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REV: MARCH 25, 2008
JANICE H. HAMMOND
Barilla SpA (A)
Giorgio Maggiali was becoming increasingly frustrated. As director of logistics for the world’s
largest pasta producer, Barilla SpA1, he was acutely aware of the growing burden that demand
fluctuations imposed on the company’s manufacturing and distribution system. Since his
appointment in 1988 as director of logistics, he had been trying to make headway on an innovative
idea proposed by Brando Vitali, who had served as Barilla’s director of logistics before Maggiali. The
idea, which Vitali called Just-in-Time Distribution (JITD), was modeled after the popular “Just-InTime” manufacturing concept. In essence, Vitali proposed that, rather than follow the traditional
practice of delivering product to Barilla’s distributors on the basis of whatever orders those
distributors placed with the company, Barilla’s own logistics organization would instead specify the
“appropriate” delivery quantities—those that would more effectively meet end-consumer’s needs yet
would also more evenly distribute the workload on Barilla’s manufacturing and logistics systems.
For two years Maggiali, a strong supporter of Vitali’s proposal, had tried to implement the idea,
but now, in the spring of 1990, little progress had been made. It seemed that Barilla’s customers were
simply unwilling to give up their authority to place orders as they pleased; some were even reluctant
to provide the detailed sales data upon which Barilla could make delivery decisions and improve its
demand forecasts. Perhaps more disconcerting was the internal resistance from Barilla’s own sales
and marketing organizations, which saw the concept as infeasible or dangerous, or both. Perhaps it
was time to discard the idea as simply unworkable. If not, how might he increase the chances that
the idea would be accepted?
Company Background
Barilla was founded in 1875 when Pietro Barilla opened a small shop in Parma, Italy on via
Vittorio Emanuele. Adjoining the shop was the small “laboratory” Pietro used to make the pasta and
bread products he 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 mills, pasta plants, and bakery-product factories located throughout Italy.
1SpA (Società per Azioni) can be translated as “Society for Stockholders” and interpreted as “Inc.”
________________________________________________________________________________________________________________
Professor Janice H. Hammond prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to
serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 1994, 2006, 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication
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photocopying, recording, or otherwise—without the permission of Harvard Business School.
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694-046
Barilla SpA (A)
In the 1960s, competing in a crowded field of over 2,000 Italian pasta manufacturers, Pietro and
Gianni Barilla differentiated their company using a high quality product supported by innovative
marketing programs. Barilla revolutionized the Italian pasta industry’s marketing practices by
creating a strong brand name and image for its pasta, selling pasta in a sealed cardboard box with a
recognizable color pattern, rather than in bulk, and investing in large-scale advertising programs. In
1968, to support the double-digit sales growth the company experienced during the 1960s, Pietro and
Gianni Barilla began construction of a 1.25 million square meter state-of-the art pasta plant in
Pedrignano, a rural town 5 km outside of Parma.
The cost of this massive facility—the largest and most technologically advanced pasta plant in the
world—drove the Barilla brothers deeply into debt. In 1971, they sold the company to the American
multi-national firm W. R. Grace, Inc. Grace brought additional capital investment and professional
management practices to the company and launched an important new Mulino Bianco (“White Mill”)
line of bakery products. Throughout the 1970s, facing difficult economic conditions and new Italian
legislation that both capped retail pasta prices and increased cost-of-living allowances for employees,
Grace struggled to make its Barilla acquisition pay off. In 1979, Grace sold the company back to
Pietro Barilla, who by then had secured the necessary funds to purchase it.
The capital investments and organizational changes that Grace had brought to Barilla, combined
with improving market conditions, helped Pietro Barilla launch a successful return to the company.
During the 1980s, Barilla enjoyed an annual growth rate of over 21% (see Exhibit 1). Growth was
realized through expansion of existing businesses, both in Italy and other European countries, as well
as through acquisition of new, related businesses.
In 1990, Barilla was the largest pasta manufacturer in the world, making 35% of all pasta sold in
Italy and 22% of all pasta sold in Europe. In Italy, Barilla offered pasta products under three brands:
the traditional Barilla brand represented 32% of the market and 3% of market share was divided
between its Voiello brand (a traditional Neapolitan pasta competing in the high-priced segment of the
semolina pasta market) and its Braibanti brand (a high-quality, traditional Parmesan pasta made
from eggs and semolina). About half of Barilla’s pasta was sold in northern Italy and half in the
south, where Barilla held a smaller share of the market than in the north but where the market was
larger. In addition, Barilla held a 29% share of the Italian bakery-products market.
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.
(Exhibits 2 and 3 show the organizational structure of the company.) Corporate headquarters were
located adjacent to the Pedrignano plant.
