• Customer service.
Barilla has no visibility when it comes to plan and forecast in order to meet the customer demand.
• Higher overall warehouse and transportation costs.
The fluctuation demand may lead to overtime shifts in order to meet the demand, higher inventory of raw materials and frequent capacity adjustments, as well as higher transportation costs which all increase the overall cost of the product.
• Sales Representatives Incentives based on the amount of the products that they sold to the distributors.
This was causing problems as the sales reps would try and push more products during the promotional period to get a bonus and were not able to sell as much during non-promotional periods. .
Alternatives and Options .
The proposed new system, Just-In-Time Distribution (JITD), is one solution I suggest to resolve the demand fluctuation issues and lower costs.
Pros.
1- Resolve the demand fluctuation that often lead to the bullwhip effect.
2- Offer additional service to the customer at no extra cost.
3- Increase supply chain visibility and there by fewer stock outs.
4- Reduce forecasting errors .
5- Lower cost of capital tied up in inventory.
6- Improve customer service.
7- Improve the information flow, .
8- Reduce the lead time.
9- Decrease both finished and raw material inventory, thus making the system efficient and reducing the overall cost.
Cons.
1- Heavy Investment in information technology in order to implement the JITD program.
2- The internal resistance to the JITD system, comes from the production, sales and marketing divisions and the top management. The production division is concerned about the lack of a sophisticated forecasting system in order to properly use the data received from the distributors in an efficient way. The sales representatives are concerned about their compensation, they will lose their incentives, because the sale will be predictable or flat and their responsibilities will be minimized under the new mode of operation.
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