QUESTION 1
The bullwhip effect is basically the fluctuation or distortion in the information that is supplied within a supply chain. In the case of Barilla, the demand for Barilla’s products was fluctuating and the demand variation was very high from the side of the customers. Apart from that, the promotional activities of Barilla and the changing prices of its products also caused the bullwhip effects along the supply chain. The lead times were very high.
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Apart from that, the compensation that was being provided to the sales representatives was based on the number of products they sold to the distributors. Therefore, during the peak promotional periods, these sales personnel pushed the stock towards the distributors to increase their revenue. , the manufacturing costs of Barilla increased dramatically to meet the fluctuating demand and to cope up with it, the maintenance and labor costs were increasing due to problems in managing the company’s resources and the most important this all increased the transportation costs for the company. The company had to supply the products through more trucks and at a short period of time. The accumulation of all these problems resulted in high levels of finished goods inventory being held by the company. It was calculated that in a single week there were stock outs of around 5.5% or even more than this. This all resulted in bullwhip effect which led to customer dissatisfaction, low fulfillment rate and poor service level.
QUESTION 2
The JITD approach has many advantages and will cater many benefits to Barilla by improving its performance. The collaborative planning between the distributors and the company in the form of a team will help them to resolve the bull whip effects in the whole supply chain. Barilla will have to forecast the demand of its consumers under this system. It could make use of market surveys or interact with customers on a one-on-one basis. This would reduce the uncertainty regarding the variations in demand of the product. The company will then forecast the demand of all of its distributors and aggregate that demand. In this way the company can better manage and meet the needs of its all distributors and customer. The production planning of the company will be improved and the company can leverage on process improvements to increase its profit margins also. The level of inventory held by the company will be reduced which in turn would reduce the overall carrying cost of the company and also reduce the risks related to product perish ability. Apart from this the current demand system of the company is push-based which will be transformed to a pull-based system after the JITD system is introduced. Ultimately the stock outs and the backorders would be reduced, thus increasing the customer service level and satisfaction.
QUESTION 3
The demand for the company’s products had been growing and there was significant variation in the demand for the company’s products. The distributors were unable to predict the right sizes, they simply wanted to avail the discounts by buying bulk quantities to fill up their shelf spaces. Apart from that, the management of Barilla also faced difficulties to produce goods when they received immediate orders and this also resulted in higher transportation costs for them because the goods had to be delivered quickly. Currently the distributors are ordering the goods themselves, however, they are not demanding according to predicted demands which led to stock outs. The company cannot teach them that how to forecast demand, because if they do so, they will lose control over the ordering function. Apart from that, the company will have detailed information regarding its customers and it would be better off in forecasting the right customer demand.
QUESTION 4
The demand variability is very high in this industry and if the continuous replenishment program is implemented the business could face the situation of stock outs which would increase the costs of the business. Therefore, it is very risky to go for this partnership. However, on the other hand the company can motivate and energize its distributors to sell the company’s products to its customers by providing them different benefits and incentives. Barilla needs to work on its part to forecast the right quantities so that the risk of stock outs is minimized. LEGO has always emphasized on the desired benefits and attributes of its customers. It had formed a strong bond with LEGO. The departments of LEGO are all centralized and these all departments interact directly with the end consumers. LEGO had also segmented its customers into different groups based on their different needs. The business strategy of LEGO focuses on maintaining long term relationships with customers and this led it to build a trusted partnership with its customers................
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