Industry Background
The origins of pasta are unknown. Some believe it originated in China and was first brought to
Italy by Marco Polo in the 13th century. Others claim that pasta’s origins were rooted in Italy, citing
as proof a bas relief on a 3rd century tomb located near Rome that depicts a pasta roller and cutter.
“Regardless of its origins,” Barilla marketing literature proclaimed, “since time immemorial, Italians
have adored pasta.” Per capita pasta consumption in Italy averaged nearly 18 kilos per year, greatly
exceeding that of other western European countries (see Exhibit 4). ). Total pasta consumption was
relatively consistent throughout the year. A few pasta types experienced some seasonality—for
2
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Barilla SpA (A)
694-046
example, special pasta types were used for pasta salads in the summer and egg pasta and lasagna
were very popular for Easter meals.
In the late 1980s, the Italian pasta market as a whole was relatively flat, growing less than 1% per
year. By 1990, the Italian pasta market was estimated at 3.5 trillion lire. Semolina pasta and fresh
pasta were the only growth segments of the Italian pasta market. In contrast, the export market was
experiencing record growth; pasta exports from Italy to other European countries were expected to
rise as much as 20-25% per year in the early 1990s.
Plant Network
Barilla owned and operated an extensive network of plants located throughout Italy (see Exhibit
5), including flour mills, pasta plants, and fresh bread plants, as well as plants producing specialty
products such as panettone (Christmas cake) and croissants. In Pedrignano, Barilla maintained stateof-the-art R&D facilities and a pilot production plant for developing and testing new products and
production processes.
Pasta Manufacturing
The pasta-making process is similar to the process by which paper is made (see Exhibit 6). In
Barilla plants, flour and water (and for some products, eggs and/or spinach meal) were mixed to
form dough, which was then rolled into a long, thin continuous sheet by sequential pairs of rollers set
at increasingly close tolerances. After being rolled to the desired thickness, the dough sheet was
forced through a bronze extruding die screen; the die’s design gave the pasta its distinctive shape.
After passing through the extruder, the pasta was cut to a specified length. The cut pieces then were
hung over dowels (or placed onto trays) and moved slowly through a long tunnel kiln that snaked
across the factory floor. The temperature and humidity in the kiln were precisely specified for each
size and shape of pasta and had to be tightly controlled to ensure a high quality product. To keep
changeover costs low and product quality high, Barilla followed a carefully chosen production
sequence that minimized the incremental changes in kiln temperature and humidity between pasta
shapes. After completing this four-hour drying process, the pasta was weighed and packaged.
At Barilla, raw ingredients were transformed to packaged pasta on fully-automated 120-meterlong production lines. In the Pedrignano plant, the largest and most technologically advanced of
Barilla’s plants, 11 lines produced a total of 9,000 quintals (900,000 kilos) of pasta each day. Barilla
employees used bicycles to travel within this enormous facility.
Barilla’s pasta plants were specialized by the type of pasta produced in the plant. The primary
distinctions were based on the composition of the pasta, for example, whether it was made with or
without eggs or spinach, and whether it was sold as dry or fresh pasta. All of Barilla’s non-egg pasta
was made with flour ground from grano duro (high protein “hard” durum wheat), the highest-quality
flour for making traditional pasta products. Semolina, for example, is a finely ground durum wheat
flour. Barilla used flours made from grano tenero (tender wheat), such as farina, for more delicate
products, like egg pasta and bakery products. Barilla’s flour mills ground flour made from both
types of wheat.
Even within the same family of pasta products, individual products were assigned to plants based
on the size and shape of the pasta. “Short” pasta products, such as macaroni or fusilli, and “long”
products, such as spaghetti or capellini, were made in separate facilities due to the different sizes of
equipment required.
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694-046
Barilla SpA (A)
Channels of Distribution
Barilla divided its product line into "dry" and "fresh" product categories, representing 75% and
25% of Barilla’s sales, respectively.
•
Dry products included dry pasta and longer shelf-life bakery products such as
cookies, biscuits, flour, bread sticks, and dry toasts. Dry products had either
“long” shelf lives of 18 to 24 months (e.g., pasta and dried toasts) or “medium”
shelf lives of 10 to 12 weeks (e.g., cookies). In total, Barilla dry products were
offered in about 800 different packaged SKUs. Pasta was made in 200 different
shapes and sizes and was sold in over 470 different packaged SKUs (see Exhibit
7). The most popular pasta products were offered in a variety of packaging
options; for example, at any one time Barilla’s #5 spaghetti might be offered in a
5-kg package, a 2-kg package, a 1-kg package with a northern Italian motif, a 1kg package with a southern Italian motif, a 0.5-kg “northern-motif” package, a
0.5-kg “southern-motif” package, a special promotional package with a free
bottle of Barilla pasta sauce, and a display pallet.
