OPSM Individual Report- Hannah-Rose Shilcock PDF

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Analysis Report TRANSPORT OPERATIONS MANAGEMENT CRAFT BEER

OF

Figure 1. Lion’s beer range (Lion PTY LTD, 2017).

Report generated by Hannah-Rose Shilcock (C3173171)

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Table of Contents 1.

Executive Summary.............................................................................................................3

2.

Introduction........................................................................................................................3

3.

Lion Warehouse Brands......................................................................................................4

4.

Craft Beer Supply Chain......................................................................................................5

5.

Warehouse Handling & Load Planning...............................................................................7

a. Physical Product Nature & Material Handling....................................................... 8 6.

Routing and Advanced Shipment Notifications................................................................11

7.

Movement Administration................................................................................................12

8.

Overall Supply Chain Strategies Deployed........................................................................14

9.

Conclusion.........................................................................................................................15

References................................................................................................................................17

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1.Executive Summary This report critically analyses transport and warehouse operations management for craft beer and highlights the importance of integration and collaboration within the supply chain. Craft beer is a Fast Moving Consumer Good (FMCG), which means craft beer has a high demand, being sold quickly and at a low cost. This report covers seven core topics which are establishing the warehouse brands, craft beer supply chain, warehouse handling and loading, physical product nature and material handling, routing and advanced shipment, movement administration and, overall supply chain strategies deployed with the craft beer industry. To maintain customer satisfaction Lion must ensure the continuous flow of craft beer along the supply chain to reach the end consumers. To enable this to occur effortlessly there must be appropriate and continuous management of the supply chain transport operations. Appropriate equipment and management systems are essential. Given the nature of craft beer and the bottles in which they are packaged in, there is unavoidable waste which does pose minor inefficiencies along the supply chain. The evolution of the 21st century supply chain has seen the need for integrated software systems able to share real time information throughout the supply chain and to the connected consumers. These systems are crucial to the running of daily transport operations to achieve and maintain collaboration particularly to the topics discussed within this report and the whole supply chain. Further this integration and collaboration gives the company the ability to increase their competitive advantage and minimise costs, creating business value. Lastly customer value and satisfaction is met by the ability to keep up with the demands of consumers.

2.Introduction The purpose of this report is to identify and describe commercial warehousing operations, such as material handling, storage of products and equipment used for storage and Page 3 of 19

distribution within the craft beer industry supply chain. Further, the range of products and materials that are handled within Lion’s warehouse will be identified. This industry involves many players, including suppliers of raw materials, producers (farmers), grain marketers, bulk handlers, shipping agents, manufacturers, wholesalers, retailers and the end consumers. This report will also critically analyse the logistical nature of the product craft beer and the material handling processes that are used to store and handle the craft beer within the warehouse. The craft beer industry is becoming more popular than any other alcohol segment worldwide (Material Handling & Logistics, 2014). In 2014, it was projected that the craft beer industry would contribute more than $55 billion to the economy, with an annual growth of 18.8% (Material Handling & logistics, 2014). In Australia, the two main players in this industry are Lion Pty Ltd with 40.9% of the market share, followed by SAB Beverage Investments Pty Ltd with 16.6% market share. The remaining 42.5% of the industry is distributed among companies holding on average less than 5% market share (IBIS World, 2017).

Lastly, this report will critically discuss the

relationships between the logistical characteristics of craft beer and the material handling and storage equipments used within the craft beer warehousing.

3.Lion Warehouse Brands A typical Lions warehouse includes a wide range of products that can be seen in figure 2 below including alcoholic beverages, milk beverages, milk alternatives, cheese, juice drinks, water ice, yoghurt, cream and custard (Lion, 2014). Further, Lion’s alcoholic range includes beer, craft beer, international beer and cider. Lion’s manage some of the more iconic brands, such as XXXX, Tooheys and James Squire. While Lions is well known for manufacturing beer, they also manufacturer several other cider brands, including 5 Seeds, Kirin, and James Squire Orchard Crush.

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Figure 2. Lions brands (Lion, 2014).

4.Craft Beer Supply Chain To define craft beer, it is the beer that must be small, independent and traditional [ CITATION Mic16 \l 3081 ]. Previously craft beer was called microbrew, which was a legal term used back then in order to specify the low number of barrels produced [ CITATION Mic16 \l 3081 ]. The term craft brewery was eventually used to rename microbrewery to get away from the original law restricting name and appease small breweries who favoured craft craftmanship over large scale manufacturing [ CITATION Mic16 \l 3081 ]. As can be seen in the below figure 3, the craft beer supply chain consists of six key parties; The raw materials provider, factory in which bottling takes place, the distributor, wholesaler, retailer to the end consumer.

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Figure 3. Supply Chain (GRA Supply Chain, 2014).

