Logistics for the UK Brewing Industry

The area of logistics management is today seen as a powerful tool in reducing cost, improving customer satisfaction and thereby increasing sales of a business. Therefore, as a critical business function, logistics has been subjected to extensive research that has led to the development of several theories, processes and strategies for efficient logistics systems.

The purpose of this paper is to study strategy in the context of logistics for the brewing industry in the UK. The paper begins with discussing logistics and supply chain as well as the brewery industry in the UK. The brewer chosen for this paper is Greene Kings that produces different brands of beer besides owning and running more than 750 pubs across the UK and exporting its products as well.

The discussion then moves to the understanding of Greene Kings’ strategy through generic models like Ansoff and Porter’s 5 forces model. This is followed by commentary on the plausible tools and strategic logistical models that Greene Kings may implement for more efficient systems.

The problems that are faced in implementing a new strategy are discussed next along with suggestions as to overcoming the same. Finally, the trends and developments in logistics have been included with a discussion on which tools may be useful for Greene Kings.

INTRODUCTION

The importance of having a strong logistics strategy is being recognized by organizations in the light of the changing dynamics of the business environment. The growth of e-commerce, online transactions and globalization have led to an increase in the intensity of competition, which makes it imperative for every business to have a clear and comprehensive strategy for every operation and functional unit so as to be able to compete in the present dynamic business environment.

A sound and comprehensive strategy around logistics management and supply chain is also crucial for pre-determining the demands of the customers (Towers & John, 2003). In the intensely-competitive market, breweries have to keep abreast of the demands of the consumers. Towers and John (2003) term these varying demands as the “fickle requirements” (pp. 592) of consumers, through the importance of these requirements is paramount to retain and increase the customer-base. Moreover, as the same authors have further expounded, the inefficient management of customer demand would have effect on the residual stock, cash flow and other business functions.

Logistics are a core process of business operations and plays a crucial role in cost management of the business products, and also for helping the business achieve the demands of a demanding beer-consumption market. Logistics includes storage, warehousing, materials handling, packaging, inventory, transport and information and control.

A sound logistics strategy is long-term and is aligned to the larger strategy of the business unit and further, those formed at the corporate level. Any changes in the logistics systems are substantial and impact the entire business in a big way. In the globalized era, where business operate in several continents, the role of logistics and supply chain assumes a more complex and proportionately important place in determining the success of the business. Profit-making is no longer the sole motive of businesses today (lecture slides, M32SOR, Lecture 2; slide 4)., at least in a majority of cases and with the increasing dynamism of the market, it is important to keep the logistics strategy flexible to each of the different goals of the business and also to accommodate the needs of the market. Thus, strategy and logistics are inter-connected and aligned with one-another. For strategies to work, operating plans have to be well-drafted and efficiently executed. For this, there has to be a well-defined strategy to which the operations can turn.

RESEARCH AIMS AND OBJECTIVES

Aims

This paper aims to study the strategy of a UK-based brewery from the point of view of logistics. This would be used as a point of reference in developing a comprehensive logistics strategy.

Objectives

To research and analyze the logistics strategy of the Greene Kings Group and comment on the avenues for improvement.

To understand the issues that the management of a brewery may face in implementing a new logistics strategy.

Trace and comment on the new developments in technology that would affect a beer manufacturer in the logistics scenario.

BACKGROUND

Company Background: Greene Kings

Greene King Group is a 200 year-old brewery group based in Bury St. Edmunds and produces beer brands Abbot Ale, IPA, Old Speckled Hen and Ruddles County, along with other smaller brands. It is the largest British-owned brewery in the UK. Besides, the company also runs more than 750 public houses all over the country, including chains such as Hungry Horse and Belhaven Pubs. Furthermore, Greene King exports its products to over thirty countries in Europe, Americas, Asia, Middle East, Africa and the Oceana countries.

