Chain reaction

It is well documented that major retailers of wine, spirits and beers in the UK, especially in the off–trade, beat suppliers into the ground on price. As several major brand owners and  producers have pointed out, there isn’t any more ground to give. Going further makes it increasingly likely that quality will be lowered, or that any suppliers that have survived will also be forced out of business. This is why in their ongoing drive to further lower costs and increase profitability, retailers’ attention has been focussed elsewhere, writes Giles Fallowfield

FOR THOSE that have looked at it, and it appears surprising that some retail groups and producers haven’t, better management of the supply chain offers all sorts of efficiencies and financial benefits.

This is especially true for those brave enough to contemplate radical reform, not mere tinkering. At the Thresher Group there has been just such a fundamental rethink and the savings made have played an important part in moving the company into profit.

The man taken on two years ago with the remit to re-engineer the supply chain is Stuart Higgins, supply chain and buying director for Thresher Group.  He has looked at every aspect of the supply chain from the originating winery right through to the paying customer shopping in one of the group’s 2,000–odd retail outlets.

"A couple of years ago we had a high wine stockholding but low availability of products in the UK.  Because wine was typically bought into the UK in whole containers (irrespective of rate of sale) we also had large amounts of ageing stock, which was impacting on quality," says Higgins.

There were lead times of around 16 weeks from countries like Australia and because orders were typically in full containers of one product – around 2,200 six bottle cases at a time – accurately forecasting demand to keep stocks to a minimum but avoid running out was nearly impossible.

With the help of JF Hillebrand, sorting out inbound traffic was the first issue that Thresher addressed, making use of Hillebrand’s global consolidation model for imports.  "By consolidating stocks at source we can bring in mixed containers and we’ve also cut lead times by half, down to just eight weeks from Australia and five weeks from South Africa," says Higgins.

 As a resultThresher has been able to "reduce its wine stockholding in the UK by 20%, at the same time increasing depot stock availability [stock to satisfy a store order] by 30%.  "We have taken more than £10m worth of wine out of our UK stockholding, while improving depot  vailability has led to a 10- 15% increase in on-shelf availability, giving consumers better choice and ensuring the wines they want are more often there.

We measure in-store availability and reckon we are now as good as the grocers and probably ahead of the multiple specialists generally," says Higgins.  Distribution within the UK has also changed with Tradeteam, part of the Exel group, taking on the seven year £100m plus contract to service the company’s 2,000 stores through six regional distribution centres.

"In the UK we’ve looked to put in the lowest unit cost and a high level of service," says Higgins.  Having looked at the physical side of distribution Thresher then turned its attention to JDA’s software systems to help generate more accurate long-term stock forecasts.

These are shared with brand owners aiding them with product planning. "We already do this with wine suppliers and will be using it with UK suppliers of beer, spirits and soft drinks in the near future, so that when we place an order we know they can fulfil it. It’s all about getting greater visibility of our plans, then predicting and preparing for what we want in the future will be easier.

"Re-ordering stock was a very time consuming process for our store staff.  We have very capable store managers but they are under considerable time pressure and by providing an automated stock replenishment system we will free up their time to do what they are best at – advising and selling to customers."

Asked if there have been any teething problems Higgins says it wasn’t "instantly perfect, it’s a very complicated system".  There is no minimum volume order size, rather orders are designed to be "close to what we sold last week or what we will sell next week."

Apparently there tends to be a surge in orders when the new system kicks in as it fills all the stock gaps in any given store, but once the system has been in place for a while it becomes much more efficient.

This is helping the company better satisfy what he calls ‘wine enthusiasts’, who tend to experiment more and may go somewhere else if they can’t find the specific wine they want because it is out of stock.

Helping retailers dramatically cut lead times for ordering wine from southern hemisphere countries like Australia, and thus reduce the capital tied up in inventory, has been one of the key selling points for P&O Nedlloyd Logistics.

