Transports of delight

From customised warehousing to daily deliveries and transparent systems of stock control, it’s easy to see why more wine companies are handing over their distribution and supply chain management to the specialists, says Giles Fallowfield

Barely a month goes past in the drinks business without news breaking of another round of consolidation.

It is happening from product source, right through the supply chain to the ultimate retailer. Wineries are merging, merchants and suppliers have combined forces to form larger groups, and at the sharp end in retail, major changes have taken place in both the off- and on-premise sectors.

Without a certain critical mass it seems the future is at best uncertain.  Even in the top end of the restaurant trade if you have only one outlet it makes it hard to prosper.  Many of the leading lights in this sector now belong to small groups.

Happily some specialists operating in particular niche markets survive, but to do so they certainly need to be the best in their field.  The logic behind all this amalgamation and takeover is not so much that bigger is better per se, it is more a case of competition in every sector being so fierce that only those companies that manage to drive their costs down to the lowest point possible can make a decent profit.

And without a good return they can’t continually re-invest in their business to keep themselves ahead of the competition.  The key area where savings can be made in the drinks business is in distribution, getting your product to the ultimate consumer as quickly, efficiently and cheaply as possible.

This why the drinks business plans to publish a bi-monthly series of features looking in detail at various aspects of logistics and distribution, trying to spot new trends and reporting on what the major retailers, drinks companies and the companies that service them are up to.

We kick off this series by talking to some of the major players about their area of specialisation and asking them what they see as the major issues they face today.

"IT’S ALL about getting the right quantity of product to the right place at the right time for the right price.  It sounds simple enough, but it isn’t." We should perhaps adopt this quote from Willie Lebus of Bibendum as our mantra.

There are still quite a few wine companies that are actively involved in running aspects of their own distribution chain, but many have now put this part of their business in the hands of outside experts, thus freeing up their own time to do what they are hopefully best at, producing, marketing and selling their products.

To achieve its delivery goal, Bibendum uses London City Bond.  "We use the bond at Purfleet. LCB handles our distribution nationwide and we are constantly monitoring its performance, making sure our customers get the service they require.

If you are growing your business you have to have the level of service to match the market needs.  It’s not just physically getting it there, though that’s important too, you have to overdeliver," says Lebus.

"Restaurants demand better service than ever before, and that includes next-day delivery, not just in London.  With LCB, as things stand, if you order in the provinces you get delivery the next day, six days a week."  Clients like Bibendum represent only part of LCB’s business.  "We have four main types of clients," says Jeremy Pearson, sales director at LCB. 

"Some 4,600 private investors, which isn’t business we particularly tout for, partly because clients like Bibendum and Corney & Barrow may prefer to look after their private customers, buying en primeur for example, themselves; the traditional merchants serving the HORECA trade; wine brand owners and the big retailers.

To service the needs of these very different groups we have 21 warehouses especially set up to do a specific job," says Pearson.  "We are very much focused on wine, although we do a little bit of spirits and beer business.

We recently acquired Vinotech from the Lay & Wheeler group, their 200,000sq ft warehouse in Burton-on-Trent, which is set up for long-term maturing of wine and the en primeur business. 

At another style of warehouse, where we deal with traditional merchants serving the on-trade, we will need to be able to bottle-pick single bottles.  If Conran restaurants, for example, place an order at the end of service, we have to replenish stocks by 11am the next day. It’s round the clock service for some businesses.

"At some warehouses it’s pallets in and straight out again, practically untouched.  Forty-foot containers come in and we send the wine on immediately to the regional distribution centres of the grocers.

Each style of warehouse operation is set up differently, depending on the types of customers it deals with.  We offer a whole distribution and transport system, not just warehousing.  The system operates with total transparency, analysis of drops – drivers’ text in after each drop via their mobile phones.

It’s like an enormous great database that customers can access at any time to see where their order is," he says.  "It has taken many wine companies a long time to realise that what they do well is sales and marketing, not logistics.

Companies that still run their own warehouse, tend to find it’s never the right size, it’s either too big or too small, depending on the time of year.  But if you have been operating your own warehouse it’s a big move to put this part of your business into the hands of a third party.

Such a change involves embracing entirely new disciplines."  London City Bond handles around 14m cases of wine a year in the UK and at present holds around 3m cases of stock. According to Pearson, Octavian, part of the CERT Group, is their main competitor.

"We are about half the size of the Cert Group and twice the size of Octavian.  We have regional warehouses in Paisley, Wakefield, Burton-on- Trent and Chippenham serving the nearby geographic areas.

When a merchant orders, the stock is taken up over night and delivered the next day.  We cover all of the UK at least twice a week with set delivery days, which is what customers like," says Pearson.

The warehouses have to be in exactly the right place to service their specific area.  "We have a 420,000sq ft warehouse at Tilbury because this is where a lot of the New World wines come into the UK.

The prime minister of Australia recently paid us a visit there because wine exports to the UK are so important to the Australian economy."  For Pearson the most important changes in the business have been and will continue to be in improving operating systems.

