Chapter 4 The Value of Information.PPT

Chapter 4 The Value of Information Qi Xu Professor of Donghua University Tel: 021E-mail: xuqi@dhu.edu.cn Case: Barilla SpA Part A Barilla SpA is the world’s largest pasta manufacturer The company sells to a wide range of Italian retailers, primarily through third party distributors During the late 1980s, Barilla suffered increasing operational inefficiencies and cost penalties that resulted from large week-to-week variations in its distributors’ order patterns Distribution Distributor Ordering Procedures. Most distributors checked their inventory levels and placed orders with Barilla once a week. Barilla products would then be shipped to the distributor over the course of the week that started 8 days after the order was placed and ended 14 days—the average lead time was 10 days. Most distributors used simple periodic review inventory systems. Nearly all of them had computer-supported ordering systems but few had forecasting systems or sophisticated analytical tools for determining order quantities. Barilla increasingly felt the effects of fluctuating demand. Orders for Barilla dry products often swung wildly from week to week( see Figure 1). Distributors’ service level to the retailers were unacceptable.Asking distributors or retailers to carry additional inventory to check the fluctuation. Distributors and retailers were already carrying too much inventory. Questions: What exactly is causing the distributor’s order pattern to look this way? What are the underlying drivers of the fluctuations? Causes of Demand Fluctuations Transportation discounts Volume discount Promotional activity No minimum or maximum order quantities Product proliferation(激增) Long order lead times Poor customer service rates Poor communication Demand Fluctuations The extreme fluctuation in Exhibit 1 is truly remarkable when one considers the underlying aggregate demand for pasta in Italy. What does the underlying consumer demand pattern for pasta look like in Italy? What is t