UK’s Brewery Industry

The Brewery Industry primarily comprises beer producers and this market generates £ 19 billion in revenues (British Beer and Pub Association, 2009). An interesting characteristic of the brewery industry is that it includes products with varying shelf-lives and therefore, the logistics decisions have to be made so that they fit the different products and offerings (Towers & John, 2003). The four biggest breweries in the UK are Scottish and Newcastle (who produce Foster’s and Kronenbourg); Coors from USA; Inbev (who produce Stella Artois, from Belgium) and Carlsberg from Denmark . Thus, it is clear to see that international players are the dominant market-share holders in the UK beer industry. Lager is the predominant beer produced and sold here that holds 68 per cent of the total market.

Beer is the most important product offering by breweries, especially in the UK. The consumption of beer is divided into on-trade and off-trade consumption, the former being in pars and pubs and the latter through retail outlets (Carlsberg Group Communication, 2008). These differences also reflect in the system of logistics of the businesses.

The beer market in UK and the larger Northern and Western Europe is mature and therefore the growth of the beer market would either be stagnant or declining. This makes the task of the management complex here because the focus of the business is shifting to new and emerging markets where growth potential is large. The focus in the UK market would be on retaining existing customers and fighting off competition from international brewers. According to Carlsberg Group’s annual report (2008), the share of beer as a percentage figure of the total alcohol consumption is 44.2 per cent. This is divided between on-trade selling (i.e. through pubs and bars) and off-trade selling, with the former claiming 54 per cent of the market. The pricing of beer is done to target four different segments, namely discount, mainstream, premium and super-premium.

The logistics strategy for a mature market like the UK has to be aligned to the logistics strategy of the overall business. Here, it is important to streamline the processes to achieve benefits of cost reductions. Globalisation has led to newer avenues for reducing cost. Central procurement is one such tool, wherein raw materials and processes may be obtained at a central level for the different products of the brewery, which would lead to lower costs.

ANALYSIS OF GREENE KING THROUGH GENERIC STREATEGIES

Porter’s Five Forces Model

As has been discussed in the industry and company overview, the brewery industry in the UK is intensely competitive in the light of changing trends and growing acquisitions and mergers that are increasing the market share of international brewing giants. The Five Forces Model that was developed and presented by Michael E. Porter illustrates the major factors that influence the strategy-making process of a business. The factors include suppliers, buyers, competitors in the form of existing rivals and new entrants, and potential or existing competition from substitute products. These have been analyzed in the specific context of Greene King Breweries (see Appendix 1). In terms of its market share, Greene King is in the expansion stage as it is procuring more and more public houses and bars in all parts of UK, which are also increasing the sale of its beers.

Threat of Competitors

Greene King faces competition from other beer brands and breweries, especially international players. The main business of Greene King is through the company-owned pubs and bars, with over 750 pubs all over the UK. Off-trade sales accounting for a little below half of the beer sales, this is one part of the business of Greene Kings that faces threat from other large beer brands and breweries, especially international businesses like Carlsberg Group, Scottish and Newcastle and others. The advantage for international brewery groups is that they have the option for centralized procurement of processes and raw materials that result in cost-cutting.

Threat of Suppliers

The bargaining power of the company is reduced in certain areas of procurement, where there are limited or even a single supplier of raw materials. This is especially true in the case of bottles and cans suppliers who are few and scattered, leading to an almost monopolistic situation that greatly undermines the company’s bargaining powers.

Threat from buyers

The beer market is characterized by different categories of beer, in different price-ranges. There are many variants on the basis of quantity, price, packaging and so forth that requires businesses to offer a diverse range of goods to accommodate the minor variations that customers seek. Furthermore, the consumption of beer is price-sensitive (Carlsberg Group Communication, 2008) and therefore the breweries face the risk of and threat from tax legislations that may lead to increased beer price.

