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Blog| Feb 27, 2017

A Blueprint to Manage SKU Proliferation for Beer Distributors

Bob GraceBy: Robert Grace VII, Vice President, Operations Development, enVista

The U.S. beverage market has changed significantly over the past 30 years, transitioning into a $354 billion industry segmented into alcoholic and non-alcoholic beverages. Specifically, the beer industry, comprised of more than 4,500 brewers, 3,000 distributors and 600,000 alcohol retailers, generates more than $100 billion annually. There has been a dramatic rise of SKU proliferation, in part because of the rapid growth of the craft beer industry, which is contributing to operational chaos in the supply chain.

The growth of new brands and packages has accelerated significantly over the past several years. Today, this massive increase in SKUs, brand names, styles of beer and packaging options has grown exponentially. With the wholesaler caught in the middle, the challenge of managing SKU proliferation is the number one contributing factor to operational chaos within beer distribution.

Consumer choice is the driving factor that has beverage producers expanding their portfolios to gain a competitive advantage. New product categories are a huge contributor to SKU proliferation. In the past 10 years, the average number of beer SKUs that wholesalers are carrying has jumped from just 300 to more than 1,000 – and won’t stop there. As craft and big player, mega-brewers increase the offerings in their portfolios, beer distributors are struggling to keep up.

Space utilization and inventory management, together, pose the biggest challenge to today’s beer distributors. This includes:

  • The limitations of general warehouse capacity and pick area
  • Labor and operating cost increases and constraints
  • Capital tied up in out-of-date and obsolete inventory
  • Old equipment, safety and storage hazards
  • Multiple supplier distribution agreement requirements
  • Shorter cycle times
  • More complex delivery truck loading process

These challenges drive the need for smarter use of labor, equipment and technology, distribution networks, warehousing space and transportation resources.

The first step in addressing these issues is to construct a plan tied to the company strategy. Plan a corporate strategy that:

  • Develops an integrated, cross-organization SKU strategy
  • Creates a total operational assessment with beverage operational/supply chain experts
  • Defines a strategy for updating materials handling equipment
  • Considers implementing technology upgrades that work on the same platform (route accounting system, routing systems, warehouse management systems)
  • Develops or updates customer service policy
  • Researches alternate go-to-market strategies (direct store delivery system options)

Solution 1: Get all parties involved.

SKU management strategy should be an integrated, cross-organization conversation. Managing your SKU growth effectively requires true business alignment across departments, including stakeholders from merchandising, sales, marketing, operations, distribution and finance. The best approach is one that takes a view that includes the broad spectrum of the supply chain – suppliers, retailers and wholesalers – and focuses on short, mid-term and long-range goals.

Solution 2: Performing an operational assessment to identify strengths and weaknesses.

An operational assessment is an efficient way to identify a company’s strengths and weaknesses by way of a comprehensive review of operations. Dissecting processes and putting together a roadmap for improvement and capacity analysis can help pinpoint recommendations for those areas that need improvement and also areas that can be capitalized on.

Solution 3: Identify the role of materials handling.

Materials handling systems can be one of the most critical elements of any distribution operation, enabling efficiency and accuracy in both order processing and delivery. Developing the proper facility layout can help optimize operations.

Solution 4: Implement technology solution upgrades that work on the same operating platform.

Warehouse management systems (WMS) have become essential tools for many distributors, but they are often underutilized by beer distributors. Implementing a WMS enables distributors to have the right product, at the right time, in a space that is allocated appropriately to brands and packaging velocity, which, in turn, will improve overall customer service, reduce direct labor and lower inventory carrying costs.

Solution 5: Recommend a customer service policy.

Looking at the marketplace and analyzing the types of accounts is the first step in determining customer service policies. The differences between on- and off-premise and among the respective channels/segments within requires being prepared to develop and implement a sales and service policy to serve each customer segment effectively and efficiently. Not only will it maximize customer service resources, it also can reduce cost and increase profitability.

Conclusion

The beverage industry should expect continued SKU growth and, rather than trying to prevent the number of SKUs from increasing or avoiding the reality that increases will continue, it should manage the SKU proliferation by implementing and integrating new approaches across the organization.

Consider the five solutions provided in order to develop a well-planned and effective business alignment between all departments and bring order to operational chaos. Utilizing these solutions can lower operating costs, improve customer service, create efficient storage and fulfillment operations and provide the ability to handle SKU and volume growth.