Executive Summary
This paper espouses the application of lean management system of Just in Time Distribution (JITD) by a manufacturing company called Barilla Spa. At the onset, the fundamental problem in the operations of Barilla is that there are various fluctuations in their pasta orders. These are brought about by several factors like transportation discounts, volume discount, promotional activity, the lack of a minimum or maximum order quantities, product proliferation, long order lead times, poor customer service rates, and poor communication. This case considers all these problems to come up with a better system which primarily involves a more effective and efficient approach to shorten lead times, improve customer service, and add more value to the products Barilla is offering. This paper proves how JITD is the best mechanism to reduce the operating costs and enhance or improve the operations of the pasta company. With JITD, the present processes and problems are identified in order to innovate, rationalize or add value.
Introduction
Just in Time Distribution (JITD) is the proposed solution to Barilla’s Spa’s logistics and distribution problems in their pasta manufacturing business. As it is, this lean manufacturing approach is highly considered to solve the company’s problems in inventory and product handling. It can significantly cut inventory costs, which heavily toll manufacturing companies (Davenport & Glaser, 2002, p. 13). By minimizing the amount of inventory being held by Barilla, it saves the company space and cash resources. It also reduces the waste due to obsolescence.
The theory shall be applied to the environment in which Barilla operated in order to check if the proposed solution is actually feasible. The bottom line is to prove that JITD proposal is the best mechanism to reduce the operating costs and enhance or improve the operations of the pasta company. As it is realized to be effective, the paper shall also focus on which customers or target markets should it apply. A third consideration is how the company will convince its (selected) third party suppliers that the JITD is the way to go.
This paper shall point out how the system of JITD should work and the process/es by which it should successfully work. It should emphasize as well the conviction by which the company believes that JITD can do a better job of determining a good product/delivery sequence than its distributors. If the analysis proves that better alternatives and supply and logistics strategies and approaches are more effective, this paper shall also open it up to the readers. All answers shall lead to eventually eradicating the challenges which the Barilla’s operations face.
Throughout the paper, it shall be emphasized that Barilla’s requirements is unique as it fulfills both speed-to-market and speed-out-of-market demands (2002, p. 14). A continuous series of limited-time offers (LTOs) needs marketing planning and management of variables under an adoptive supply system. This paper will also emphasize that an obsolete inventory or having too much is not an option. Similarly, having too little is also not an option as it implies dissatisfied distributors and customers.
Analysis of the Case
Over the past few years, the supply chain places a premium on keeping stocks low, turning inventory, and delivering perishable shipments with just-in-time promptness and care. As explained by a president of a food company, Mr. David Cox, “the shelf life of food requires a management strategy that other industries do not” (Tracey, et. al., 2004, p. 54). Hence, Barilla has to drive more frequent inventory turns from supplier to chain operator. Aside from speed and reliability, the end users of Barilla’s pastas are all focused on value. They prepare quality meals using Barilla’s pasta products. Hence, there is a high sensitivity to cost and increases the stakes for reducing transportation and inventory carrying costs up and down the supply chain.
The JITD system should be used in the company in line with the other lean manufacturing systems in the organization. One of this is the kanban, a Japanese approach to ensure a continuous supply of product or inventory. It is designed to support the JITD principle. Other continuous improvement systems include Total Quality Management (TQM) and Six sigma, which help the operations get a detailed look at each aspect of the production process and distinguish means of improvements (Bateman, 2008, p. 1). By implementing the JITD, Barilla is able to continuously monitoring the production process. It provides opportunities for making the production process smoother and more efficient. Since JITD is aimed to be totally implemented in all aspect of the operations, it can affect various areas through process enhancements. When the emphasis is on lean production, systems tend to be made simpler and more predictable. It really improves efficiency.
The fundamental problem in the operations of Barilla is that there are various fluctuations in their pasta orders. These are brought about by several factors like transportation discounts, volume discount, promotional activity, the lack of a high or low order quantities, pasta proliferation, long order lead times, poor quality of customer service, and weak communication. With the JITD, the current steps and problems are identified in order to innovate, rationalize or add value (2008, p. 1). It shall consider all these problems to come up with a better system which primarily involves a more effective and efficient approach to shorten lead times, improve customer service, and add more value to the products Barilla is offering.
Through JIT, the company can strike a balance between capacity planning and meeting the demands of the customers (or its main distributors). The ultimate impact of this change would be on the costs as greater inventory than expected demands means unnecessarily tying up money on labor and high inventory costs (Hopp, et. al., 2011, p. 93). This money could be very well used to flexibly extend production which shall support the surge of demands in peak seasons. It is actually a primary issue of the company since the changes in the production of its pasta entail high costs. Likewise, the company has low central distribution utilization in terms of labor and equipment. It also has a higher than necessary transportation costs. The company’s success depends on how it can be flexible in times when orders surge.
