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There was a survey on distribution costs by institute of Logistics and Distribution Management in 1992. In this survey, it was recorded that 50% of the distribution costs are occurred in food and tobacco industry and therefore a careful planning is required to control these costs (Institute of Logistics and Distribution Management, 1991/92). These costs can be controlled by effective logistics management and logistics strategy.
As far as brewery industry is concerned, a lot of distribution costs are incurred in transportation and logistics and to be a viable concern the brewery industry needs to implement a strong logistics strategy to overcome this problem. In our discussion, we will try to discuss the basic routing problems and vehicle scheduling and then we will try to design a strong logistics strategy to overcome this problem. Brewery Industry in UK is no more a piece of cake now. The market is now saturated and to be a successful market leader a brewery company needs to bring down its costs.
The basic routing problem which a brewery industry faces is "Selecting the best way or route available to deliver goods to the final consumers". The basic scheduling problem is "Selecting the best time available to reach target customers". These problems are incurred whenever there are there is a complexity in the marketing channel system of an organization. The more complex the system, the more complicated the routing and scheduling problems in the logistics management. In our discussion below, we will try to review the strategies followed by a brewery industry and will make an attempt to recommend a valid logistics strategy in the context of UK Market.
Analysis of a UK based brewery's current strategic position from a logistics perspective and Critical assessment of available opportunities to develop existing logistics capabilities.
An Example of Scottish and New Castle plc:
Scottish and New Castle plc is one of the largest UK based brewery groups. This group enjoys a strong financial back plus a pie of giant sales in the UK. The company has well defined market logistics systems and can easily have a competitive edge due to its systematic and professional operations. The Company's main operational parameters are:
First the orders from the customers are collected on a telesales system which is also computerized. Then orders are manually punched to the company's main database and further screening is done over there such as credit limits and stocks available.
Emergency orders are only accepted after estimating the order lead time for better customer service.
They use heavy goods vehicles to transfer the bulk of goods at a time. This approach leads to lower costs and also opportunity cost of time.
In case of customer claims a proper back hauling strategy is there to overcome the problem of customer churns and lower costs.
The drivers and other crew members are paid properly which are involved in the distribution process.
Despite of such a well managed system, there are some problems which need to be reviewed and addressed strategically.
More Order to payment cycle
The streets in UK are mostly one way.
There are certain government regulations in terms of weight limits.
Inappropriate size of order shipments is there
The need for a better computerized and technology management system.
Drivers are strict to work for 9 hours despite the fact that it is a tough job. (Peter G. Eibl, Roddy Mackenzie, David B. Kidner, 1994)
We can review these problems are opportunities which needs to address for a strong and loyal customer base. It is important to note here that business needs to focus on the customer and should have a broad definition of market for a strong and loyal customer base. The main threats to business problem and a source of missed market opportunities is the weak focus on the customer and competition. It is a habit of the market leaders to be strong and have a strong focus on market. These market leaders do not only focus on satisfying current consumer needs but also to see the needs of customers which no one is addressing. As a reason, they enjoy a sound profit and strong and loyal customer base (Roger J Best, 2008). Keeping the above views in mind, we can analyze as a beer manufacturing company, we need to analyze the untapped portion of the market and should need to implement such a logistics strategy to overcome over problem.
It is important to note that this company has an experience of computerized vehicle routing and scheduling system. At first the company planned to use the computerized system in 1970, but due to less development in technology and some other constraints it was difficult to achieve this objective. An initial system was developed but it was difficult for the company to meet the demands of the customer appropriately and the cost of technology dropped in the British Market. This also led to the opportunity "Technological Advancement". The Scottish and New Castle successfully gained advantage from this opportunity, adopted a computerized logistics management system and it is the secret of its success today in the UK Market (Peter G. Eibl, Roddy Mackenzie, David B. Kidner, 1994). Despite all the above conditions, the company enjoys a sound competitive and strategic position in the market and now we will see that how can we maximize these opportunities to overcome the problem.
Since now we are talking about the scenario of 1991, the challenges which a brewery company faces in UK environment are nearly the same today for example they need to improve their logistics for better customer service and in this sense there is an opportunity for a brewing company to address this customer need to through proper routing and scheduling for customer convenience.
According to the latest trends in brewery industry:
There is more growth than before
Growth of Local companies competing the giants
Extra Capacity and proper logistics and inventory management are the drivers of success and market leadership
Economic Conditions have hit the beer market
There is a new trend of mergers and acquisitions. (Society of Independent Brewers, Local Brewing Industry Report, 2009)
If we analyze the Scottish and New Castle plc with respect to above trends in brewery industry then it is easy to find that we need an effective logistics management system to control over costs. We need to fully implement the Systems Concept and Total Costs Concept for designing a successful logistics strategy. All the above problems are actually opportunities available in the market.
