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Supply Chain Management spans all the movements and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption etc. -Harland, 1996. The output of supply chain manage is not only limited to products but it is a combination of products, time, place and form.
Logistics management is that part of Supply Chain Management which plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customer & legal requirements. In other words, logistics includes long term decisions and reforms whereas supply chain is more operational in nature.
Elements of Logistics Management:
The following are the components of logistics management system: customer service, demand forecasting, distribution, communications, inventory control, material handling, order processing, parts and service support, location analysis, purchasing, packaging, return goods handling, salvage and scrap disposal, traffic and transportation, and warehousing and storage.
Broadly, all the above functions can be categorized in 5 main groups, which are:
Storage, warehousing and material handling.
Packaging and utilization.
Information and control
Logistics strategy is about aligning the different members of the supply chain to match customers' changing demand. - Harrison & van Hoek. Logistics strategy generally has a time horizon, which is long term; they must be consistent over time with focus on selected and defined capabilities. Reasons why logistics strategy are applied to any business process are:
Cost and Capital reduction
Aligning strategy with logistics:
For strategies to work, operating plans have to be in place
For operations to be successful, there has to be a well-defined strategy
'Operations Management: A supply chain approach' D Waller, p. 37
Aim: Research the strategic position of an UK brewery to develop a suitable logistics strategy for it.
Objectives of the research:
Research & analyse a UK based brewery's current strategic position from a logistics perspective. Critically assess available opportunities to develop existing logistics capabilities.
Evaluate the key strategic approaches to logistics management that could be used by a UK based brewery.
Identify the management issues caused by implementing a new logistics strategy with consideration for available capital, technical and human resources.
Outline the strategic significance of new technology developments and business trends on future logistic strategies for a beer manufacturer.
Background of UK Brewery
The Hook Norton Brewery Company Ltd can trace it's origins back to 1849. A young man by the name of John Harris moved into Hook Norton and set up business as a maltster. He soon started brewing and in 1872 built a small three-storey brewery. As business increased, so these premises were out grown and in 1898 a new six-storey brewery was built to replace it.
Much of the original brewing equipment installed at this time is still in use today including the brewery's showpiece, a 25hp steam engine, providing nearly all of the motive power.
The Hook Norton Brewery produces a fabulous range of award winning real ales and bottled beers. To make the real ale requires the art, craft and skill of the brewer, the finest raw materials and water drawn from deep wells beneath our North Oxfordshire Brewery.
Hook Norton owns some of the finest UK pubs, from traditional old pubs like the Reindeer in Banbury with its English civil war connections to high quality pub restaurants.
How logistics work in the brewery
Having the right supplies, materials and resources in the right place, at the right time, is critical to improving customer satisfaction, competitive edge and attaining superior profitability in the brewery business.
Logistics management helps the breweries to improve cash flow by achieving the optimum warehousing and distribution efficiencies through a "customer focus" approach that includes cross functional benchmarking, activity and customer service standards, inventory management, performance measurements, order placement-to-receipt processes, distribution system modeling etc.
The most essential concept related to logistics management in case of breweries are related to returnable containers and packaging.
Strategic positioning of brewery
Till now, we have researched and highlighted the history of Hook Norton Brewery, its products and how breweries require logistics management. The present section will give an insight into the strategic position of Hook Norton Brewery from a logistics perspective, and the findings are then used to propose future opportunities and tap them perfectly. It was essential to understand the background of Hook Norton Brewery, because it has been seen widely that understanding the environment is essential in the development of any future strategy (ies) that the company might undertake. Hence, the same needed to be done before proposing logistics strategy.
Ansoff's growth matrix
Since, Hook Norton Brewery is only present in the countryside of UK (its pubs are also present in the same region) and hasn't expanded to the city part of UK since its inception in 1849, as per Ansoff's Growth Matrix Hook Norton Brewery is present in either the Market Penetration stage or the Market Development stage (since, it is coming up with new types of beers and ales).
Hook Norton has been present in UK for over the last 150 years, and in this time frame has been able to tap most of the countryside in UK and has already a definite market defined for itself. In the same time, though it started with traditional alcohol in the 1800s, with time to keep itself in competition it has started producing popular alcohol along with the traditional alcohol with which it started out. Hence, it is in an old market but with new products, i.e. Market Penetration stage in the UK.
Hook Norton could also be part of the Market Development stage if it ever decides to move out of UK and spread its business outside UK. Initially, it would be in the Market Development stage there and once it would gain expertise in that arena it would slowly move to the Product Development stage there too.
