Executive summary
Barilla SpA (A) case
Barilla was founded in 1875 when Pietro Barilla opened a small shop in Parma, Italy. Pietro used to make the pasta and bread products that were then sold in his store. Pietro's son Ricardo led the company through a significant period of growth, and in the 1940s, passed the company to his own sons, Pietro and Gianni. Over time, Barilla evolved from its modest beginnings into a large, vertically integrated corporation with flour nulls, pasta plants, and bakery-product factories located throughout Italy. By 1990, Barilla had become the largest pasta manufacturer in the world. In 1990, Barilla was organized into seven divisions: three pasta divisions (Barilla, Voiello, and Braibanti) the Bakery Products Division (manufacturing medium to long shelf-life bakery products), the Fresh Bread Division (manufacturing very short shelf-life bakery products), the Catering Division (distributing cakes and frozen croissants to bars and pastry shops), and the International Division.
The company ships its pasta to one of two central distribution centers (CDC) where it is bought by individual supermarket distributors called "grande distribuzione" (GD for large supermarket chains) and "distribuzione organizzata" (DO for smaller, independent supermarkets). During the late 1980s, the distributors often put Barilla in a bad situation with fluctuating demand patterns. There was a growing burden that demand fluctuations imposed on the company's manufacturing and distribution system.
Inventory could be blamed as one of the major cause of demand fluctuation. The supermarkets and distributors did not have much space to hold inventory. This resulted into events like stock outs where the distributor would run out of the product. Also depending on a distributor's inventory level, the orders back to Barilla would wildly vary. The distributors would also make orders to Barilla only once per week....