Evaluation of the key strategic approaches to logistics management that could be used by a UK based brewery:
Strategic and Rational Logistics Planning for Scottish and New Castle plc:
In the case of Scottish and New Castle plc, a lot of strategic planning and tactical approaches could be used for designing and strong logistics strategy. A proper an appropriate route planning must be done. In terms of longer routes some special incentives must be given to the drivers and the staff involved in logistics and operations. Unnecessary routes must be avoided to overcome this problem because the reason for that is they will cause costs higher. Using different vehicles to transfer goods to customers also incurs unnecessary costs. Using proper vehicles to deliver goods at the receiving facilities of consumers is a good approach to control the costs.
It is also important to note here that all of our methodologies circle around costs. Only those logistics strategy will be successful which will
Provide Customer Convenience
Integrated Order Processing.
We will try to shape a logistics management strategy in the following scenarios:
First of all we need to plan about how to effectively deliver goods to the final consumers. Then we can decide about the best available options such as trucks or small vans to deliver goods to final consumers. As far as UK is less short of two way roads and most of the roads are one way. Therefore we could use larger trucks to deliver goods and services to final consumers.
Secondly, It is important to analyze that would these transportation mediums will save us money or not. Extra shipments and lower order sizes of Scottish and New Castle plc will automatically cause extra burden to consumers. There should be a proper documentation and record keeping of transportation and distribution for future referencing and monitoring logistics costs.
A proper warehousing system must be developed to ensure proper logistics management. For example, the warehouses must be located at a place near the marketing channels for quick transportation and costs. Small order sizes and uneven orders can ruin the distribution costs. A proper packaging technique must be used to store beer bottles for proper utilization of space and proper distribution of goods.
Supply Chain Management:
Proper customer service and inventory planning must be done in beer industry because the market is now at its maturity with more competitors and sophisticated customers. Some Master Production plans must be done for logistics management. Beer Industry in UK contains both price conscious and quality conscious customers therefore proper market segmentation and positioning is required by this brewery company. Most of the products fail in market because of their supply. An opportunity for Scottish and New Castle is to make their products widely available for strong consumer response. Effective reverse logistics system can be developed for better customer service.
In order to effectively distribute goods to final consumers a proper demand forecasting must be done for cost effective delivery measures and options. Some time larger and excessive production leads to extra costs and are an additional burden over the company. On the other side an underproduction also leads to lose of customers. The consumers find value only in that product which is available easily. We can take help for demand management from our channel intermediaries as well. Channel Intermediaries for Scottish and New Castle plc can provide useful insights about the demand and tastes of consumers. In short we need a consumer point view while deciding about the routes and schedule for distribution of goods and services. In beer industry at UK, we can perform some research and development to reach the end consumers for a loyal customer base. We can redefine our routes by doing some research on what consumers want?
(The Above Model was derived from E is for Excellence - Leadership in Logistics By Heather Cartwright, PMP, P.Log. as published in LQ Magazine Spring 2004)
Technology as a source of Advantage for Scottish and New Castle plc:
As we discussed above that the company has already an experience in technology and technology by the company. It is an era of technology. The company had an experience of collecting orders through telesales and then manually entering the orders in a database. This is an era of technology. For proper order to payment cycle, one recommendation we would like to discuss here is that Scottish and New Castle has not yet developed an online system through internet on which the customers can place their orders. This strategy will help us to attract more and more customers and may definitely decrease order to payment cycle which is one of the costly areas of logistics management. Most of the beer customers today are youngsters and these youngsters use internet more than the people of other ages. Useful insights about the industry from consumer point of view can also be gained by collecting feedbacks from customers.
Consumers' today love to buy online because they are now more sophisticated and require more information. An online website works as a sales man. We do not need to hire separate professionals. Coming online will automatically a source of competitive advantage for the Scottish and New Castle plc because no one is addressing consumers through this medium of distribution in UK.
Identifying the management issues caused by implementing a new logistics strategy with consideration for available capital, technical and human resources:
The first problem that will arise from adopting this strategy is that we need to spend a lot in measuring consumer preferences and perceptions about logistics. This thing can cause problems of costing in the short run. For example, redesigning vehicle routes and scheduling is a very daunting task and we need to change our structure fully if we want to implement this strategy. More over we will need to purchase some new technological solutions if we want to do effective and computerized scheduling and routing of goods. Paying drivers more incentives will lead to higher costs and is an extra burden on the firm costs.
