Liquor Logistics: Solutions on Tap

Liquor Logistics: Solutions on Tap

To keep customers in good spirits, beverage companies need their liquor to move quicker. Here’s how they keep the drinks flowing.

Although wine, beer, and spirits often signal fun and festivities, achieving success in the U.S. liquor market is a serious challenge. The number of products continues to proliferate. Suppliers, distributors, and retailers must comply with myriad regulations, many of which vary by state. One key: a supply chain that offers visibility, facilitates collaboration, leverages technology, and allows sophisticated data analysis. A daunting order, but some companies are bellying up to the bar.


Fill ‘er Up…With Brewtroleum?
Consumers Drink It All In

That’s critical, given the exponentially increasing number of stock-keeping units, or SKUs, one result of the booming number of breweries, distilleries, and wineries. Over the past decade, the number of craft distilleries jumped from about 80 to 800, reports the American Craft Spirits Association.

The number of breweries hit 3,464 in 2014, according to the Brewers Association, and each offers its own products. In the late 1990s, in contrast, most warehouses stocked about 150 unique products. “It used to be ‘stack ’em high and let ’em fly,'” says David Christman, senior director for state and industry affairs, the National Beer Wholesalers Association. This is no longer the case.

The wine industry has enjoyed similar growth. More than 10,000 wineries and wine warehouses now dot the United States, up from about 2,900 in 2000, according to the Wine Institute.

These changes add several levels of supply chain complexity. New SKUs lack sales history, which limits the ability to forecast demand, says John Spain, executive vice president and senior partner with Tompkins International, a supply chain consulting and implementation firm. In addition, the volume of SKUs means customers have more choices, and some choose less popular items. That has led to more bottle, rather than case, picking. While it’s hard to quantify the increase, Spain notes some distribution centers now pick more bottles than cases.

In contrast to the explosion in the number of products, the industry has seen consolidation among many wholesalers and distributors. “Thirty years ago, there were a lot of wholesalers,” says Paul Laman, vice president of W&H Systems Inc., a materials handling systems integrator. “Today, the top 10 wholesalers conduct 80 to 90 percent of the business. They may have 10 to 12 states each. That reflects a massive change in distribution.”

For instance, Glazer’s Inc., a wine, spirits, and malt beverage distributor, currently operates in 15 states, up from four in the mid-1990s, says Dave Christensen, the company’s vice president of supply chain. The growth has come both organically and through acquisition, he adds.

a shot of e-commerce

Another emerging trend is the increase in websites and apps that allow consumers to order liquor online or through their mobile devices, and then have their purchases filled and delivered from liquor stores nearby. These apps provide e-commerce capabilities for liquor purchases, yet work within the myriad regulations that currently prohibit many producers and distributors from shipping directly to consumers.

One aspect of the industry that hasn’t changed is the three-tier system, a holdover from the prohibition days. The liquor supply chain consists of three distinct entities: suppliers, or the wineries, distilleries, and breweries that create the beverages; the distributors; and the retailers. “In general, companies have to be either a producer, distributor, or retailer,” Spain says.

What’s more, every state has a set of rules and regulations, and each party in the supply chain must comply. Even when distributors operate across state lines, they typically incorporate in every state where they do business.

The system was designed both to control alcohol sales and to allow various government units to tax them. On a practical level, it makes the supply chain even more complicated. “It’s almost like dealing with 50 countries,” Spain says.

Spirited Collaboration

A critical element to boosting efficiency and effectiveness in the liquor supply chain is collaboration. “As distributors, we’re trying to build better bridges to our suppliers,” says Christensen.

While this has always been a focus, in the past two years, Glazer’s has added several more strategic vendors and enhanced its existing relationships. Typically, Glazer’s chooses vendors based on a range of factors, including size, supply chain capabilities, and potential opportunity.

Glazer’s doesn’t overlook suppliers as potential partners just because they lack sophisticated technology. “You don’t need fancy systems to build relationships,” Christensen notes. Just as important, he says, is a willingness to invest the time and resources necessary to build productive partnerships.

Indeed, a first step in developing a partnership often consists of sharing data. Glazer’s might provide depletion and out-of-stock forecasts, and ask the supplier for information on its inventory levels.

