FREE ESSAY ON BARILLA

BARILLA

Barilla SpA (A)
Giorgio Maggiali was becoming increasingly frustrated. As director of Logistics for the
world's largest pasta producer, Barilla SpA, 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-In-Time 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 nulls, pasta plants, and
bakery-product factories located throughout Italy.
SPA (Societa per Azioni) can be translated as Society for Stockholders and interpreted
as
In a crowded field of over 2,000 Italian pasta manufacturers, Pietro and Gianni Barilla
differentiated their company with 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 Barillas 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 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 229/6 of all pasta sold in Europe. Barilla's share in Italy comprised
its three brands: the traditional Barilla brand represented 32% of the market, the
remaining 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 pasta plant