With its fleet of over 150 container ships and its particular experience in shipping from Australia, where the company claims to be dealing with over half the logistics outbound services, P&O Nedlloyd Logistics already has contracts with two of the UK’s major supermarkets.

One of the attractions it offers, as business development manager Andy Browning explains, is an "end-to-end supply chain solution.  As one of the four largest operators of container ships we have access to the shipping," he says.

"We can provide a complete bespoke solution for retailers, wine producers and distributors where by they only have one point of contact."  Typically it has been able to cut lead times from Australia in half, partly by reorganising how the stock is managed in Adelaide, the departure point.

Now instead of single container loads of one particular wine, likely to be around 130,000 bottles, containers are made up of pallets/slipsheets of wine (between 90 and 140 cases per pallet or between 540 and 840 bottles) and from several different suppliers and within each pallet there may be a range of styles, or SKUs.

This has greatly reduced the investment in stock or at least the amount of stock that needs to be purchased to fuel the supermarkets’ weekly demand for wine.  The beauty of such a system from the retailers’ point of view is, says Browning, "you only need to replenish what you sell each week".

Now on the typical 35-day journey from Adelaide to Tilbury to make weekly deliveries for the UK supermarkets they only need 14 containers of wine in the circuit as opposed to the 28 needed before.

This still means that if a supermarket wants one case of a certain wine delivered per week it has to have seven cases of that wine in the complete circuit at any one time.  But in the past, when whole containers of one line were being ordered, stock was sitting in UK warehouses for some time.

To give an idea of the potential saving such dramatic shortening of the distribution chain can deliver, Browning estimates that a previous typical inventory value within the supply chain of $10 million would reduce by 50% creating a $5 million cash flow advantage.

P&O Nedlloyd Logistics also does some UK distribution that bypasses the grocer’s national distribution centre taking stock straight to the regional centres from the main ports it operates out of, thus further reducing cost within the supply chain.

Providing the major retailers with exactly the amount of wine they need without overstocking and without leaving gaps on the shelves is, of course, a delicate balancing act.  The logistics companies supplying the link between suppliers, who want to see their product go down the chain as fast as possible and supermarkets that only want to receive the minimum amount of stock, are clearly hard pressed to satisfy both clients.

The pressure on the system to deliver regionally the right amount of wine to the right place at the right time is intense as there is little slack in these more sophisticated supply chain solutions.

One of the specialist companies dealing with these pressures in the UK market is Octavian. Octavian provides over 4m cases of wines and spirits each year for private and trade customers, including Allied Domecq, Moet Hennessy UK and Percy Fox, in addition to fine wine specialists like Farr Vintners, Goedhuis and John Armit.

At the core of the Octavian business is the impressive 1million sq foot Corsham cellar in the Wiltshire countryside.  Approximately the size of 16 football pitches, it has the capacity to store 800,000 cases in ideal conditions, 90 feet underground.

Octavian also owns three other storage facilities, one of which is let to Safeway, and  distributes drinks from three locations in Kemble, Leicester and Middleton.

What Octavian prides itself on, says managing director Michael Lainas, is the quality of its service – not just providing supply chain solutions, but also giving clients added value services like promotional packaging and consultancy advice.

Octavian delivers to all sectors of the drinks business; the grocers’ regional distribution centres, the multiple retailers, independents and next day for the HORECA segment in London, as well as private customers.

For Lainas who has a background in High Street retail at Dixons and Currys, logistics is a similarly dynamic sector.   "In retail you are only as good as yesterday’s sales, in logistics you are only as good as yesterday’s deliveries.  You have to be responsive, reactive to clients’ demands."

Problems with HM Customs and Excise, traffic problems on Britain’s overcrowded motorway system and in town centres, particularly London; congestion charges; major delays in taking deliveries at some of the big grocers’ RDCs; the likelihood that drivers’ hours may be shortened as a result of EC legislation; the increased cost of insuring valuable stock and ongoing security issues, all make the job of the UK distribution company harder, and an increasingly difficult market to satisfy.