Next, the two firms often establish processes for communication. This can be as simple as scheduling monthly or weekly calls to discuss, for instance, planning, forecasting, and replenishment and to review key performance indicators, such as inventory levels and turns.

With some vendors, the goal is to move to vendor-managed inventory (VMI). Glazer’s provides inventory and depletion information, which the suppliers can use to more efficiently manage their production, inventory, and shipping operations.

“Vendor-managed inventory smooths out and stabilizes the process so vendors get a cleaner signal, and we get the benefit of the vendor doing some of the day-to-day processing,” Christensen says.

The improved communication and trust between the firms often enhances several performance measures. With one partner, Glazer’s’ forecast accuracy rose 10 percent, inventory levels fell by nearly 15 percent, and fill rates to customers improved, Christensen says.

Third-party logistics providers can also benefit from working collaboratively with suppliers. “One advantage of working together is that suppliers can see what’s happening at the local level, and how well a product performs,” says Scott Walter, a distribution center manager with Kane is Able, a provider of third-party logistics, warehousing, and transportationservices. “When we work collaboratively, we see an uptick in productivity.”

“Along with communication and collaboration, technology is becoming a bigger part of the industry,” Christensen says. The solutions available today can streamline operations and improve decision-making.

Technology is also one solution to the challenge of attracting strong employees. “It’s difficult to find labor,” Spain notes, particularly during the hectic holiday season. Automation can reduce the need to hire more people.

In 2014, Glazer’s finished implementing SAP for several functions, including operations and purchasing. It also uses JDA Software for planning and forecasting. The company has reaped multiple benefits—including improvements in the type of data it can share, and the complexity and SKU count it can manage—from leveraging these systems for supplier collaboration.

For example, with one supplier, Glazer’s pulls information from both systems to drive Collaborative Planning, Forecasting and Replenishment (CPFR). The goal is to fully automate the CPFR process by 2016, Christensen says.

Tapping Into Technology

Along with facilitating the electronic exchange of information, technology streamlines the ways liquor physically moves through warehouses and onto loading docks and trucks, before landing on store shelves. For instance, although wave-based picking systems have been around since the 1990s, they’ve advanced in the past five years. The older algorithms focused largely on the efficiency of pickers, while the newer ones take both pickers and drivers into account.

In addition, advanced merge-combine technology, such as W&H Systems’ Shiraz Warehouse Control System, allows multiple feeds to run and blend simultaneously without colliding. “It’s like a traffic intersection with a four-way stop,” says Laman.

The upshot? Most older systems could handle about 4,000 cases per hour. By using an advanced combiner and new software, that jumps to between 6,000 and 9,000 cases per hour for most wines and spirits.

At the same time, building density has increased from about 2.5 cases per square foot to four to six cases per square foot. This is due to taller buildings, automatic storage and retrieval crane systems, and more efficient use of space.

Radio frequency (RF) technology is also streamlining the liquor supply chain. “Utilizing RF allows for more efficient and accurate checks against purchase orders, as well as shipping order accuracy,” says Mike Kelly, distribution center manager for Kane is Able. Using RF technology when loading and receiving cases, rather than relying on paper documentation, increases receiving capability by 30 to 50 percent, he adds.

In addition, pallet utilization has increased from about 92 to 95 percent 10 years ago to 98 to 102 percent today. Several factors are behind the jump, including greater use of pallet optimization software, and stronger, yet thinner, packaging.

One technology that promises to become more cost-justifiable over the next several years is robotic grippers, Laman says. W&H’s advanced multi-case gripper, estimated to deploy by 2017, will provide boosts in efficiency, he adds.

Few small producers can afford sophisticated enterprise and warehouse management solutions. Instead, they often manage by sheer will, says Jackson Bilbrey, product manager with HighJump, a Minneapolis-based provider of supply chain management solutions. Small businesses typically rely on an unwieldy mix of manual processes and spreadsheets.

