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Stock Control – All Systems Go

d=”standfirst”>The drinks supply chain is more sophisticated than ever, but how are businesses coping with the latest changes in stock control and distribution? Gayle Sullivan finds out

Most companies now employ at least one senior member of staff dedicated to logistics, such is the importance these days of maintaining the most cost-effective and streamlined drinks supply chain possible. Tackling warehousing and distribution inhouse is the choice of a number of companies but most wine businesses will use third party providers at some point in their supply chain. Thanks to the demand for New World wines and the need for evershorter and more accurate delivery times, the supply chain has become increasingly complex in the variety of services on offer. A current key topic among the trade is consolidation.

“We’ve done a lot of work this year on the inbound side, as a number of wine companies have done,” says Ben Pearson, chief operating officer at Virgin Wines. “We’ve been trying to consolidate a little bit at source to achieve efficiencies. For example, we are bringing in smaller quantities more frequently and we tend to partner with a lead supplier in each of the source countries who helps us coordinate some of the stock there.”

A closer collaboration with other members of the trade when it comes to the transportation of wines from far-flung places would be welcomed, explains Pearson. “I would certainly like to consolidate with some other UK customers, say for shipments from New Zealand, but it never turns out to be that cost-effective. There’s always a trade-off between the cost of transport and the cost of holding the stock. However, we have come a long way in the last year by consolidating our supply chain. You can see the effect in our warehouse as we are much lighter on stock and have much better availability.”

Consolidation is also taking place among the logistics companies themselves as they strive to become more competitive, covering more ground, quite literally, in terms of square feet of space and where they are situated in the country. One of the latest examples of this is London City Bond’s acquisition of Vinotheque, news announced at this year’s London International Wine and Spirits Trade Fair.

“Having talked for some time with Lay  & Wheeler about their Vinotheque warehouse situated in Burton-upon-Trent, we have now acquired the business,” says Jeremy Pearson, sales and marketing director of London City Bond. “We have long been looking for an out of town resource to add to our 19 warehouses in London, and with Vinotheque we now have another 200,000 square feet for the longterm maturation of our customers’ reserves and an additional distribution platform in the Midlands.

“We have around 4,600 customer accounts and, whereas in the past companies like LCB were seen as warehouse keepers, we are now distributors and must adapt to meet the needs of all our customers. The dramatic changes in the industry have mainly been systems-led and we have been at the forefront of developing new IT systems.  All our customers can see what’s happening in real time via our Bondmaster Computer software,” Pearson explains.

“With our 425,000 square foot warehousing facility in Tilbury Dock, we are perfectly placed to deal with the increase in demand for New World  wines. A direct benefit of our position is that we can ship ‘heavy-rated’ 40-foot containers and deliver to the warehouse  via private roads. This sort of flexibility is  a major plus to suppliers such as supermarkets who forecast promotions and need large quantities of stock in the right place at the right time. Nowadays, distribution companies need to look at the whole supply chain to minimise costs for their customers.”

Southcorp knows more than most about supplying customers with wine from the other side of the world in the most costeffective way. Its approach to the supply chain is to service customers by way of  both an in-house operation in Australia, dealing with the international logistics  of moving wine, and via its UK warehouse in Abingdon.

“The warehouse operation in the UK is outsourced to a third party provider who we rely on for storage and distribution to our European customers,” says Geoff Wright, logistics manager at Southcorp Wines Europe, who explains what the company is looking for in a service provider. “We view our provider as a partner to our business. They are often the only contact that our customers have with our company so they must be as passionate about our brands and business as we are.”

Consolidated deliveries

Along with a focus on inbound stock, Pearson says his main “hot topic” is on the delivery side. “Our customers typically get their orders within 48 hours and as long as that happens they are satisfied with the speed of service,” he says. “But I would love to be able to tell our customers exactly when their wine is going to arrive. Almost all UK carriers will do an overnight service but they’ll deliver any time between eight in the morning and six in the evening. We are working on ways to get around that but there are no carriers who are offering a specific, cost-effective delivery window. 

“I would really like to see a carrier focusing on Saturday mornings – often the one window in the week when you are likely to get your customers at home.”

Consolidating inbound stock is an important consideration but it is not the only way to improve the supply chain, as Michael Lainas, managing director of Octavian, explains: “The consolidation of deliveries into the retail sector – be it to the on-trade or off-trade – is a real opportunity for the drinks industry. If you have made a strategic decision to use a logistics company, then that company should be able to produce some consolidation benefits on deliveries, whether it’s to a supermarket or to a hotel or restaurant.

