Barilla experiences wild fluctuations in demand that strain its operations due to the bullwhip effect. This effect is caused by several factors in Barilla's supply chain including long delivery times, promotions, lack of collaboration, and sequential decision making. Barilla proposes a Just-in-Time Direct (JITD) program to transfer decision making authority to Barilla to monitor inventory and shipments, alleviating these problems. However, sales reps oppose JITD due to concerns over their roles and job security. Barilla must demonstrate to sales and distributors that JITD will improve customer service and reduce costs.
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Homework for ContractDesign and Bullwhip EffectSolutions
Barilla experiences wild fluctuations in demand that strain its operations due to the bullwhip effect. This effect is caused by several factors in Barilla's supply chain including long delivery times, promotions, lack of collaboration, and sequential decision making. Barilla proposes a Just-in-Time Direct (JITD) program to transfer decision making authority to Barilla to monitor inventory and shipments, alleviating these problems. However, sales reps oppose JITD due to concerns over their roles and job security. Barilla must demonstrate to sales and distributors that JITD will improve customer service and reduce costs.
Barilla experiences wild fluctuations in demand that strain its operations due to the bullwhip effect. This effect is caused by several factors in Barilla's supply chain including long delivery times, promotions, lack of collaboration, and sequential decision making. Barilla proposes a Just-in-Time Direct (JITD) program to transfer decision making authority to Barilla to monitor inventory and shipments, alleviating these problems. However, sales reps oppose JITD due to concerns over their roles and job security. Barilla must demonstrate to sales and distributors that JITD will improve customer service and reduce costs.
2. Ch4 Question 1 in PP 117: a. Barilla experiences wild fluctuations in pasta demand while variability in end-customer demand is quite small. This amplification in demand variability in the supply chain is known as the bullwhip effect, and it strains Barillas manufacturing and logistics operations. Several factors contribute to this effect: 1. Transportation discounts, which induce distributors to order larger quantities less frequently 2. Trade promotions and volume discounts that create demand fluctuations. 3. Delivery lead times of an average of 10 days from Barilla to the distributors. 4. Product proliferation, which makes forecasting more difficult. 5. Poor communication between parties in the supply chain. 6. Sequential decision-making process in the supply chain, i.e., no collaboration. The JITD program transfers decision-making authority for determining Barilla-distributor shipments from the distributor to Barilla. Rather than simply filling orders specified by the distributor, Barilla would monitor the flow of its product through the distributors warehouse, and then decide what to ship to the distributor and when to ship it. This system alleviates many of the problems listed above, and enables Barilla to make manufacturing and logistics decisions that benefit the entire system. b. The most significant internal barrier to JITD is raised by the sales reps, who feel that JITD would diminish their role in managing inventory and setting up promotions, potentially threatening their job security. Giorgio Maggiali needs to explain and demonstrate to the sales force that the proposed program would in fact increase customer service level by reducing stock-outs, and potentially lead to cost savings. Ultimately, JITD would help the sales reps to manage the orders more efficiently by increasing visibility of the demand process. JITD is not a substitute for the sales force; it is a tool that is made available to them for better customer service. Also, Maggiali needs to explain that JITD is a company-wide effort, essential for Barilla.s long-term success.
c. As a customer (distributors/retailers), JITD would at first be disconcerting because I
would be losing control of my inventory. In order for me to agree to JITD, Barilla needs to convincingly demonstrate the specific benefits that JITD will have for me. d. The proposed system will be effective if it can be implemented correctly, and indeed, subsequent results showed that JITD was very effective. In order to show value, it would be useful to demonstrate that JITD benefits the distributors (lowering inventory, improving their service levels, and increasing their returns on assets) by running experiment at one or more of Barillas 18 depots. If customers will not agree to JITD, they may at least agree to collaborative forecasting or increased supply chain visibility. 3. Question 2 in PP 117 a. E-commerce and the Internet allow upstream parties, e.g., suppliers, to have access to more accurate demand information. It mitigates the bullwhip effect by preventing distortion and miscommunication of demand information, and reducing the lead-time in order processing. b. Express delivery reduces lead times, and the associated demand variance. Note that in the formulas in Sections 4.2.1 and 4.2.2, the variability of demand is proportional to the lead times in the system. c. Collaborative forecasts help all stakeholders in the supply chain to arrive at a common, agreed-upon forecast of end-customer demand and reduce the bullwhip effect. d. Periodic promotions create artificial demand peaks and bottoms and increase the variance in customer demand, which amplifies the bullwhip effect. By everyday low pricing, these demand fluctuations can be prevented, alleviating the bullwhip effect partly. e. Vendor-managed inventory allows the supplier to monitor downstream demand and to make a well-informed decision about how much to keep on-hand and how much to ship to its customers. Thus, the supplier does not have to rely on order data to forecast demand and thus reduces the bullwhip effect. f. Supply contracts align incentives in the supply chain, and reduce the uncertainty in demand by determining agreed-upon supply limits, thereby reducing the bullwhip effect.
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