Since their distributors are their primary customer, Barilla should see to it that it applies chase demand strategies through JITD. As an inherent feature of their business operations, the company continually chases the demand of its distributors and extends or contracts its supply in order to match the demand level. This is where JITD can be of great help. JITD enables the company to flexibly utilize its resources through the maximum utility of their workers and resources for a multitude of tasks. It also helps reduce stock levels and the incurred cash flow when the resources are tied up with the unnecessary inventories.
The characteristics of JITD which Barilla should likewise enhance and maintain are the following:
- Closer relationships with its distributors;
- Smaller and recurrent deliveries to plan and manage;
- Excellent quality machineries with normal maintenance to avoid delays;
- Staff participation to sustain adoptability.
In this line, it should be emphasized that to accomplish the goals of operations, Barilla must also build strong ties with its supply chain, specifically with its workers and customers (its distributors). This will ensure that it has access to the supplies it needs when it needs them. This is beneficial in terms of receiving forewarning of shifts in supply that may have an impact on its pasta business. With a secure source of supplies, Barilla can continue to make improvements in its production and inventory systems. This should be well supported by other lean instruments as mentioned above, i.e. TQM, etc. This totally helps to increase its responsiveness to customer demand. If Barilla needs to rapidly increase production, it can be confident knowing that its distributors are well aligned with their processes and systems. If its distributors demand a newer technology, Barilla can instantly shift product without the concern of writing off a large inventory of not needed supplies and completed products. This implies that it can meet changing customer needs more quickly.
In addition, custom orders are simpler with a JITD system. Instead of the distributor's widget being prepared half a year before its order fulfillment, it is built when it is ordered. Through the delivery of the product “just in time," Barilla can accommodate last-minute changes. More importantly, JITD enables the company to get the right products to the right customers at the right time. It inherently makes a lot of cost savings and greater competitive advantage.
At the onset, Barilla’s distributors intend to reduce inventory through increased cross docking. Barilla would supply products daily to its terminal, from where the products would be delivered daily to big distributors. Direct deliveries from Barilla to the stores are also an option. Electronic transactions between the chain of distribution will be used in the future.
The main benefit of the JITD for Barilla is that it reduces the physical distribution costs, particularly the storing and handling costs. However, if the distributors do not have any backup inventory, there is no "security blanket" if there are some mishaps. If a Barilla delivery truck gets stuck in traffic, if there is a mistake in what was already delivered or if there are any issues on product quality when the customers receive the products, the business operations may cease. Hence, a JITD system requires that Barilla will apply a very high quality control in its production.
As illustrated, the JITD system transfers more responsibility for PD activities backward in the supply chain - to suppliers. If the suppliers can be the aspect where costs can be much reduced as compared to the customer aspect (and still deliver quality service for customers), this strategy can work well for everyone in the operations (Chase, et. al., 2007, p. 45). However, it should be clear that JITD is not constantly the lowest cost or the number one solution. At times, it might be more cost effective for suppliers to manufacture and deliver in larger volumes, if the savings reduce the distribution system’s total inventory and handling costs.
Discussion and Conclusions
Barilla has to evolve into a world-class supply chain organization. Through JITD, it can boost its supply chain visibility toward enhancing and growing its brand and loyalty to its brand, while fortifying its business relationships. Sequential optimization consists of procurement planning, manufacturing planning, distribution planning, and demand planning. Meanwhile, in global optimization, the process is similar only that there is constant collaboration, information system facilities, among others. This is more challenging because the new supply chain is a complex network. The challenge exponentially increases when a total system is being considered compared to a single facility. Facilities are distributed all over the world and these facilities have conflicting objectives. This is so dynamic because of the following reasons: supply chain relationships evolve overtime aside from the evolving demand and supplier capabilities; uncertainty is constant in all types of supply chains; adding customer power leads to more demands on retailers; more retailer power leads to greater demands on suppliers; the process differs through time due to seasonal changes, changing patterns, marketing and promotions, etc. Thus, it entails that the company applies any (if not all) of the following: Network Design, Inventory Control, Information System Systems, and Outsourcing and Procurement Strategies (Su, n.d., p. 3).
Hence, companies wanting to apply JITD system must indeed produce greater relationships with its suppliers and distributors. It must drive greater visibility to support the supply channel and get deeper reflection into the purchase orders and levels of stocks. Thus, the JITD system can provide an umbrella operating system with plug-in applications that help Barilla better manage its supply chain.