•
Fresh products included fresh pasta products, which had 21-day shelf lives, and
fresh bread, which had a one-day shelf life.
Most Barilla products were shipped from the plants in which they were made to one of two Barilla
central distribution centers (CDCs): the Northern CDC in Pedrignano or the Southern CDC in the
outskirts of Naples (See Exhibit 8). Fresh products were moved quickly through the distribution
system—only three days worth of fresh product inventory was typically held in each of the CDCs; in
contrast, each CDC held about a month’s worth of dry product inventory. Certain fresh products,
such as fresh bread, did not flow through the CDCs.
Barilla maintained different distribution systems for its dry and fresh products due to their
differences in perishability and retail service requirements. Fresh products were purchased from the
two CDCs by independent agents (concessionari) who then channeled the product through 70 regional
warehouses located throughout Italy. Each of these warehouses held about three days of fresh
product in inventory.
Nearly two-thirds of Barilla’s dry products were destined for supermarkets; these products were
first shipped to one of Barilla’s CDCs, from which they were purchased by distributors. The
distributors in turn shipped the product to supermarkets. Brando Vitali’s JITD proposal focused
solely on dry products sold through distributors. The remainder of the dry products was distributed
through 18 Barilla-owned “depots” (small warehouses), mostly to small shops.
Barilla products were distributed through three types of retail outlets: small independent grocers,
supermarket chains, and independent supermarkets. In sum, Barilla estimated that its products were
offered in 100,000 retail outlets in Italy alone.
1.
Small Independent Shops
Small shops were more prevalent in Italy than in other Western European countries (see Exhibits
9 and 10). Through the late 1980s, the Italian government had supported small grocers (often referred
to as “Signora Maria” shops in Italy) by restricting the number of licenses provided to operate large
supermarkets. In the early 1990s, the number of supermarkets began to grow as governmental
restrictions abated.
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Barilla SpA (A)
694-046
Approximately 35% of Barilla’s dry products (30% in the north of Italy and 40% in the south) were
distributed from Barilla’s internally-owned regional warehouses to small independent shops, which
typically held over 2 weeks of inventory at the store level. Small shop owners purchased product
through brokers that dealt with Barilla purchasing and distribution personnel.
2.
Supermarkets
The remaining dry products were distributed through outside distributors to supermarkets—70%
to supermarket chains and 30% to independent supermarkets. A supermarket typically held from ten
to twelve days of dry-grocery inventory within the stores, and on average carried a total of 4,800 dryproduct SKUs. Although Barilla offered many pasta products in multiple package types, most
retailers would carry the product in only one (and at most two) packaging options.
Dry products destined for a supermarket chain were distributed through the chain’s own
distribution organization, known as a “Grande Distribuzione” (Large Distributor) or GD; those
destined for an independent supermarket were channeled through a distributor known as a
“Distribuzione Organizzata” (Organized Distributor) or DO. A DO acted as a centralized buying
organization for a large number of independent supermarkets. Most DOs had regional operations,
and the retailers they served usually sourced product from only a single DO.
Due to regional preferences and differences in retail requirements, a typical distributor might
distribute 150 of Barilla’s 800 dry-product SKUs. Most distributors handled products coming from
about 200 different suppliers; of these, Barilla typically would be the largest in terms of the physical
volume of product purchased. Distributors typically carried from 7,000 to 10,000 SKUs in total.
However, distributors’ strategies varied. For example, one of Barilla’s largest DOs, Cortese, carried
only 100 of Barilla’s dry products and carried only 5,000 SKUs in total.
Both GDs and DOs purchased product from the Barilla CDCs, maintained inventory in their own
warehouses, and then filled supermarkets’ orders out of their warehouse inventory. A distributor’s
warehouse typically held a two-week supply of Barilla dry products in inventory.
Many supermarkets placed orders with distributors daily; the store manager would walk up and
down the store aisles and would note each product that needed to be replenished and the number of
boxes required (the more sophisticated retailers used hand-held computers to record order quantities
as they checked store shelves). The order would then be transmitted to the store’s distributor;
deliveries were typically received at the store 24 to 48 hours after the receipt of the order at the
distribution center.
Sales and Marketing
Barilla enjoyed a strong brand image in Italy. Its marketing and sales strategy was based upon a
combination of advertising and promotions.
Advertising
Barilla brands were heavily advertised. Advertising copy differentiated Barilla pasta from basic
commodity “noodles” by positioning the brand as the highest quality, most sophisticated pasta
product available. One ad campaign was built on the phrase: “Barilla: a great collection of premium
Italian pasta.” The “collection” dimension was illustrated by showing individual uncooked pasta
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694-046
Barilla SpA (A)
shapes, as though they were jewels, against a black background, evoking a sense of luxury and
sophistication (see Exhibit 11). Unlike other pasta manufacturers, Barilla avoided images of
traditional Italian folklore, preferring modern, sophisticated settings in major Italian cities.