Each player within the craft beer supply chain industry contributes to the production and consumption of the product. Understanding the full supply chain can facilitate better management of the processes within the craft beer industry supply chain. Integration and communication channels between the parties need to be well established to ensure that the end customer needs are being identified and satisfied. Customer feedback is also necessary to facilitate improvements among the members of the supply chain. Recently, Lions have opened up a dedicated craft beer distribution arm in Camperdown, stocking their Australian and New Zealand range of craft beers, along with a few regional brands, such as Byron Bay Brewery. This new warehouse integrates manufacturing and warehousing facility was developed to better service smaller bars and cafes that previously Lion has not reached effectively, along with servicing independent bottle shops (Liquor Merchants Association of Australia, 2017). Lions warehouses all over the country meet and aim to exceed the Australian standard for material handling and safety for example, in order to ensure the safety of people with the Lions warehouses procedures are in place, such as lifting and carrying of material to avoid injury to employees (Bright, 1954). Over the years, there has been approximately 23% of worker fatalities, as a proportion of the transport, postal and warehousing industry which can be seen below in figure 4 (Safe Work Australia, 2015). Although there has been a small

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decrease in recent years, these injuries are serious and good practices can assist in the decrease of these incidents.

Figure 4. Worker Fatalities: proportion by industry of employer, all years (2003-2015 combined) and 2015 (Safe Work Australia, 2015).

5.Warehouse Handling & Load Planning Warehouses are the point in the supply chain where products pause. This consumes both space and time, both of which are expenses. The warehouse requires labour, capital and information systems, all of which are again costs. Warehouses provide useful services that are unlikely to vanish under the near future (Bartholdi & Hackman, Warehouse & Distribution Science, 2011). The role of a warehouse in the craft beer industry includes two major operations. Firstly, to match supply with customer demand, and secondly to consolidate products to reduce transportation costs and improve customer service. One of the many challenges in managing the craft beer supply chain is that demand can change quickly, while supply takes longer to change. Surges in demand are seasonal and strain the capacity of the supply chain. Beer retailers in particular are hit by seasonality’s that Page 7 of 19

are so severe that it would be impossible to respond without having stock pilled product (Bartholdi & Hackman, Warehouse & Distribution Science, 2011). An example of seasonal demand surges to the craft beer industry is the demand increasing during the warmer months of summer and festive times such as Christmas. During this period, warehouses ship these products in high volume and after this time, warehouses are busy rebuilding stock. Similarly, warehouses can buffer the supply chain against collapsing demand by providing space to hold inventory back from the market (Bartholdi & Hackman, Warehouse & Distribution Science, 2011). Further, warehouses are important for the consolidation of product in order to benefit from reduced transportation costs and to deliver customer service. Transportation is a fixed cost that is incurred any time a product is travelled (Bartholdi & Hackman, Warehouse & Distribution Science, 2011). These costs are considerably higher when the carrier is a ship, plane or train, therefor in order to reduce these fixed costs, the carrier must be filled to capacity. Therefore, it is important to take advantage of full truck-load (TL), to receive significantly less transportation costs (Combes & Tavasszy, 2016). Distributors such as Lion may consolidate shipments for multiple vendors together into large shipments for the downstream customers. These consolidated shipments take advantage of reduced fixed costs and also makes collection easier as trucks can be scheduled to dock doors, thus reducing wait times (Combes & Tavasszy, 2016). For example, consider Woolworths standalone store BWS liquor, who have 1,100 stores across Australia since opening in 2001, and are supplied by an extensive vendor portfolio (Endeavour Drinks Group, 2016) (Woolworths Limited, 2017). Due to the frequent nature of shipments, vendors such as Lion ship smaller, more regular shipments to these stores. If these vendors sent these shipments in individual trucks, the freight would be travelling by less-than-truckload (LTL) carrier, resulting higher transport costs. However, typically there is enough volume leaving each vendor to fill a trailer to an intermediate crossdock. These crossdocks receive the product from multiple vendors, where it is then sorted and prepared in loads for each store (Combes & Tavasszy, 2016). Warehouses also enable customer modification of products, enabling the vendor to meet customer demand and increase customer satisfaction [ CITATION Bar111 \l 3081 ] . Postponement of product differentiation enables generic products to be configured and assembled quickly in response to customer orders (Bartholdi & Hackman, Warehouse &

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Distribution Science, 2011). As a result, the manufacturer is able to satisfy many variations of customer demand [ CITATION Bar111 \l 3081 ]. For example, labelling which economically is advantageous to complete this in warehouses, where the products are being handled already, rather than taking focus away from serving customers in retail stores.

a. Physical Product Nature & Material Handling Bottled craft beer such as Lion’s James Squire, is typically manufactured in 3 sizes as seen below in figure 5. The key features of these bottles include a large enough area for neck labels with a recess built in to protect the labels. Further each bottle has the same height, diameter and fill point, making the manufacturing process straight forward by ease of change over and secondary packaging.

Figure 5. Craft bottle sizes. (Victorian Association Of Microbreweries Inc, 2017).

James Squire provides a fresh yet consistent look with their labelling across the range of craft beer. Each label provides the name of the beer, ingredients list, a nutritional panel and recycling instructions as can be seen below in figure 6.

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Figure 6. James Squire range. (Harry Brown, 2007).

