Barilla Essay, Research Paper

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