Global Drinks Industry Logistics - Part II: The Americas

By | 19 October 2012

The second part of this month's management briefing shines a light on the logistics landscape in the Americas.

North America

New demands on North America’s beverage industry are prompting manufacturers, distribution chains and logistics professionals to think more strategically, and make supply chains more efficient. According to the 2011 paper ‘A Taste of Warehouse Automation’ from Retrotech – a US company specialising in automated material handling systems – beverage manufacturers are facing a myriad of business pressures impacting on their logistics.

“On one hand," the report says, "globalisation and health-conscious consumers have created remarkable opportunities to develop new products, attract new customers and explore new markets. On the other hand, unprecedented pressures to fill complex orders, cut costs, deliver orders on time, reduce waste and optimise space have made success a daunting task.”

In terms of optimising supply chains, Seth Hillstrom, managing partner at the American Beverage Consortium, says that utilising cloud-based, mobile (smartphone or tablet) fleet-management systems that integrate asset monitoring, operator efficiency tracking (i.e. real time tracking of miles, fuel usage, and fuel tax calculations), and driver communications are “an absolute must for lean operations". "Simply optimising routes with GPS is no longer enough,” he says.

Kenneth Wood, senior VP of product strategy at Canada-based transportation and supply chain management firm Descartes Systems Group, agrees that the beverage industry in North America is moving quickly in terms of adopting mobile technology in “telematics, driver productivity, route sales, and ordering and merchandising applications.”

Increased automation is also gaining increased important in warehousing, says Paul Lomas, VP of supply chain excellence at US-based Ryder Supply Chain Solutions. “More products and SKUs [stock-keeping units] are being moved through distribution facilities. That usually translates to more SKUs inside a warehouse,” he says, adding that the need to handle this growing complexity could lead to more automated systems.

But, while the aim to make distribution channels more efficient is getting more attention, Tom Pirko, president of US-based international food and beverage advisory firm Bevmark, believes that the greatest savings could come if the beverage supply chain cuts out the middle man.

The parties that make up the supply chain in between manufacturers and retailer (ie the wholesalers, distributors, warehouses) have “had a hard time grappling with all the [recent] changes", he says. "[They] are still working with very old systems that are overladen and can’t handle the amount of products that we now produce and try to get to market.” In the beverages business, continues Pirko, “the retailers and suppliers are somewhat inflated and protected because they have their own economies – but it’s the people in the middle, who are tied to labour costs and transportation costs, who really take the hit in a down market.”

The middle man is not counting himself out just yet, however, according to Hillstrom. He says that there are several up-and-coming strategies and technologies being used throughout the distribution chain. Examples include the switch to high-bay warehousing with automated storage and retrieval systems to substantially increase storage density and decrease inefficiencies caused by storage/retrieval error; voice control technology used throughout all aspects of distribution; machine-to-machine communications connected with wireless networks; and smaller organisations beginning to find success “through the back door”, as many distribution partners help to connect small brands to big channels such as larger retailers, restaurants and hotels.

Beverage manufacturers are also using new strategies to improve their bottom line, says Lomas, including applying a ‘postponement strategy’ to their supply chains, where they “wait until the last possible minute to add value”. In the context of the beverage supply chain, he says, that typically means repackaging a product in a way that is specific to a retailer. Lomas adds that many manufacturers are also rethinking where to actually put their distribution facilities in order to speed things up (for instance, putting distribution centres close to plants). There have even been cases of manufacturers collaborating with each other to improve efficiencies (such as sharing the same distribution facilities including the same lorry or van for deliveries). A focus on sustainability in packaging and using alternative fuels for delivery trucks – specifically natural gas – has also been present, notes Lomas.

In terms of alcoholic beverages, in the US, regulations differ state-to-state and can drive different kinds of supply chains, depending on whether alcoholic beverage sales are controlled by the state, or there is a liberalised retail system. Hillstrom highlights that alcoholic beverage distribution is subject to the three-tier distribution system in the US, where producers can only sell to wholesale distributors who then sell to retailers. Because of this, he says, this is one area where SMEs actually have a leg up on the competition: “It’s common for brewpubs/craft breweries to be allowed to distribute and retail what they produce directly.”

Latin & South America

While the US offers a degree of complexity within its states, drinks companies face much sterner logistics challenges in Latin America, according to Marcelo Nascimento, spokesman for international supplier of carton packaging and filling machines for beverages SIG Combibloc. “Since Brazil is a huge country," he says, "the big challenge is to distribute the products all over the country.” With this, in order to meet the growing demand for their carton packs, SIG has opened storage centres in three different Brazilian states. “These are strategic places in Brazil, which allow SIG to supply the packs to our customers with more flexibility and agility,” says Nascimento. SIG has also developed some unique tactics in order to prevent damage to products in transit, including the use of angle brackets, special straps, air bags and styrofoam plates.

There are currently more than 1m points of sale for drinks in Brazil, which naturally requires a large logistics network. With this, AmBev, the region's biggest brewer, has been focusing on developing new distribution strategies. According to AmBev logistics director Rodrigo Otavio, with breweries and soft drinks facilities across the country producing a wide range of products and packaging, one of the biggest challenges in the logistics area is to make these innovations available to retail outlets across the country.

“The company knows that one of the key ways to maintain and expand its business is making its products reach the largest possible number of consumers and ensuring the owners of establishments that sell AmBev’s products are always well attended to,” says Otavio. The company has invested nearly BRL5bn (US$2.47bn) in the last two years to increase production capacity in Brazil, modernise company plants, and encourage product and packaging innovation.

Since 2010, AmBev has also established a new transport management system with GPS tracking, to ensure timely deliveries. Also in the transportation/delivery realm, in 2009, the company began a fleet-sharing programme, forming partnerships with other consumer companies in order to fill lorries that would otherwise return empty. “Since the programme's inception, the company has saved more than 4.2m litres of diesel, and avoided 446.3 tonnes of CO2 emissions,” says Otavio. “In addition to economic gain, AmBev is therefore also able to reduce its environmental impact.”

Meanwhile, the Coca-Cola Co has also made several important efforts in Mexico, according to spokeswoman for Coca-Cola de México, Soledad Izquierdo. “Our route-to-market models have helped us improve our service in all channels,” she says, adding, however, that more work needs to be done to increase productivity and decrease costs in the areas of product storage and distribution. “Regulatory requirements can increase the cost of primary distribution," she says, "so new truck technology design should evolve in order to keep costs on target, while improving our complete supply chain, aimed to accomplish sustainability goals.”

To go back to the first part of this briefing, click here. The third part can be found here.

Sectors: Beer & cider, Soft drinks, Spirits, Water, Wine

Companies: AmBev, Coca-Cola Co

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Read further items in this management briefing

October 2012 Management Briefing - Global Drinks Industry Logistics

This month's management briefing for just-drinks' subscribers looks at the logistics side of the drinks industry. In four parts, we look at the logistical landscape in Europe, The Americas, Asia Pacific and the Middle East and South Africa.

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