Advertising themes were supported by sponsorships of well-known athletes and celebrities. For
example, Barilla engaged tennis stars Steffi Graf to promote Barilla products in Germany and Stefan
Edberg to promote Barilla products in Scandinavian countries. Luminaries such as Paul Newman
were also used to promote Barilla products. In addition, Barilla advertising focused on developing
and strengthening loyal relationships with Italian families by using messages such as “Where there is
Barilla, there is a home.”
Trade Promotions
Barilla’s sales strategy relied on the use of trade promotions to push product into the grocery
distribution network. A Barilla sales executive explained the logic of the promotion-based strategy:
We sell to a very old-fashioned distribution system. The buyers expect frequent trade
promotions, which they then pass along to their own customers. So a store will know right
away if another store is buying Barilla pasta at a discount.
You have to understand how important pasta is in Italy. Everyone knows the price of
pasta. If a store is selling pasta at a discount one week, consumers notice the reduced price
immediately.
Barilla divided each year into 10 or 12 “canvass” periods, typically four to five weeks in length,
each corresponding to a promotional program. During any canvass period, a Barilla distributor
could buy as much product as desired to meet current and future needs. Incentives for Barilla sales
representatives were based on achieving sales targets set for each canvass period. Different product
categories were offered during different canvass periods, with the discount depending on the margin
structure of the category; typical promotional discounts were 1.4% for semolina pasta, 4% for egg
pasta, 4% for biscuits, 8% for sauces and 10% for breadsticks.
Barilla also offered volume discounts. For example, Barilla paid for transportation to distributors,
and offered incentives of 2% to 3% for orders in full truck-load quantities. In addition, a sales
representative might offer a buyer a 1,000 lire/carton discount (representing a 4% discount) if the
buyer purchased a minimum of three truck-loads of Barilla egg pasta.
Sales Representatives
Barilla sales representatives serving DOs spent an estimated 90% of their time working at the store
level. In the store, sales reps helped merchandise Barilla product and set up in-store promotions;
took note of competitive information including competitors’ prices, stockouts, and new product
introductions; and discussed Barilla products and ordering strategies with store management. In
addition, each sales rep spent half a day in a regularly scheduled weekly meeting with the
distributor’s buyer, helping the distributor place its weekly order, explaining promotions and
discounts, and settling problems such as returns and deletions associated with the last delivery. Each
rep carried a portable computer for inputting distributor orders. The rep would also spend a few
hours a week at the CDC, discussing new products and prices, discussing problems associated with
the previous week’s deliveries, and settling disputes about different discounts and deal structures.
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Barilla SpA (A)
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In contrast, a very small sales force served the GDs. The GD sales force rarely visited the GD’s
warehouses; GDs usually sent their orders to Barilla via fax.
Distribution
Distributor Ordering Procedures
Most distributors—GDs and DOs alike—checked their inventory levels and placed orders with
Barilla once per week. Barilla product would then be shipped to the distributor over the course of the
week that started eight days after the order was placed and ended fourteen days after the order was
placed—the average lead time was ten calendar days. Thus for example, a large distributor that
ordered every Tuesday might order several truckloads that would be delivered from the following
Wednesday through the following Tuesday (see below). Distributors’ sales volumes varied; small
distributors might order only one truckload per week whereas the largest warranted deliveries of as
many as five truckloads per week.
Receive Deliveries
Place Order
Mon
Tues
Wed
Thur
Fri
Mon
Tues
Wed
Thur
Fri
Mon
Tues
Wed
Most distributors used simple periodic-review inventory systems. For example, a distributor
might review inventory levels of Barilla products each Tuesday; the distributor would then place
orders for those products whose levels fell below a specified reorder level. Nearly all of the
distributors had computer-supported ordering systems, but few had sophisticated forecasting
systems or analytical tools for determining order quantities.
Impetus for the JITD Program
As the 1980s progressed, Barilla increasingly felt the effects of fluctuating demand. Orders for
Barilla dry products often swung wildly from week to week (see Exhibit 12). Such extreme demand
variability strained Barilla’s manufacturing and logistics operations. For example, the specific
sequence of pasta production necessitated by the tight heat and humidity specifications in the tunnel
kiln made it difficult to quickly produce a particular pasta that had been sold out due to
unexpectedly high demand. On the other hand, holding sufficient finished goods inventories to meet
distributors’ order requirements was extremely expensive when weekly demand fluctuated so much
and was so difficult to predict.
Some manufacturing and logistics personnel favored asking distributors or retailers to carry
additional inventory to dampen the fluctuation in distributors’ orders, noti…