Potters 5 forces
The following 5 forces summarises the issues of Hook Norton competition within a changing world. These factors are, on a vertical level, suppliers and customers, on a horizontal level, competition from products , new entrants (can also be vertical) and rivals.
The threat of substitute products
There are about over number of breweries in UK, giving the customers a wide option to choose from. Also, UK being a global economy imported goods are also available (which may at times be cheaper or expensive than the local goods). Thus, Hook Norton faces a huge threat of competition from substitute products.
The threat of new entrants
In the present scenario, where there are breweries closing down because of credit crunch, at the same time there are a few new breweries opening every month or 2 months. Thus, where on one hand there are breweries closing down in UK, on the other hand there are new breweries, which are coming up and posing as a possible threat to Hook Norton Brewery.
Intensity of competition
The competition amongst the breweries in UK is quite intense in a situation of the global economic crisis, because everyone wants to keep their costs low and revenues high and the best way to keep revenues high is to get the maximum number of customers. To tap the maximum number of customers all breweries will try to outdo the others. Hence, it tough times like that of now, the intensity of competition among breweries would be quite high.
The power of suppliers
In most cases of breweries, they do not grow their raw materials for the process of making alcohol; they are dependent on the supplier for raw materials. In today's time of global economic crisis, and major agricultural produce drop, the suppliers are the ones who start to have an edge over the breweries. No doubt that raw materials are brought in from outside UK too, but in a year when there has been a drop in agricultural produce worldwide, prices of raw materials have shot up and the brewery owners can do nothing but comply to the prices and run their business. Thus, in today's times the power lying with the suppliers is much more than what has been seen in history.
The bargaining power of customers
Customers/ consumers these days have become very smart thanks to the information revolution and are aware of what is right and wrong while buying a product. They try and get the maximum out of a good or service without paying much by resorting to bargaining. This helps them get all their necessities, while spending in a judicious manner. Thus, in today's time the bargaining power of the customers has increased many fold because of the information revolution which gave them the upper edge in the 'buying process'.
Hook Norton Brewery is one of the oldest breweries in UK and the most commendable thing about it is that even amidst the global economic crisis it is standing tall and can still give competition to the non-contemporary breweries in UK. The biggest strength of Hook Norton is its tenure in the brewery business (over 150 years), in such a long span of time people start associating alcohol with Hook Norton; it is one of those breweries which were visited by more than 3-4 generations of the same family. Over time, it has roped many customers and always given the same kind of environment but every time there was a wider range of products to choose from.
Another strength of Hook Norton is its 'all in one model', if we see the brewery all the functions of the brewery are within the same building (which was earlier 3 storey and now 6 storey), i.e. malt, milling, mashing, setting taps etc are all done at the same place thus, reducing the transport cost and time if they had more than 1 unit for production.
Also, Hook Norton has its own range of pubs (called the Hooky pubs) across UK. This strategy works for Hook Norton both logistically as well as marketing wise. Logistically because, since it has a number of pubs close by, if ever there is a shortage of 'x' product it can be easily replenished by taking the extra stock from the closest Hooky pub.
Thus, we can see that over the years by trying out new and innovative things Hook Norton has been able to accomplish quite a lot logistically.
Hook Norton is a very countryside UK kind of brewery mainly catering to the people living there and in the near vicinity. It has one main brewery where all the production takes place and later on they are supplied to the various Hooky pubs across UK. If Hook Norton ever even plans of expanding, it would be a very tedious task, since all the production would take place at only place and thereafter there would be tremendous transportation and packaging involved which would eat out the profits of the company. The one production unit model is working for Hook Norton currently, but it is also stopping it from expanding further.
Like any other business, the internet revolution has been a big boom for everyone. Recently, Hook Norton has also started selling its products on the Internet via online catalogue, wherein the customers can order depending on their requirements (bulk and normal). This is a great opportunity for Hook Norton, since the transporation cost which would be associated with the delivery of its products would be borne by the customers since, all products which are sold on the Internet, packaging and transportation costs are over and above the cost of the products. Hence, it keeps the costs of the company low and revenues high.
Another advantage of the online catalogue method of selling, would also help the company gain recognition outside the region it is in and gain more customers and hence boost sales.