Threat from substitutes

The increase in health concerns further highlighted by the ban on smoking in public places (Greene King, 2008) that was made legal in UK and Scotland has also put on the forefront, the threat from substitute beverages, especially non-alcoholic varieties. There is also the threat from other drinks with higher content of alcohol.

Threat from Potential Entrants

The beer and breweries industry is an important one in the UK and globalization has changed the face of competition of this industry that was traditionally a local one. As discussed earlier, globalisation has led to mergers and acquisitions that have increased both the scope as well as the threat of business from big, international players in the market. The main area of concern is that these players have substantially more funds, wider experience of systems and strategies and the added support of the local brewery or product they acquire so as to become formidable competitors for businesses such as Greene King that are involved in export but the primary focus of business is geographically concentrated to the UK.

PORTER’S VALUE CHAN ANALYSIS

Porter further identified a set of interrelated activities that helped the firm in creating competitive advantage for itself in the market. The primary activities in the value chain include inbound logistics, operations, outbound logistics, marketing and sales and service, while the support activities include procurement, technology development, human resource management and firm infrastructure (Porter, 1985). Within the analysis of the value chain, a firm can look at cost advantage and/or differentiation. In case of the former, Greene King is saving costs on its interrelationships among the various business units. The two breweries, public houses, diners and restaurants, and finally the off-trade selling all have been created around its specific products to minimize chaos among requirements of and supply to these units. For example, Greene King’s Loch Fyne restaurants cater to high-end clients and supply a luxury meal to its clients, for which its two breweries produce Old Speckled Hen and other high-end ales while the breweries also produce economy ales for retailing in supermarkets and selling through its pubs. Thus, Greene King has effectively maintained its breweries at two locations only, even when its business continues to expand.

ANSOFF GROWTH MATRIX

When analyzed from the point of view of Ansoff Growth Matrix, Greene Kings has existing products that the company is offering in both new and existing markets. The existing products are its beer brands that are being offered in the existing markets in the UK through on-trade channels, i.e. more than 750 public houses all over the country and off-trade channels, i.e. retail through supermarkets and other counters. In case of off-trade sales, Greene Kings is number one in terms of market share (Greene King, 2008) and is therefore focussing on consolidation of its share. On the other hand, it is expanding the on-trade sales by way of acquiring pubs. Therefore, in this case it is focussing on penetration.

In case of new markets, Greene King is focussing on exporting to more than 30 countries (Greene King, 2008). The focus is on existing competencies and existing products of the company.

Development of Existing Logistics Capabilities

The above analysis of generic strategies of Greene Kings shows that there is scope in improvement of logistics management for Greene Kings. The large number of pubs and dining places that the group owns and runs makes it imperative for Greene Kings to have an impeccable distribution and logistics system. The group has two breweries based in Bury St. Edmonds and Dunbar. Both supply the different beer brands produced by Greene Kings to their nearly-900 outlets. There is scope for improvement on the following fronts:

There is the risk of transport and logistics hazards in terms of transportation of the beer from the brewery to the pubs and other retail outlets. The company is in the process of setting up a disaster-recovery system (Greene King, 2008) but it needs to work on this in detail.

Greene Kings outsources certain parts of its supply chain to vendors and there is scope for improvement in the supply-chain, especially when seen as a value-chain system. The relations with suppliers is complex since the public houses that Greene Kings owns and runs also offer products by competitors and rivals, in which case the distribution system has considerable loopholes.

There is inadequate risk management mechanism towards internal production and distribution activities and this is one area that needs to be worked on.

There has to be provision and management support to provide for a new logistics system. The reports and top management inputs show that the focus of the executive managerial committee is on end sales, specifically the effect of smoking ban on pubs in UK.

There has to be better integration between the company and its logistics service providers.

