Barilla’s goal is to smooth demand and only ship and manufacture what the “end customer” will need. The desired outcome would be to reduce the fluctuations caused by overcompensation or padded ordering from downstream channels. By having a better ordering system, the manufacturer would know the approximate demand of the particular store or supermarket, and manufacture what is needed. This allows the manufacturing and logistics department to plan ahead to meet anticipated demand.
The major change in the ordering system would result in decision rights shifting the inventory management from the distributor to the logistics division of the manufacturer.
Logistics would review the anticipated or understood demand from the end customer, working with manufacturing, to deliver the product in time to the distributor to meet consumer demand. The distributor would only communicate what had been shipped to the customer that day and the producer would ship to replenish according to end customer demand.
The traditional role of sales was to get distributors to buy in bulk and give quantity discounts at different levels of volume. Sales could affect the distributors request for more product because of the volume discount. With the smoothed out deliver system, it must be explained that one doesn’t make profit on products one doesn’t sell and buying in bulk cost more money in the form of floor space and inventory. Furthermore, by offering incentives to buy in bulk, an inflated demand is created by the downstream channels to the manufacturer. This action results in an undesirable bullwhip effect.
Under the Barilla system, its sales force spends an estimated 90% of their time working at the store level. Through the JITD system, sales people would be able to sell additional services to the supermarkets to improve retail presence (e.g., shelf positioning, promotional signage, taste testing, etc.) and generate new business.
Potentially, Barilla’s savings due to the smoothed and planned delivery system could be passed on to the distributor (via reduced inventory levels by at least 2 weeks due to possibly daily replenishments from the factory) as well. In addition, stock outs would be reduced because there would be a connection between actual demand and production channels. Graph II shows the “shoot-by-the-hip” re-order system with a date-driven system. Graph II is a perfect example of a “Bullwhip” system. As seen below, sales relatively flat, but the inventory levels at the supplier are fluctuating dramatically.