April 2007 | Case Studies | I.T. Toolkit

I Heard IT Through the Grapevine

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When The Henry Wine Group uncorks a new logistics system, accurate inbound freight updates and improved communication pour out.

A $500 Bordeaux might be a luxury item, but in states where such sales are legal, mass marketers such as Safeway and Costco now sell fine wines. That development has forced wine distributors to change their sales strategy.

No longer is it all right to wait until a unique product reaches the warehouse to start selling it, notes Don Locke, chief financial officer for The Henry Wine Group. The big retail chains need to know what wines are on the way, and that information better be correct.

"If a store runs an ad promoting our wines, and we don't deliver to them on time, that will probably be the last time our company is featured in an ad," Locke says.

Based in Benecia, Calif., The Henry Wine Group distributes imported and domestic fine wines to retailers and restaurants in California, Oregon, Maryland, Virginia, and Washington, D.C. Locke terms the company "a little old-fashioned"—as recently as last year it was conducting paper-based transactions with the freight forwarders and customs broker that handle its inbound shipments.

Those manual processes created two big problems. First, the company couldn't give its sales representatives the accurate information they needed to pre-sell wine.

"The sales people would receive the delivery information, then call to ask, 'Is this right? Can I really expect this wine next Tuesday?'" Locke says. Too often, the answer was no: the arrival date the rep saw was only an estimate.

Paying the Price

The second problem was the difficulty involved in paying all the parties involved in a shipment—including the customs broker and forwarders—then calculating the product's total landed cost. "We could never tie all the invoices together and determine how much it actually cost to deliver a case of wine," Locke says.

At one point, The Henry Wine Group asked its customs broker to pay the other vendors, then send a consolidated bill. But the broker couldn't afford to advance that much money. "It was a disaster waiting to happen," Locke recalls.

Today, though, The Henry Wine Group's sales reps feel confident pre-selling because they know exactly when product will hit the company's warehouses in California, Oregon, and Maryland.

The wine distributor now submits electronic purchase orders to its forwarders and receives status updates on inbound shipments. It cuts just one check each week to cover all freight costs, and has the data it needs to assign costs to particular products.

These improvements come courtesy of Agistix, a Redwood City, Calif.-based logistics consulting firm, and its web-based, carrier-neutral shipment processing, execution, and management system.

By maintaining an online community of shippers and service providers, Agistix allows shippers to assign freight to carriers based on established business rules and relationships. The system can make automatic assignments that follow the shipper's routing guide, present a choice among several eligible carriers, or put business up for bid.

Once the freight is assigned, the system transmits the relevant data to the carrier and prints the shipping documents. A small-package module offers similar functions for companies that ship with UPS, FedEx, and DHL.

The system collects status information from the carriers, allowing a user to monitor a shipment's progress in real time and create reports.

"Users have real-time access to all their shipments in one location, no matter who the carrier is, no matter the shipment size, no matter the mode," says Frank Cirimele, general manager of logistics and strategy for Agistix.

A company using the Agistix system gains better control over its freight costs because managers can individually tailor the information that each user sees. For small package shipments, for example, one user might be allowed to choose any service level, while another might see only the two- and three-day options.

Agistix offers a standard interface for conducting business with all carriers; it also provides quality control. "The system's disciplined process keeps customers from submitting an incomplete shipment or bid request," Cirimele says. "That's not true in the 'real world' where carriers constantly receive incomplete requests."

In addition, Agistix serves as a funnel for freight payments. Carriers send Agistix their invoices on paper or in any electronic format; Agistix consolidates the charges into one weekly electronic invoice, which it sends to the shipper.

"Users have to cut only one check each week instead of the 50 or 100 they used to cut," Cirimele says. The shipper pays Agistix and Agistix pays the carriers.

A company using the Agistix system pays a monthly fee based on factors such as the number of users, plus a per-transaction fee. "Carriers pay a small sales commission for the business we bring them," Cirimele says.

Although some of that is business the carrier was already doing with an established client, it could also include new revenue gained through the network. Carriers also save money, Cirimele says, because the electronic transactions boost their efficiency.

Before they started working with Agistix, executives at The Henry Wine Group investigated several other options, including hiring a logistics professional and licensing software for use in-house. One factor that tipped the scale toward Agistix was the location of its headquarters: only a 40-minute drive from The Henry Wine Group.

"Agistix could be physically on site to help us get comfortable with the new system," Locke says.

First, the Fax

Agistix first served as a consultant, helping The Henry Wine Group improve its paper documentation and filing systems. Then the two companies started working on a phased transition to the electronic logistics system.

In the first step, The Henry Wine Group stopped faxing purchase orders to its various freight forwarders. Instead, it faxed all POs to Agistix, which passed them along. "It was much simpler to have only one number to fax to," Locke says.

In the second step, the company started sending purchase orders to Agistix via e-mail. Finally, it migrated to the web-based system for placing orders.

Three of The Henry Wine Group's five freight forwarders already belonged to the Agistix online community. But when the company asked the other three to become members, they balked, pointing out that they offered online transactions through their own web sites.

But for The Henry Wine Group, using those services would have meant moving from site to site to do business with different service providers.

"That was inefficient for our buyers," Locke explains.

Once pushed into compliance, however, the forwarders quickly discovered that they benefited from using Agistix, he adds.

At first, forwarders were concerned that once buyers could see data on all their freight in one place, they would draw comparisons and drop higher-priced service providers for less-expensive ones.

But that's not likely in the wine industry, where forwarders offer highly specialized services such as driving the breadth of the French countryside to consolidate orders from many small vineyards.

"Could we develop that kind of relationship with other freight forwarders?" Locke asks. "Maybe. But it's a risk I am not willing to take."

Still, The Henry Wine Group might one day use Agistix to make spot transportation buys, dealing with steamship companies instead of forwarders. "Our cost analyst and brand management team are looking forward to the bidding," Locke says.

Aside from the competition factor, bidding out freight may save shippers money because the quotes they receive are based on carriers' current capacity and needs. "The carriers are not held to a set rate table," Cirimele says.

For The Henry Wine Group, though, cost savings are not the driving business need behind the Agistix implementation. A distributor of high-end wines doesn't have to shave pennies, Locke notes. "Our biggest concern is information. We need visibility, and we need to know our costs."

That's not to say Agistix hasn't helped the company cut costs. "With the new system, we have been able to identify insurance overpayments, and get the freight forwarders to sharpen their pencils a little," Locke notes. "The costs have come down, and I don't discount that. But our main goal is communication."

That's a goal The Henry Wine Group has achieved. Now, when a buyer provides the dates that certain products will arrive, the sales reps can trust that information. They can start selling sooner, and that means improved cash flow.

"We're now in a position to sell the wine when it leaves the foreign port," Locke explains. "That gives us 30 days, at least, to be selling out in the market."

That is nothing to whine about.

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