"For guys like Bibendum service is so important, especially in the HORECA sector. We have to keep innovating and system development is terrifically expensive if you use outside firms to do it, and if they come up with a clever answer to a problem they then sell it to your competitors.

Fortunately, we have a brilliant IT director at LCB, Alan Gilchrist.  "We are now steaming into the Christmas period and the big difference we’ve seen is down to better systems.  In the past it was a question of fire fighting.

A restaurant calls to check where its order has got to, we phone the delivery lorry and check where they are, call the restaurant back and so on.  Now everything is available online to all customers and the system can take anything you throw at it."

Innovation and development in technology have also affected other areas of the business. For fine wine brokers who peddle their wares round the world, particularly in the USA and the Far East, there is no longer any debate about the condition of the label on, say, a bottle of 1961 Cheval Blanc or how high up the bottle neck the wine comes.

It’s simply a matter of sending an e-mail showing each.  "On the systems side there have been some enormous advances," says Pearson.  "Customers know as much about the progress of their order as we do; they can see all the statistical information 24/7.

The area where we expect to see the big growth coming is the wine brand owners managing their supply chain more skilfully in order to cut costs. It’s not so crucial for the likes of Corney & Barrow, but for Southcorp selling to Tesco it’s more and more critical to know accurate stock levels so unnecessary warehousing isn’t paid for but sales aren’t lost because there’s a shortage.

"Gone are the days when the warehouse operator sees where they actually hold a customer’s stock as no business of the customer.  Warehouses need to be in the right place, customers can target us on performance.

The system shows every delivery failure, proof of delivery and who has signed for the goods. A proof of delivery file is created the following day and this automatically triggers invoicing which 99% of the time is the same as the order sent.

If there’s an order failure, we can be proactive," says Pearson, " call the customer to see why they have rejected the case of whatever it was." 

Improving the quality of the information available to customers isn’t just relevant within the UK. FFG Hillebrand, a specialist in global beverage logistics handling nonalcoholic drinks, wine and spirits, is working with systems that present supply-chain management information.

This helps its customers, like the Thresher group, manage stock more efficiently in UK warehouses and back through the pipeline, says Hillebrand’s business development director, David Moore.

"As a result, Thresher has seen substantial cost savings.  It can, through use of AXIS, our powerful internet-based tracking system, maintain lower stock levels, thus tying up less capital and at the same time reducing the risk of shortages impacting on availability.

"One of the beauties of this solution is that lower stock levels reduce the amount of warehousing needed, saving more money.  And the system gives suppliers much better information through its transparency so they can see where stock is in transit and examine the replenishment plan.

Before, this information was not so easily available," says Moore.  "Very large orders after nothing are less likely as a supplier gets a smoother demand flow that’s easier to cope with."

Hillebrand has been working with Sainsbury’s to develop wine consolidation centres and runs them for the grocer in Chile and South Africa.  Sainsbury’s is also exploring a whole new approach, "a sort of virtual warehouse solution" in Argentina, says Moore.  He explains how it will work.

"Sainsbury’s can see the stock based on pre-agreed stock levels sitting in supplier-owned warehouses and place an order from various suppliers, from stock visible on the system. They have complete confidence when they place an order because it gives them a precise lead-time, which is normally much shorter than under other systems.

"The added flexibility of ordering from several suppliers at once helps optimise the freight side of things – a full load of one line might give extra stock they don’t need.  Instead, they order exactly what they need but across multiple suppliers."

"There are mutual benefits in setting up such systems," says Nick Deaves, primary international development manager at Sainsbury’s.  "The suppliers get a more regular flow of orders and thus better consistency of cash flow.

It’s also helped to cut the lead times; in the case of South Africa it has brought them down from around 12 to 13 weeks to five weeks from ordering," he says.  "The consolidation allows for tighter management of the ordering process by Sainsbury’s.

We now have the flexibility not only to move full mixed container loads from origin by using these sites but it gives us the flexibility to manage the supply base and switch to full container load movements from the supplier as the business reacts to changes in the marketplace, for example, if a line is for promotional or NPD activity.

"If supplier stock is held within a wine consolidation centre and orders are placed the paperwork procedures are managed by the site following the export process for the relevant country, which again allows for reliability and traceability," says Deaves.

Other benefits for all parties involved come from better information exchange, he says. "Suppliers can keep more upto- date with their rate of sales through the internet sites, and there’s better operational contact between us and the producers which helps both of us run our businesses more efficiently.

"We alsohave a consolidation centre in Australia, we use Southcorp’s warehouse for this facility, and this is run for us by P&O," says Deaves.  "Over the past two years we’ve completely changed the way we manage both our regular and promotional stock.

As a result, we need less warehousing in the UK."  In today’s competitive retail environment such savings are likely to prove crucial.  We’ll be looking at further ways in which brand owners and retailers are trying to improve their competitive edge by better management of their supply chain over forthcoming issues of the drinks business.