“Small companies know how to make great beer, but not how to run a business,” says Ross Elliott, executive vice president and chief strategy officer of HighJump. The company’s recently released suite of solutions for craft breweries, Brewers’ Edge, includes functions such as order fulfillment, beer club memberships, and product delivery. The applications are available by subscription, eliminating the need for a large capital outlay.

A small number of companies use technology to address the last leg of the liquor supply chain—getting products from retailers to consumers. One example is Saucey, an app that launched in May 2014, and currently serves customers in several California cities and Chicago, with more locations to come.

Hot Saucey

Here’s how it works: Customers peruse an online menu and select the items they want. Saucey’s technology identifies the store that can fill the order most efficiently, and routes the order and accompanying payment there, says Chris Vaughn, founder and chief executive officer of Saucey.

Retailers working with Saucey pay a fee that varies with the volume of business they capture through the application, among other factors. In return, they gain additional sales, and have access to tools developed by Saucey that help with functions such as inventory management.

Once the order is placed, Saucey dispatches a courier to pick up and deliver it—typically in about 30 minutes. The couriers also check and scan customers’ identification with each purchase.

The company uses its own stable of independent couriers, rather than asking its retail partners to handle this function. The reason? “We can track and manage the delivery process and ensure speedy delivery,” Vaughn says.

This boosts customer satisfaction and allows Saucey to maximize couriers’ efficiency, Vaughn says. Couriers can pick up multiple purchases at once, and Saucey’s software identifies the most efficient route to deliver them.

As the liquor supply chain continues to grow more complex, beverage suppliers, distributors, and retailers will tap into technology, data, and collaboration to keep the happy in happy hour.


Fill ‘er Up…With Brewtroleum?

A senior logistician once told me if I could understand all the logistics that go into producing a single bottle of beer, I could understand the logistics of any product.

Beers that follow Germany’s purity laws can contain only water, hops, barley, and yeast. All these natural ingredients must move from where they are grown to the brewery. The inbound logistics of these items must be done with care to preserve the ingredients for use in the finished product, which must then be distributed via complex logistics.

Beer and other alcohols are highly regulated and taxed. National and international guidelines, laws, and rules for distribution must be followed to move the product locally, regionally, nationally, or internationally.

The farther the beer has to travel, the more complex the transportation and taxation requirements. Beer moves globally because of marketing, prestige, traditions, price, and appeal.

Beer not only involves logistics; it is impacted by reverse logistics as well.

Ethanol has become a common additive to gasoline. Many critics feel, however, that ethanol is not practical. As demand grows for corn-based ethanol, the price of corn will increase, making it more expensive as a food product. When oil was more than $100 a barrel, corn ethanol seemed like a viable approach because it made a lot of economic sense. Now that oil is less than $50 a barrel, corn does not make much sense as an alternative fuel source.

Here is where the reverse logistics of beer comes in. In the process of making beer, the mash of yeasts and other products is removed as a waste product. This material is good for fertilizer and other applications. However, this waste product can be used to produce ethanol. Given that this waste product is not otherwise useful, it makes more sense to turn it into an additive to gasoline.

Beer drinkers in New Zealand love this idea and have created Brewtroleum. Several gasoline stations are specifically using this beer by-product as an additive to gasoline. Time will tell if this application catches on in other beer-drinking nations. Who knows, maybe some day we will see Brewtroleum being transported around the world the same way nations today move around oil.


Consumers Drink It All In

Another shift in the liquor market that’s poised to impact the supply chain is the growing demand by consumers to know the pedigrees of the products they’re purchasing—that is, where they were produced and what ingredients they’re made of.

Satisfying this demand requires producers and distributors to track distinct items from origin to store shelves. “Consumers want a connection with the product,” says Angela Fernandez, vice president of retail grocery and foodservice with GS1 U.S., which is part of global organization GS1, which manages barcode standards. The Global Trade Item Number found under each barcode uniquely identifies products.

The use of GS1 standards provides consumers more product information. “Trading partners are leveraging the common language that standards provide to trace products and ensure information transparency throughout the supply chain,” Fernandez says. The use of Global Location Numbers identifies the manufacturing plant where a product was produced.

“It turns data into a strategic asset,” Fernandez says. “It opens a door for sharing information with consumers so they can make informed decisions.”