Just In Time Distribution

Just-In-Time Distribution and Barilla SpA

Anybody who knows something about business had heard the term Just-in-time (JIT) inventory. It involves producing only what is need, when it is needed. The principle of Just in time is to eliminate sources of manufacturing waste by getting the right quantity of raw materials and producing the right quantity of products in the right place at the right time.(1) In this way, manufactures receive parts and materials "just in time" to meet the day's manufacturing quota with hardly any extra.(3)

JIT is a manufacturing management method developed in Japan during the 70's to meet customer demands. The individual most credited with the development of JIT is Taiichi Ohno, the vice president of Toyota Motor Company. After Toyota introduced JIT and was proven to be successful, it was tried by other companies shortly after and now today is widely used by many companies. JIT can be applied to almost any type of industry and channel relationships. JIT could someday become the norm of the business world.

Before the introduction of JIT, there were a lot of manufacturing defects in the system such as inventory problems, product defects, risen cost, large lot production, and delivery delays. Some other problems also included equipment breakdowns, and uneven production levels. The inventory problems included unused inventory that was unproductive and the extra effort of storing and managing it. To store inventory, it costs money called a Carrying Cost, which can be expensive. However, with the use of the JIT system, inventory costs can be reduced by as much as 50 percent if not more. For product defects, the manufactures knew that a single product defect can cause breakdown the producer's creditability so they must have a defect-free process. Instead of a large lot production, manufactures decided they should produce more than just one good and have a diverse line of products. And finally, the way they were running things did not manage well for the fast delivery request, so there was a need to have a faster and reliable delivery system in order to handle customers' needs.(1) With the use of the JIT system, these problems were solved and made things run a lot more smoothly with a lot less cost. To make the JIT system successful the cooperation between manufacture and its channel members and a good logistics system is a must.

Besides the few that I mentioned above, JIT has a wide range of benefits, such as: reduced inventory, improved quality, lower costs, reduced space requirements, shorter lead time, increased productivity, greater flexibility, better relations with channel members, simplified scheduling and control activities, increased capacity, better use of human resources, and more product variety. One study showed that the average benefits accrued by US manufactures over 5 years from using the JIT system were extraordinary. There was 90 percent reduction in the manufacturing cycle time, 70 percent reductions in inventory, 50 percent reductions in labor costs, and 80 percent reductions in space requirements.(2) All these benefits affect the channel relationship in some way and will benefit the end user, whether it's the cost of the product or the quality.

Now that I've given a little overview on the JIT system, I want to talk about a new concept that a company called Barilla SpA wanted to try called, Just-in-time Distribution (JITD). But before I talk about JITD I want to tell you a little about the company.

Barilla SpA was founded in 1875 when Pietro Barilla opened a small shop in Parma, Italy. Connected to the shop was a small laboratory that Pietro used to make the pasta and bread products that he sold in his store. Eventually over the years, the company grew and was handed over to Pietro's grandchildren, Pietro and Gianni. Over this time, Barilla evolved from the small shop into a large corporation with flour mills, pasta plants, and bakery-product factories that are still today located throughout Italy. With a lot of competition in the pasta industry, Pietro and Gianni differentiated their company from the others with a perceived high quality product supported by strong innovative marketing programs. Barilla revolutionalized the Italian pasta industry's marketing practices by creating a strong brand name and image for its pasta and by 1968 hit double-digits in sales growth. Due to their size and amount of products, Barilla was organized into seven divisions: three pasta divisions, a bakery products division, the fresh bread division, the catering division, and the international division. By 1990, Barilla became the largest pasta manufacture in the world (which it sill is today).(4)

Barilla SpA had a couple different channels of distribution.( Illustration shown on last page of report.) First of all, Barilla divided it entire product line into two general categories: 1.)Fresh products, which included fresh pasta products that had a 21 day shelf life and fresh bread that had a one day shelf life and 2.)Dry products, which included dry pasta that had long shelf life of 18 to 24 months and longer shelf-life bakery products such as cookies, flour, etc. that had a medium shelf life of 10 to 12 weeks. Most of Barilla's products were shipped from the plants in which they were made to one of two central distributions centers, the Northern CDC or the Southern CDC. Other fresh products were moved quickly through the distribution system in which only three days of fresh product inventory and a month's worth of dry product inventory was held in each CDC. Barilla maintained separate distribution systems for its fresh and dry products due to their differences in perishability and retail service requirements. Fresh products were purchased from the two CDC's by independent agents who then channeled the product through 70 regional warehouses located throughout Italy. Nearly two-thirds of the dry products were destined for supermarkets which were first shipped to one of Barilla's CDCs, purchased by distributors and then shipped to the supermarkets. It is estimated that Barilla's products were offered in nearly 100,000 retail outlets in Italy alone, whether it was small independent grocers, supermarket chains, or independent supermarkets.(4)

With the small independent shops Barilla distributed some dry products from its internally owned regional warehouses to the shops, which usually held 2 weeks of inventory at the store. The store owners only had to deal with brokers that dealt with Barilla's purchasing and distribution personnel, so it is a fairly short channel. (4)

With the supermarkets, it was a longer channel of distribution and different depending on whether it was supermarket chain or an independent supermarket. Dry products going to a supermarket