The management will need to change the allocated overhead costs and new planning with a new allocation of capital overheads will create obstacles for the management to adopt this policy. But if we see the other side of the road then this addition is capital required will lead us profitability in the beer market. For example, by analyzing consumer tastes and preferences will lead to proper scheduling and routing of goods. Customer will be satisfied and it will help the Scottish and New Castle to capture more and more market share.
We require more and more technical professionals in beer industry to operate the latest technological equipment for our professionals. While selecting technology it is important to note that technology must be compatible with the organizational structure and culture otherwise it would become a threat. Moreover while selecting technology, it is important to note that we need it should be sustainable for example it is difficult for the competitors to copy it. Technology is always costly. Apparently from management perspective, it seems that by adopting the new technology will lead us to higher costs rather the control of costs and quality in beer industry.
But if we see the other side of picture then we can analyze that using technology will easily help to gain higher profits and better logistics management. For example, by hiring technological professionals will increase the management skills and expertise for Scottish and New Castle plc. We already had an experience in technology since 1970, as we have seen above; we can experience and use technology in different dimensions. Moreover, there is no compatibility issue of adopting the computerized technology for logistics management as we are already using a telesales system to record customer orders. Some new techniques like RFID or Electronic Data interchange must be used in technology which can easily enable us to track where a product is at this time in the marketing channel. Going online has tremendous advantages. We can be successful because there is a dramatic increase in online shoppers. No one is serving customers online. Going online will reduce the order to payment cycle with better customer service. It will also save us money for hiring extra professionals for customer dealing and service.
Management concerns about the change in strategy would be they need to hire more and more professionals to manage their operations. For example for redesigning logistics strategy we need to hire a professional leader for research and development. Moreover, paying the logistics staff more benefits will lead to again more costs. Therefore, what is the benefit for adopting a new logistics strategy?
But on the other side of river, we will earn revenues in a long run. For example, a logistics strategy will produce more and more customers and simply our revenues will increase. Therefore by hiring more and more professionals such as drivers, computer professionals will lead to more profitability and these costs were cover up in a very small time. Human Resources are the most important assets of any organization. By paying them more incentives will lead to more employee motivation and loyalty. Motivated employees are more valuable than golden nuggets for any organization. This motivated staff can be further trained to use the best available route and proper scheduling for reaching our logistics goals. Employees interact with our customers. Therefore by facilitating logistics employees will lead to very fruitful results in the future.
Outlining the strategic significance of new technology developments and business trends on future logistic strategies for a beer manufacturer:
Adapting new technology will open new dimensions for logistics management for a beer manufacturer like Scottish and New Castle plc. Some of them are discussed below:
Using a computer or professional software and database of vehicle routing and scheduling will open new dimensions for logistics management. We will have a lot of savings than we are saving manually. For example by using RFID or EDI may it is costly for a beer manufacture to manage operations but we will have better inventory tracking and logistics management
According to the recent trends in the market. Almost all the companies are now on web for reaching target customers. Moreover the number of online shoppers is increasing day by day. No one in the beer industry is serving the market online in UK. I think it is an untapped portion of the market and this portion can be tapped by going online. Selling goods to customer online will not only lower the costs of distribution but also but also reduce order to payment cycle. It is easy for customers to gather information from the web.
Now the consumption patterns of the consumers have changed. Now the consumer is more sophisticated and more aware of its needs. In the past, there was trend the man earned and woman played the role of house keeper. But now there is blurring gender roles as the number of working women are increasing. Moreover there is poverty of time for consumers. In this case, while defining a logistics strategy, we should keep these things in our mind. (Management Review : Market and Strategy, 2009)
Now due to competitive turbulence, we need to have a first mover advantage. People buy only those products which are most readily available and which they do not need to search for. In beer market, it would be really a strong strategy to gain a first movers advantage. This first mover's advantage can be achieved by proper logistics strategy and inventory management.
In our discussion, we have taken our point of discussion as Scottish and New Castle Inc as our point of discussion and as an example of how to adopt a successful logistics strategy in the beer market of UK. We have seen that there are a lot of opportunities available such as technology for developing and establishing a competitive advantage in the market. All these are simple measures but these simple measures can do a lot for us. For example, it can provide us better cost savings and better customer base. It can also provide us convenience in operations. Beer Industry is a food industry and according to research above that there are a lot of expenses in the logistics of food rather than any other product. Keeping the above strategy in mind, we can easily improve our logistics operations in the beer industry. But we also need to implement the continuous process improvement.