations was extremely expensive which they had to further pass on to the distributors which would reduce the distributor’s margins

JITD will give Barilla the power to push its products into distributor’s warehouses

JITD will fill the gap between fluctuating demand and supply which will not only help Barilla to manage their costs but also lead to backward streamlining of entire supply chain giving distributors the advantage of decreasing their inventories and improving their fill rates to their stores reducing stock-outs.

Advantages/Disadvantages of going ahead with JITD:

Advantages Disadvantages

For Barilla:

Lower strain on manufacturing and logistics operations

Sales representatives would feel that theirresponsibilities would be diminished

Distributors will be able to stock moreSKUs of Barilla

It runs the risk of giving the competitors more shelf space

Barilla can aim for higher margins Disruption in the supply process would increase the risk of customer stock out

They can take costs out of their distribution channels

The current trade promotions wouldnot be applicable with JITD

Distributors will become more dependent on Barilla

The manufacturing process might not beable to handle the JITD mechanism

Improve the planning procedures

JITD will help Barilla minimize theBullwhip Effect

For Distributors:

No need to carry additional inventory Distributors might not be comfortablesharing the ordering process

Increase margins for the distributors Distribution Organisation may not be ableto handle such a sophisticated relationship

Demand forecasting service will be providedfree of cost

Distributors will be overly dependent onBarilla for their orders

Suggestions:

Modifying the current responsibilities on the sales representatives so that : They can be an integral part of JITD and contribute by collecting the data required for forecasting They can be motivated and reassured that their responsibilities are not diluted

Focus on implementing JITD on SKUs coming from a particular plant facility. Advantages of doing this are : The distributors need not fully give up on ordering from Barilla and hence their responsibilities are

not threatened Gives Barilla a chance to show the distributors the benefits of implementing JITD Barilla can better understand how to change their manufacturing procedure to suit JITD It will be easier to get the distributors to share information regarding a few SKUs rather than all

the SKUs

Improving the Sales Compensation Systems to be more in line with JITD Prove the credibility of JITD by implementing it with smaller retail shops that is run by Barilla Run Depots.

This will be a good place to start since the distributor is a part of the firm and hence does not need much convincing

Include a neutral third party (like a consultant) who will be in a better position to explain to the distributors the advantages of using JITD