There were several aspects of pasta making that would play a significant role in the supply chain. One of the big things is the amount of space it takes to mass-produce pasta. Due to the number of different machines needed for different shapes of pasta, the number of raw materials used on a daily basis, and the space required for the drying process. All of these limit the flexibility of the company to meet significantly varying order needs. There isn’t just the issue of the workforce to meet increased production needs, but rather there’s not the physical space to increase production. Another important issue in terms of supply management concerns the amount of financial investment in the production of pasta, i.e., the cost manufacturer is to pay in order to launch the production process on demand. Thus, it is of crucial importance for the company to establish a proper pattern of supply in order to develop a beneficial and scheduled system of manufacturing process instead of starting the process any time demand emerges.
One of the main problems the JITD program was designed to solve was the huge demand variations, also known as the bullwhip effect. These variations resulted in several problems, including distributor-customer stock-out rates of about 6%, the strain on the manufacturing to meet varied demand, and high inventory levels for both Barilla SpA centers and distributors. This was all significantly cutting into profit. Subsequently, the overall process of manufacturing has begun to affect the profit rate, as the scope of manufacturing is quite large and expensive to sustain. With the increasing impact of the bullwhip effect, the patterns of manufacturing have become inconsistent, and the paradigm of supply-demand and in-stock storage has become vague.
With a large variety of dry products (more than 800 SKUs) and constant promotions, Barilla’s demand variability remains high. As shown in Exhibit 12, the weekly demand for one of Barilla’s distribution centers has a mean of 300 quintals and a standard deviation of 227 quintals. To counter the demand variations, both Barilla and its distributors implement high safety stock, which merely covers the weakness of the system at the cost of inefficient inventory management. However, Barilla’s buyers still experience recurrent stock-outs. As shown in Exhibit 13, one of Barilla’s distribution centers experiences as high as a 9% weekly stock out rate.