“We have recently had a situation where a London wine bar group has said to its suppliers, who store with Octavian, that they would like to do one consolidated delivery from the warehouse to each of its outlets. This customer is asking their suppliers to work with them and with Octavian to produce an improved supply chain,” says Lainas. “Such consolidated deliveries are a win for everybody, as they take costs out of the supply chain.”

Increasing costs

Pressures on supply chains from working time directives, driver shortages and haulage availability are creating new challenges for distribution companies. Not surprisingly, rising fuel rates are also a cause for concern.

“The main issues are ever-increasing rates for fuel, shipping line rates and also vessel space on the deep sea side of things from the New World,” says Shaun Lord, general manager of Shenker’s wine division. “In Europe you’ve got the working time directive of a 35-hour week. This is cutting down transport opportunities and increasing transport times. The shortage  of drivers in the UK and Europe is another big issue. 

“We’ve always worked closely with independents on things like consolidation opportunities to improve their supply chain, and we all need to work together to solve some of the current logistics challenges facing the industry. We are rolling out a web-based tracking system in August, a new system in response to customer demand.” 

While just-in-time deliveries have long been a way for the trade to reduce warehousing costs, the downside is that they can also exert extra pressure on transport and can cause stock-outs.

“Unfortunately, this trend appears to be occurring, just as driver shortages are being predicted and vessel space is appearing to become more scarce,” says Wright. “Inevitably, there will be increased pressures on costs.”

Technological advances

New technology has revolutionised the wine trade supply chain over the past decade, with issues of security and stock visibility and traceability being addressed with increasingly costly mechanisms. The latest talk in logistics circles is of tracking stock via RFID (Radio Frequency Identification, or electronic barcode) – unchartered territory for both the trade  and logistics companies.

“Stock visibility is becoming the norm and a required part of anyone’s supply chain, along with speed and accuracy,” says Wright. “There are many companies that offer supply chain solutions but the key for Southcorp, being an international business, is having a single, integrated system across the whole of the global organisation, allowing everyone to look at the same, realtime data. Too many additional interfaces add extra, unnecessary complexity and risk. If the RFID initiative delivers what it promises, it will give supply chains total visibility. Compatibility and cost will determine the success of this development.”

“Product traceability is becoming a burning issue,” agrees Lainas. “Many of the big brands coming into the UK and many of the Champagne houses are saying that they need to have a very efficient tracking capability, and that’s all about IT. Logistics companies have to make sure that they can meet the requirements of the suppliers and the retailers and that’s where this new technology – RFID – comes in. There is evidence that certain supermarket chains are going to be demanding this in the drinks sector in future.

“The risk with this new technology is that it is a pretty new arena and there is still not 100% consistency of standardisation, for example. It could mean significant costs for suppliers and for logistics companies. But you ignore it at your peril.”

Working together

Maintaining a close collaboration with your logistics supplier seems to be the way forward for the wine industry, a view fully endorsed by David Press, logistics manager at Percy Fox and Co. “We work in partnership with our suppliers, some of which access our systems to provide accurate and up-to-date stock order information,” says Press. “Many suppliers have track/trace systems but a customer’s ability to view orders on a live system doesn’t replace regular two-way communication in relation to delays or other issues.

“As to the future,” he continues, “I expect to see collaborative replenishment solutions, both up and down the supply chain, ensuring a smooth continuity of supply while managing a workable, lean,  stock holding.”

Not all members of the trade are aware of the simple things that can be done to cut warehousing costs, a problem noted by Lainas: “There is evidence that some of the people who do store with us are improving their stockturn. However, I think there is a lot more that can be done with suppliers to rationalise their product ranges. Many of the people who store with us have many more product lines in stock than are on their current wine list. Again, that ties up working capital as they are being charged for storage of products that have a very slow stock turn.

“The solution is to work closely with your logistics operation and categorise your stock into the ones which should have, say, two times stockturns a year, the ones that should have four times stockturns a year and the ones which should turn only once a year. There’s not a lot of evidence that people look at it in that way. 

“Companies also need to address issues about the way they account for the cost of deliveries. There are many companies who are still happy to take the average cost, if you like. We provide management information that would enable suppliers to be more sophisticated in the way they allocate the cost of different types of deliveries.” 

Security of order processing at both ends of the supply chain and physical security, on-site and at the delivery point, are also problem areas, according to Lainas, who feels that the industry needs to act in unison to take collective responsibility for risk management issues.

Clearly there will need to be more creative solutions to reduce distribution costs in the future, with suppliers, logistics companies and even competitors working together to find supply chain solutions. As Southcorp’s Geoff Wright argues, “This would require a change in attitude between traditional competitors, but could deliver significant savings to all. The key to a smoother, more cost-effective supply chain is to have flexible and reactive supply chain partners.”

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