STRATEGIC APPROACHES TO LOGISTICS MANAGEMENT

The strategic approach of management to logistics is of paramount importance since it adds value to the whole operational process if accomplish efficiently. Logistics has increased in importance from a function of business that was scarcely necessary to a key business function that can lead to significant cost savings and also as a factor that influences customer satisfaction, thereby increasing sales (Grant, Lambert, Stock, & Ellram, 2006). Even when business is good for an organization like Greene Kings, organizations have to understand that innovation and constant improvements are a necessity to sustain and grow in the fiercely competitive business world (Black, 2009). Introducing effective strategies and new methods and processes effectively to the work process would further improve quality, reduce time and improve the over-all customer-service, thereby giving the business additional boost.

There are several factors that influence the formulation of a business’ logistics strategy. These are the influence of e-commerce and information technology, competition in the segment and dynamism within the business environment among others. Strategies can only be useful if they are fully understood in the light of the business requirements and shortfalls in existing systems.

There are several strategies that may be adopted by Greene Kings either individually or in combination with others to overcome the loopholes and shortfalls in its existing logistics system, as also to introduce newer methods.

Just-In-Time and/or Lean

Over the years, manufacturing has been introduced with several efficiency-increasing strategies, of which one of the more researched and implemented ones is Lean Manufacturing.  The essential focus of the lean manufacturing process is to maximize the value of the product that is offered by an organization to its customer. This value, in case of the manufacturing industry is obtained through a series of steps and processes that are collectively called the value stream (Womack, 2007). The lean system focuses on this value stream to continuously make the process of manufacturing more efficient that in turn enables the organization to compete on stronger grounds against competitors.

The lean manufacturing strategy, often simply called ‘lean’ was pioneered by Toyota but has been seen to benefit organizations all across the manufacturing industry.

A very popular method of implementing an effective lean strategy is the 5S method. The 5 S’s stand for Sort, Set-In-Order, Shine, Standardize and Sustain (Hemmant, August 2007). The 5S method is a continuous process that focuses on waste-reduction and discipline in the workplace. The method encourages order and cleanliness and its sustenance in the workplace, which does not include the manufacturing facility only but the entire organization, including workers and management. The implication of the 5S method is to develop and imbibe a culture where waste and negligence is frowned upon.

Sorting implies distinguishing between useful and redundant components and processes and removing the latter. Setting-in-order would mean putting the right thing at the right place. The right place would be one that is easily accessible and prevents waste of time in reaching it when required. This component would also ensure that any components missing or falling short would be identified easily. Shine related to cleanliness and order, while Standardization is taken in the context of the quality levels that must be made routine in the production process. The sustenance of this method is the only way it will bear fruits and thus, this facet has also been included within the steps.

JIT too, is based on the essential objective of minimizing waste. However, a little different from lean, JIT requires extensive and efficient communications between the manufacturing processes as well as the entire value-chain set. For example, in order to run a tightly time-bound production and supply system, it is important to have similar and efficient systems established with the suppliers and transporters.

Greene Kings has two breweries that cater to the vast production needs of the business that owns and runs more than 750 pubs all over UK, besides exporting its beer to more than 30 countries in the world. Therefore, production at the two breweries has to be a flawless with minimum waste of resources and time. Lean can be used as an effective tool of breaking down the various processes in production and logistics and identifying any redundant processes that may be removed or processes that have scope for improvement.

Benchmarking

Benchmarking can be a very important tool for Greene Kings since it relies heavily on its distribution network. As has been discussed earlier, with its public houses, the importance of a flawless, daily distribution system becomes of paramount importance to the business. A very unique feature of Greene Kings is that it sells not only its own brands of beer at its public houses but also other brands that create a more complex distribution set-up for the organization. Here, Greene Kings can learn immensely from the logistics systems and strategies in place in other brewers, especially the market leaders. International brewers like Carlsberg focus on logistics strategy heavily and have more effective systems and strategies in place. Gourdin (2001) defines benchmarking as 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. There are a number of steps that are part of the benchmarking processes and include defining the present performance level for the activity to be benchmarked; determining the level of performance that is desired in the given activity; determining how and what type of improvement is implemented to achieve stated targets, and establishing a process time frame (Gourdin, 2001).