As any other business process, the main threat for Hook Norton is the rival breweries in the region. Though, Hook Norton has been in the business for a long time, still when new breweries come into the market, it definitely does shake the business a bit, because the new breweries obviously enter the market after studying the entire scenario and hence they have (most of the times) more to offer than Hook Norton. Thus, with this comparative advantage the customer chooses the new breweries(at times) over Hook Norton.
Strategic approaches to logistics:
Logistics has come a long way since its inception, when it was only though of as a functional element of the business. Nowadays, Logistics are used to:
Increase customer satisfaction
Increase the comparative advantage against rival companies
Whittington (1993) had suggested two different motivations for setting up a logistics strategy. He had asked two questions to address it:
â€¢How deliberate are the processes of setting strategy?
â€¢What are the goals of strategy setting?
These two questions are developed into a matrix to illustrate four approaches to setting logistics strategy. There have been other factors too, which have made the companies realize the importance of a logistics strategy in their business process.
Porters Value chain model:
Hook Norton can use the Porter's Value Chain Analysis to develop its own unique feature under each department which would give it a competitive advantage over its rivals. Once, the competitive advantage is established it lead to a spiral of effects which would add value to the company. All the above mentioned activities in the diagram eventually help to improve the effectiveness of efficiency of primary activities. - Johnson, 2008
Benchmarking is a process for identifying "best" practices by comparing key performance indicators for a specific activity across organizations and using those performance levels as inputs to corporate goal setting. Benchmarking in any business can help improve the competitiveness by searching for possibilities where in costs can be cut and productivity be increased. While using 'Benchmarking' as a logistics strategy for Hook Norton Brewery would include the product cycle of prime costs to loading ramps:
Filling and packaging
PET bottles (returnable/ non-returnable)
Stock-keeping and inventory activities
After understanding how benchmarking could work in a brewery, we should also try and understand how would it help the brewery in its business. A few reasons why are:
â€¢ Added economic insight compared to competitors
â€¢ External and independent controlling
â€¢ An insight into other companies` experiences in the beverage industry
â€¢ Productivity and other key figures increase knowledge of profit contribution of different cost centres/business units
â€¢ Increasing number of participants over several years confirm the benefit of the benchmarking comparisons
Collaborative/ Co-operative approaches
Cutthroat competition, secret recipes and strict non-cooperation may make up standard operating procedures for giant brewing corporations, but in some cases getting together (of breweries) each year to make an exceptional concoction alcohol can be quite profitable too. Collaborative breweries are a new trend among the contemporary and small breweries; but this doesn't mean that traditional breweries can't get into this practice. In times when, competition is intense sometimes a little open cooperation seems more important than selfish rivalry, where no one gains anything.
Collaborative breweries demonstrate just how tightly knit today's brewing community has become; this collaboration need not only be in the case of product range and marketing strategy but could also be stretched to the concept of logistics. If we try and think, if there are two or more breweries involved in the production and selling of a joint brand, then the product cycle can be conveniently split and each participant can choose the area where lies their expertise, i.e. warehousing, transportation etc. This way, the costs of all the participants comes down, no doubt the revenues also come down, but then when the quality and service of the product is the best, then that would pull many new customers, i.e. increase in revenues in the future. This way the major market share comes with the collaborative breweries.
Most of the companies these days have realised the importance maintaining and improving the long term relationships with people involved in their business; these people are mainly the suppliers. For a partnership to be strategic alliance. It must be strategic in nature and must directly support one of the organization's distinctive competencies. - Grant, 2006. Partnership among breweries would mean sharing of resources-physical, intellectual etc. Other than that, the main reason why a partnership would work in breweries is that there would be mutual benefit, which would be shared equally amongst all the partners. Also, in case of partnerships the scope of expanding and tapping more potential markets is more because when there are more participants the cost of risk goes down, thus, breweries would be more willing to venture out into newer markets.
Just-in-time or JIT is one of today's best inventory strategy that strives to improve a business's return on investment by reducing the in-process inventory and the costs associated with it. Noticing the fact that the stock depletion requires the incharge to order new stock is most critical to inventory reduction, which in turn is the centre of JIT strategy. JIT works under the ideology that ensures that the right quantities are produced or purchased at the right time, and that there is no 'waste' and 'waste' is defined as anything that doesn't add value to the product or service.
In case of breweries where there is a long gap between the production time (depending on the fermentation time required for each alcohol), JIT is a very good approach to keep a check on the inventory management and make sure that orders aren't placed after the stocks over, because in such the orders would take a lot of time.