The application of the JITD system, however, requires an enormous feat. It includes revising and/or improving the company’s complete store stock visibility, monitoring exceptions, evaluating inventory needs, and tracking product movement from supplier to chain day by day. It also entails technological updating as most businesses using JITD electronically order from the distributor. A common scenario is that various products are produced at several plants. Each plant has a known production capacity. It is also usual that there is a fixed demand for each product at each customer location. The demand is fulfilled by shipping the products via regional distribution centers.
Key learning points and what the group learned from undertaking this assignment
Just in Time Distribution is a lean management system that manages operations so that they run leanly and efficiently. Its principal advantages include cost reduction and minimal waste. The process of implementation requires Barilla to closely study every stage of its production and inventory carrying points. Ultimately, the company and its staff should always remember that the more efficient and dependable they are to their customers and the higher the quality of the products it provides, the more competitive they become.
JITD underscores the importance of lead-time management in all aspects of manufacturing. It emphasizes that additional reductions in lead times are crucial indicators of manufacturing improvement. This proposed system presumes that to attain these reductions, the system must be effective to every operator, in any conversion process, whatever he/she requires in a given time. Ultimately, if Barilla can sustain a shorter lead times, it means improvement and greater flexibility as compared to its traditional system. In addition, JITD intends to eradicate the delays and confusion related to the stacking-up of materials. It also reduces the extra costs of indirect labor for storing and moving work-in-process (WIP) inventory and storing and handling buffer stock.
However, the JITD system is not a one stop solution for all the system’s and the business operation’s problems. It must also be well noted that the “just-in-time” relationships between buyers and sellers need complete coordination. It is also important to realize that the layout and inventories of a JITD approach are the most logical steps to reduce waste and increase value. By mere revision of the specific layout of Barilla’s facilities, it can reduce the time it takes for supplies to get to the next step in process and reduce the costs related with that shift.
This can be successfully achieved if a company has a work-in-progress close to the next station in the manufacturing chain. This is also workable if the company will also reduce its inventories. This combined savings accrue various benefits for the company such as: batch sizes, reduced set-up times and safety stock, trimmed down ergo costs, and more value. However, the application of the JITD implies that the process to finding solutions to the inventory may also lead to either uncovering or creating other operations problems.
Another important step to fulfill the JITD solution is by Just In Time scheduling. By working to reduce inventory to the lowest possible working levels, a company should continually adjust its schedule of ordering and delivering. In doing so, communication in both the vertical and horizontal sides of the supply chain is crucial. Frequent orders are placed for supplies and small production runs are usually being initiated. This means that the company should be in close contact with its suppliers. It also means that suppliers must deliver as promised or else, the supply chain is broken. Also, the JITD also depends on historical patterns of need. If orders rapidly increase, adjustments may not be that easy for both the company and its suppliers. Another setback to the success of the JITD is if the costs of materials instantly increase. This is when storing products at lower costs might be a better option. Hence, for these setbacks, a company should constantly be making small alterations in its orders/production in order to attain the rigid pace of order/production schedule.
It is an important realization that JITD largely depends on the successful coordination in the supply chain management. A business operation cannot implement a JITD system by itself; it should have the full cooperation of its entire supply chain or the whole organization. The voluminous amount of information that is required for the JITD system to work well requires partnerships to be formed and nurtured, almost to the point at which a whole supply chain operates as one organization.
References:
Bateman, Mara, 2008. The Concept of Just-in-Time Delivery and Its Implications on the Marketing Strategy of a Company. Available through: http://groundreport.com/the-concept-of-just-in-time-delivery-and-its-implications-on-the-marketing-strategy-of-a-company/. [Accessed on 14 March 2014].
Chase, R. B., et. al., 2007. Operations Management for Competitive Advantage, 11th ed. London: McGraw-Hill.
Davenport, Thomas H. & Glaser, John, 2002. Just in Time Delivery Comes to Knowledge Management. Harvard Business Review. Available through: http://midwestkm.com/wp-content/uploads/2013/09/Just-in-Time-KM-Delivery-Healthcare-Davenport.pdf. [Accessed on 14 March 2014].
Hopp, W., et. al., 2011. Factory Physics, 3rd ed. London: Waveland Press.
Su, C., n.d. Supply Chain Management. Available thorugh: http://www.siicex.gob.pe/siicex/resources/capacitacion/94c04e0c-e709-42fb-9529-1b62f7a5725d.pdf. [Accessed on 14 March 2014].
Tracey, M., et. al., 2004. An Explanatory Model and Measurement Instrument: A Guide to Supply Chain Management Research and Applications, Mid American Journal of Business. Vol 19, Issue 2, p. 53 – 70.
