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The answers in this report relate to the questions given in the document Case 2: What are the underlying causes of the difficulties that the JITD program was created tosolve?
What are the underlying drivers of the fluctuations in Exhibit 12? The fluctuations in weekly demand from Cortese Northeast DC are caused by many factors. Firstly the demand from customers can vary due to seasonality e.
This is largely predictable fluctuation. Secondly, demand from distributors varies due to a number of factors, namely promotions,transportation and volume discounts, long lead times 10 daysthe large variety of products andpack sizes and designs, and no minimum or maximum order quantities.
The distributors do not haveforecasting tools or systems. They will take advantage of a volume or transportation discount orcanvass promotional period to order stocks for weeks in advance and then order less or nothing inthe following weeks while they use up inventory.
Poor communication between retailers, distributors, sales, marketing and manufacturing may be oneother driver for the fluctuations, as well as a lack of a forecasting system.
The supply chain is very complex.
Distributors have different types of customer supermarkets vssmall independent shops and various different strategies. There are many stages between thefactory and the end-customer large or organized distributors with their own warehouses andbrokers.
This demand is unpredictable or at least it is at the moment, with no way to monitor realsell-out in stores and with distributors and stores holding inventory. The fluctuating demand causesthe bullwhip effect, amplified variation in demand the more steps in the supply chain away fromthe end-customer there are.
This is most noticeable in Exhibit 12 where we see spikes in orders,followed by an incredibly low order volume soon after. Whatis the impact of such fluctuation? What are the costs of having an order pattern like this?
The impact of the fluctuations puts Barilla in a situation where its production is insufficient or Barillaproduces excess finished goods. These results imply that either Barilla has stock outs or is holdingexcess inventory or both.
The costs are related to direct revenue loss due to competition andinventory holding cost respectively.
Due to fluctuations, the manufacturing and logistics operations are put under pressure. At thedistributors end, the impact of such fluctuation may cause them to establish additional capacity tohold Barillas excess production which is expensive or to buy any type of promotion.
Since margins are reducing, cost reduction on the operations side would be beneficial to thecompany as a whole. The large buffers of inventory cost money and may conceal other problems in the process. Vitales proposition to supply distributors with quantities chosen by Barilla, instead of according todistributor orders, is designed to meet end-customer needs more effectively and also distribute theworkload of the factory and logistic departments more evenly.
If he is right and the workload is distributed more evenly, the manufacturing and logistics operationswill not be under so much pressure.
It means production will operate more smoothly, onlyproducing what is requested. Inventory and stockouts should also be reduced at Barilla and at theretailer and distributor sides.
According to Vitales proposal, information gathered from distributors will help Barilla to estimate itsproduction and inventory levels. Through forward integration to the first tier customers distributorsVitale aims to strengthen its competitive advantage in the market by reducing cycletime to manage the bullwhip effect at the same time.
What arethe causes of these conflicts? As Giorgio Maggiali, how would you deal with these? Internal resistance comes from the sales and marketing departments. They were concerned that ifthere were a strike or other interruption in production, the risk of stockouts would increase.
Theyalso thought that sales figures would be reduced due flattened demand and that the new systemwould not be flexible enough to respond to changes, and that sales promotions would no longer bepossible. Another concern was that if the shelves in the distributors warehouses were not full ofBarilla products, their competitors will move in and fill the space and then the distributors will pushsales of competitor products instead of Barilla products.Introduction to Operations Management 1.
Introductions 2. Housekeeping a. SloanSpace b. Course Introduction • Supply Chain Management-End-to-end coordination 16 Chain Barilla SPA 17 Sport Obermeyer 18 Wrap-Up Wrap-up Course Outline. Evolution in the industrial world.
Fourth, Magialli does not refer to the financial impact of reducing inventory in the supply chain which will have a direct impact to the profit and loss statements of Barilla. There needs to be an agreement from management that a reduction in supply chain inventory will impact the P&L unfavorably.
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Track course progress. Barilla thinks that distributors & retailers carries too much inventory – Some products is difficult to quickly produced – Holding sufficient finished products was expensive 14 INFORMATION & SC PERFORMANCE I suggest that in order to condense the Bullwhip effect being experienced by Barilla, their supply chain would have to be centralized.
I have given my rationale for the JITD system to work and have suggested recommendations to resolve all existing issues.