Partnerships and Alliances

Partnerships and alliances with vendors and suppliers is an emerging concept that is replacing the traditional notion of a professional relationship between suppliers and businesses. Relationship marketing is a term used to define this concept. Relationship marketing means that the time scale involved forming alliances and partnerships is lengthy. Another important ingredient that differentiates relationship marketing from others is the fact that it is based on cooperation. Therefore, the negotiations that form part of other organizational systems of functioning would be replaced by continuous communications that are interactive and aimed at establishing long-term contacts. Greene Kings is a well-established and local business in the UK and has key business functions being performed by vendors and suppliers. Therefore, the benefits of having an established set of suppliers and vendors who understand the unique features and business of Greene Kings in detail would really help in improving the efficiency of the business.

ISSUES IN IMPLEMETING A NEW LOGISTICS STRATEGY

People are at the core of any new strategy and introducing a change in the existing systems has potential for severe people issues. However, these have been and can be tackled effectively by the inclusion of all of the organization’s people, from the top management to the ground staff.

On one side, top management of the business may be sceptic about overhauling an established system and introducing an entirely new process. In case of Greene Kings, the issue among top management is the absence of attention towards the importance of logistics and other operational systems.

On the other hand, a more serious concern could be resistance of subordinate workers and ground staff to a new logistics strategy. However, by keeping the new strategy and its expected benefits open before the whole organization, more support and better acceptance may be achieved. Furthermore, HR issues such as recruitment, selection, strategic training and appraisal, autonomy, flexibility, harmonization and reward system are consideration factors to ensure smooth implementation and transitional change.

TECHNOLOGICAL DEVELOPMENTS

Technological developments will influence the changes that are implemented in the logistics strategy of Greene Kings and as such, these have to be taken into consideration while formulating one.

ERP systems are a technological development that provides feasible avenues for the business to improve efficiency upon. ERP systems are based in Internet technology and as such, enable the business to share informational flow among different departments, business processes and stakeholders efficiently. ERP is a set of business applications on modules, which links various business units of an organisation such as financial, accounting, manufacturing, and human resources into a tightly integrated single system with a common platform for flow of information across the entire business (Baheshti, 2006).

For a business like Greene Kings that works across a large geographic area and has several different business units and alliances with stakeholders, a centralized ERP system would improve efficiency and cut cost and time for the business substantially.

SUMMARY

The above report discussed the position of Greene Kings brewers from the point of view of logistics. It also talked about the brewing industry in the UK, theoretical understanding of logistics and trends in development of strategies that would all be beneficial for Greene Kings. Avenues and strategies that may be used by Greene Kings were discussed, along with problems that are faced in implementing new strategies. Finally, the new trends in the area of logistics was documented.

REFERNCES

Baheshti, H. M. (2006) what managers should know about ERP/ERPII: Management Research News. Vol. 29(4) [online] available from

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Black, John R. (2008): Lean Production: Implementing a World Class System; Industrial Press.

British Beer and Pub Association. (2009, 12 08). Government makes five times more money from beer than pub and brewing companies. Retrieved 12 20, 2009, from British Beer and Pub Association: http://www.beerandpub.com/newsList_detail.aspx?newsId=310

Grant, D., Lambert, D., Stock, J., & Ellram, L. (2006). Fundamentals of logistics management. Berkshire: McGraw Hill Education.

Greene King. (2008). Annual Report. Suffolk: 85Four.

Towers, N. S., & John, P. (2003). Stock control and supplier relationships at the local pub in a market town: A case study investigation into effective demand management. British Food Journal , 591-691.

Womack, James P. (March, 2007): Moving Beyond the Tool Age; IET Manufacturing Engineering (4-5), Institute of Engineering and Technology.