July 2011 | Case Studies | I.T. Toolkit

Raising a Glass to Better Beverage Management

Tags: Demand Planning

Faced with processing more than 63,000 orders each year, the Manitoba Liquor Control Commission tapped a merchandising optimization and demand-based replenishment solution to keep the booze cruising into stores. 

As one of the world's largest single buyers of beverage alcohol—with more than $580 million in annual sales—the Manitoba Liquor Control Commission (MLCC) juggles a multitude of needs in a varied and challenging supply chain environment.

A crown agency of the Manitoba government, MLCC regulates, distributes, and sells beverage alcohol throughout the province. As a result, it's no exaggeration to say that every drop of beverage alcohol that's consumed in Manitoba literally flows through the commission.

MLCC purchases product from more than 2,900 suppliers in 56 countries, and delivers those products to approximately 1,700 customers through its 50 Liquor Mart stores, as well as independent alcohol vendors and privately owned specialty wine stores. In all, the Winnipeg, Canada-based commission—which is both a provincial regulatory agency and a commercial enterprise—processes 63,000 orders each year.

When MLCC officials gathered to discuss operations in mid-2007, the commission's most pressing need was obvious: find a way to rationalize and streamline the ordering process for its stores.

"Our conversations focused on the need to re-prioritize our point-of-sale implementation and migrate to a centralized replenishment model," recalls Gerry Sul, MLCC's chief corporate service officer.

"With de-centralized ordering, by the time you recognize a change in consumer tastes or a trend in a different direction, a container might already be on its way from South Africa or Australia, carrying goods that end up as discounted items or limited-time offers," he says.

With 50 stores and 50 individual managers responsible for inventory control and store assortments, 50 different ordering philosophies could tangle the commission's supply chain.

"It's hard to measure precisely how much ordering variation the commission was encountering," says Sul. "Occasionally a particular store would run out of a popular beverage, suggesting a lack of understanding of what product assortment should be on the shelves. Also, with product coming from more than 56 different countries, lead-time requirements can greatly influence ordering.

"We recognized that consistency is important," he continues. "And we knew migrating from an aging system to a more consistent corporate replenishment application would bring other opportunities, such as freeing up store managers' time for value-added activities."

Instead of being burdened with time-consuming clerical duties, managers could redirect their attention to the look and feel of their stores, developing programs and promotions, and managing, coaching, and mentoring employees—creating a better customer experience in the process.

Choosing a Solution

For a solution to its challenges, MLCC turned to Aldata Solution Inc.'s merchandizing optimization and demand-based replenishment software. The commission selected the Atlanta, Ga.-based software vendor partly because it recently deployed its retail solution across a Finnish government-owned liquor chain, which shares a similar business model and supply chain channels with its Canadian counterpart.

"We talked to all the key software vendors in that market space, but felt Aldata offered something more," Sul recalls. "What caught our attention was how personable they were. The software functionality was obviously a key component, but having a meaningful vendor relationship was equally important to us."

The Aldata solution MLCC deployed takes the "human factor" out of beverage ordering by determining how frequently to replenish store shelves while meeting the parallel desires of serving customers while controlling inventory and logistics costs.

"The solution moves the tedious ordering process out of the stores and brings it into the commission's headquarters," says Jyrki Ihanainen, Aldata's vice president of sales. "Multiplied across several stores, that centralized approach produces significant labor savings.

"And all retailers have more product on hand than they have room to display," he continues. "We intend to apply the demand data gathered by the software to optimize storage and shelf space."

The software collects each day's sales data, then uses it to create a true picture of customer activity at the store level and across stores that fit into a specific "cluster," such as wine merchants.

Instead of placing standard orders—which results in shipments arriving the same day every week rather than when the product is actually needed—the new program places orders only when the software anticipates a specific need to do so.

On the store level, managers can access a Web site to view pending orders, and track when their order has arrived in the country, been picked at the warehouse and loaded onto a truck for delivery, and when it will arrive at the store.

Although the general ordering process is centralized, managers still play a vital role in identifying factors that may influence the store's inventory needs.

"No matter how successful the software is, we will always rely on local intelligence," Sul says. "Our stores are spread out across Manitoba, and it would be unrealistic to expect the software to account for every local charity, social, or sporting event.

"That's why we haven't set a goal for 100-percent automation," Sul adds. "We count on store managers to influence the buy using that kind of intelligence."

A Gradual Approach

MLCC's technology implementation currently has an estimated timeline of between eight and 12 months, and is intentionally gradual in order to mitigate risk.

The first stage is to turn on software functionality for inventory management, eventually followed by demand forecasting and retail analytics. A pilot, featuring five stores, is set to launch by autumn 2011. Then if all goes well, the software will be scaled to all 50 stores.

Why move so cautiously? Being the sole liquor distributor in the province, the MLCC cannot afford mistakes in any new technology deployment.

"We're the only game in town for our customers," Sul explains. "If our applications prove unstable or our service is disrupted, there is nowhere else customers can turn. That's why we're moving incrementally, adding automation and functionality piece by piece.

"We're starting with a subset of brands or SKUs and a subset of our liquor mart locations, then we'll gradually grow into a computer-assisted ordering model for all products," he says.

Securing Staff Buy-In

There's a human resources element to consider when implementing a new software solution—particularly when ordering autonomy is being shifted away from the stores.

"Managers might be skeptical of the new system," Sul says. "Some store managers may not believe the software can do as good a job as they did in the past.

"We will try to smooth the transition, get buy-in, and help store managers understand why MLCC is going down this path," he adds. "We want them to understand that the software implementation will be better in the end—for us, for them, and ultimately, for customers.

"At the same time, we want to encourage managers to actively engage in the vetting process, validating the software's order and replenishment suggestions, and making sure they are accurate."

If the MLCC has automated 60 to 70 percent of its ordering within one year, Sul will consider the software implementation a success and many of the commission's key goals accomplished.

"I wouldn't want it to take more than one year, because we'd also like to pursue some long-term objectives with the Aldata solution," he says.

"Our first priorities revolve around allocation and replenishment, but we want to employ other functionalities as well—analytics, space planning, shelf management, and product optimization," says Sul.

With any luck, MLCC's store managers will join Sul in raising a glass to toast the benefits of the new centralized ordering system.