Brasilia Case - Grocery store Essay Example
1 - Brasilia Case introduction. ) Diagnose the underlying causes of the difficulties that the JITD program was created to solve. What are the benefits and drawbacks of this program? Fluctuating, inconsistent customer product demand strains a company’s manufacturing and strategic operations. JITD is a system designed to address these types of problems. It utilizes data from customers and inputs the information into the system to accurately forecast product demand to the point where product can be manufactured and delivered at a rate which minimizes inventory and transportation cost on for both manufacturers and customers.
For example, with respect to the Barilla issues, particular and specific production requirements made it difficult to catch up when pastas were backlogged, but holding excess inventory was a huge financial burden to the company. Under a successfully designed and implemented JITD system, Barilla would send just what each supermarket or grocery store needed, no more and no less. A major benefit of a JITD system is that it puts order quantity and shipping scheduling in the hands of the supplier, manufacturing and shipping only what is needed to each customer.
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This would eliminate the accumulation of large stocks in supplier and customer warehouses, and reduce manufacturing, inventory, and transportation costs. Challenges that surface when implementing a JITD system include resistance from sales and marketing departments and on the part of the customer. Salesmen fear the harnessing of a JITD system would flatten their sales numbers if customers are no longer purchasing high volume of product.
Many sales people’s compensation are tied to sales numbers, so it’s only natural that any system that would reduce manufacturing and inventory would negatively affect their ability to reach these sales numbers. This would result in lower compensation in their minds. On the customer side, many inventory managers are insulted by any suggestion that the supplier can manage their company’s inventory more effectively than they can. The essential challenge is for management to persuade its own salesmen as well as customers to get on board and commit to successfully implementing a JITD system.
Without the support of these two parties an effective JITD system will be next to impossible to implement. 2. ) What conflicts or barriers internal to Barilla does the JITD program create? What cases these conflicts? As Giorgio Maggiali, how would you deal with these? Many individuals in the case voiced their opinion as to how they felt a new JITD program would impact Barilla. Some said that sales would flatten while others noted that we would not be able to run trade promotions with this new system. Essentially, what these employees said is true; however, that is the purpose.
You want to lower the bullwhip effect by making information more readily available to others in the supply chain. By lowering the bullwhip effect, demand would be more reasonable when predicting and preparing for it. Also, there was an issue with the fact that demand was difficult to adjust for due to the fact that the machines on the manufacturing end are not able to move much faster to make up for the variation in the process. Ultimately, the internal barriers are the resistance from people at Barilla and the limitations of the machinery. Moreover, the JITD should help Barilla to overcome both of these hurdles.
As Maggiali, we would devise a method to show how benefits to Barilla from this system could benefit the distributors. If Barilla’s costs are decreased through this new system, they could in turn offer their distributors lower prices. Additionally, with Barilla having more information, this would decrease the chance of having stock outs which could add to the bullwhip effect instead of detracting from it. Finally, explain to the distributor that the effects of this new JITD system are not immediate rather in the long run all parties will win.
When all parties win, prices are lower for everyone and demand is more predictable to keep a steady flow of satisfied customers coming back for more. 3. ) As one of Barilla’s customers, what would your response to JITD be? Why? Thirty-five percent of Barilla’s customers are small independent grocers who are supplied from Barilla’s internally owned regional warehouses. These grocers are mom-and-pop shops which are the means that traditional Italians purchase their groceries. Many of these establishments are family owned and operated, and the owners take a great deal of pride in their stores.
These traditional Italians are not going to be very willing to change their practices of business. Also, nearly all of these grocers operate on a periodic inventory system, which makes a Just-In-Time Distribution system less effective. Without a perpetual count of inventory on hand at the grocery stores, Barilla would have to estimate how much of a product to send without up to date data. This could potentially cause either overstock or understock at the small grocery stores, which is a cost that would hurt the small grocer’s profit.
The other sixty-five percent of Barilla’s customer base is distributors that supply both supermarket chains and independent supermarkets. Many of these distributors used a periodic inventory system, only carried a two week supply of Barilla’s dry products, and typically only carried 18% of Barilla’s 800 SKUs. The average lead time for deliveries to the distributors is ten days, and the distributors can deliver to supermarkets within 48 hours. With a JITD system the lead time could be shortened, and the distributors can lower their inventory storage costs.
Unfortunately, many of the distributors are unwilling to share their data with Barilla and do not want Barilla to dictate the deliveries. By allowing a JITD system, the distributors feel as if they are giving up power and becoming dependent on Barilla. Barilla wants to operate on new, efficient supply chain systems, while the distributors prefer the traditional supply chain and purchasing practices. Barilla must do its best in educating the distributors on the benefits of JITD if it is going to implement the system.