Issues relevant to the development of strategies
It is imperative that for any business process all the logistics strategy be aligned as well as integrated with business and marketing strategies. All kinds of strategies have problems as they are based on perspective and trends in the market. And sometimes become too functional to be actually implemented. This problem with strategies spirals into another problem with companies either becoming too agile or changing too quickly, neither of which is good. Hence, it is essential that strategies only show the path to the companies in what to do or not to do.
When logistics strategies are applied to Hook Norton, it is quite possible that it would become more efficient and hence have a competitive advantage. But, logistics strategy is not the only strategies being used to improve its performance. Thus, a step model could be used for implementing world class supply management; this would help to develop and evaluate the logistics strategy and also add value by informing the weaknesses and placing of the strategy.
Lean is another approach to identify, amalyze and eliminate waste. The scope of the lean initiative can not only be used in the operations of Hook Norton but could be further used in the administration process as well.
Total quality management has in a short span of time become one of the most vital strategies used in logistics, corporate and even business management. TQM works well in the internal and external integration of logistics as well as in the business quality outlook of the company. Thus, we can see that having the right mix of logistics, business and corporate strategies is of essential importance to Hook Norton brewery, because only then would it be a holistic value addition.
Management issues caused by implementing a new logistics strategy
It is of prime importance that logistics strategy must link primary and support supply chains; this helps to define the content of the strategy, which in turn leads to alignment with the business and corporate strategy the logistics strategy. Hence, improving the world class supply chain performance. Implementation of these strategies can have a direct effect on capital and human resources. Also, the management issues that are likely to come up are in the transition in change.
Changing too quickly or being too rigid towards change, pose as an obstacle for many organizations. The change process can be tackled by using analysis tools like 'Force Field analysis'. This will assist in change people and the way they perceive the change to be implemented whilst helping the UK breweries to understand the forces encountered in change. The model goes onto to suggest 2 forces being the driving force and the resistance force whilst going onto increasing the strength of the driving force, reducing the strength of the resistance force.
Another model that can be used and utilized is the Lewins 3 step change model. Instructions learnt from the implementation of the ERP system can be utilized here to ensure problems encountered while executing ERP are reduced during the early stages of the logistics strategy.
The need for collaboration has become inevitable so as to continue with world class supply through existing and new developed collaboration. Collaboration also helps in focusing the business activities on one goal and also,collaboration instinctively eliminates waste and improves process hence leading to mutual benefit.. The ways to collaborate are
Internal collaboration between functions
And the best ways to measure collaboration strategies are
ECR- Efficient Customer Response
CPFR- Collaborative Planning, Forecasting and Replenishment
New technology developments/Future trends on future logistics strategies
If we try and compare the technology used in logistics a few decades back and today, there has been a vast difference; the same will be visible in the future too, with introduction to new technology in logistics. Convergence of low-cost computing with communications technology and an increase in capability to extend product variety has led to a whole new wave of information technology in logistics strategy. Since, supply chain networks are ever evolving, technology will impact the supply chain at that very point; leading to pressure on supply chains of replenishment ordering, cross docking etc - Harrison & Hoek, 2008
Scenario planning is the best way to predict the future trends which are plausible and unique for Hook Norton Brewery. Since, Hook Norton still uses its traditional methods of producing ales, there won't be much technical advancement in that area, though the technology might be used in the transportation, warehousing, storing aspects.
RFID is a wireless technology which utilizes radio signals allowing electronic identification and object labelling. This technology helps in tracking of stock (either in transit or in warehouses) in order to improve the supply chain management. In this way, it is easy to keep track on whether there has been any movement in the stock over a period of time.
ERP system is a set of business applications on modules, which links various business units of an organisation into a tightly integrated single system with a common platform for flow of information across the entire business (Baheshti, 2006).
With the use of internet, breweries like Hook Norton could use ERP to connect to the various distributors, suppliers and customers. A reason why ERP would help in breweries is that it integrates business process data, which can be used to find the competitive advantage. It also helps in management of trust amongst the company by enabling cross-functional information flows and cognitive integration among functional units. Thus, ERP may increase the overall operational efficiency too.
In this paper we tried to briefly explain the concepts of logistics management and then explain the use of logistics strategy in context to a UK based brewery. Hook Norton, one of UK's oldest brewery was taken as the case to explain approaches like Porter's five forces, Ansoff's Growth Matrix etc and logistics approaches which would go well it were discussed. In the end, we tried to understand the problems encountered while coming implementing strategies and what are the future developments in the area of logistics management.