Material handling is the movement, storage and control of materials and products throughout the manufacturing, warehousing, distribution, consumption and disposal [ CITATION Gre10 \l 3081 ]. As a process material handling incorporates a large a wide range of manual and semi-automated and automated equipment and systems that support logistics and make the supply chain work [ CITATION Gre10 \l 3081 ]. For example, Lion uses applications such as; stock keeping units (SKU), GPS tracking, barcoding, storage retrieval, forklift operation (as seen in figure 7) and label application as automated functions within their supply chain. While manual material handling can be seen in raw material sourcing, customer delivery and quality control.

Figure 7. Forklift operation to move beer kegs. (Shutterstock, 2003-2017).

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In addition, to protect products and materials during transportation distribution and storage, various packaging types can be applied. For instance, in warehouses and manufacturing applications, packaging may include containers, protective dunnage, unitizing materials that hold several items together to form a complete load and pallets that provide a stable platform for transport [ CITATION Mal13 \l 3081 ]. The packaging components come in varying sizes, shapes depending on the items, they are protecting. Typical of craft beer cans, bottles and kegs can be used to hold and protect the craft beer, alongside labelling to distinguish the type of beer inside. Cans and bottles are stored in cases of 24, used to make a pallet load of 80 cases. Further, 18 pallets can then make a full truck load shipment (See figure 8).

Figure 8. Packaging (Material Handling & Logistics, 2014).

6.Routing and Advanced Shipment Notifications

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Warehousing transportation accounts for a considerable share in logistical operations for Lion in terms of urban and inter city traffic, and the associated externalities. Trucks carry the largest share of warehousing material, for instance trucks were responsible for the movement of 64% of items by value, 58% by weight and 32% by ton-miles (BTS, 2011). The annual highway kilometres driven by trucks has increased by more than 100% since 2008, which is a higher percentage increase then other vehicle types. The development of models and methods for planning and routing transport systems is therefore a key priority (Ben-Akiva, et al., 2016). It is of high importance to have systems in place to ensure effortless coordination between warehousing and logistical operations [ CITATION RFa11 \l 3081 ]. For example, Lion have in place integrated automated tracking systems for each crate of stock to establish the whereabouts of product as it leaves the warehouse. The logistics characteristics for shipment of craft beer should include shipment size, frequency of restocking, structure of the supply chain and the transport characteristics of shipments entailing the modes and routes travelled. These enable basic forecasting and planning for the demand of craft beer [ CITATION RFa11 \l 3081 ]. The intercity truck route choices are increasingly becoming important part of the Australian route network, with 30-40% of the new urban expressways expected per year[ CITATION BPe06 \l 3081 ]. Trucks make up a more significant percentage of toll road revenues than their traffic share suggests, because typically they are paying higher tolls then cars [ CITATION Sta05 \l 3081 ]. Given that Lion’s craft beer products are primarily shipped via truck, this has a significant impact on their operations and costing. One way in which Lion can help overcome this is with live GPS tracking (As seen in figure 9 below), which can help avoid heavy traffic areas or delays and toll roads were possible. Both of which reduce total costs by either not having paid drivers and trucks with product stagnant in heavy traffic and avoiding the costs of travelling toll roads where possible.

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Figure 9. Architecture for the truck’ drivers route choice survey (Ben-Akiva, et al., 2016).

7.Movement Administration Warehousing managers are responsible for monitoring and controlling the movement of goods within the warehouse facility. Whilst the movement administrator is responsible for the products while they are transported from the warehouse to the distributors, wholesalers and retailer, so that the product can reach the end consumer[ CITATION Bow07 \l 3081 ]. The vital stock control measures may include establishing levels of operating stocks based on consumption and usage rate. The stock levels need to be reviewed from time to time to cater for the changes in demand. In addition, the movement administration is involved in evaluating the performance of contracted logistics transport providers, and private transport activities[ CITATION Bus15 \l 3081 ]. Craft breweries are expanding yet the lack of cold chain storage and shipping significantly slows the market beyond local transport [ CITATION Her17 \l 3081 ]. Lions has no trouble identifying opportunities for third party logistics providers due to their reputation and establishment in the beer market (Carter, 2017). However, most craft beer companies subcontract

to

third-party

logistics

providers

(3PL)

for

their

distribution

operations[ CITATION Liq17 \l 3081 ]. These distribution activities create competitive advantage for craft beer manufacturers, given that they can use the correct carrier and develop strong strategic relationships with carriers that are able to meet their obligations and the manufacturers objectives[ CITATION GES16 \l 3081 ]. The need for integrated software for craft beer along the supply chain was developed to address some of the challenges, such as the ability to track product stock levels and demand, Page 13 of 19

to lessen the bull whip effect along the supply chain and create less wastage. Recently new software was also introduced to send signals to the manufacturer so that they can track the location and the temperature of the beer and guarantee the beer being sold is fresh[ CITATION Bai17 \l 3081 ]. The software primarily used by Lions for the tracking of their craft beer is called Keglt, which provides the software and technology to track the kegs (LION, 2017). The use of favoured transport providers and integration with software that connects manufacturers to transport providers and retail stores, wholesalers or distributors helps to improve scheduling, including just in time (JIT) helping reduce inventory and creating the ability to always b...