Innovate to Survive

When analyzing the US beverage industry, a former Coke and Pepsi Senior Executive with over 20 years experience between these two firms and Swisslog concluded that in today’s world innovation was required to survive. Why this? Quite simply because:

  • Relying on pricing and volume growth to cover increasing costs is a long term bad bet
  • Incremental improvements to an inefficient process won’t resolve cost issues
  • Hoping costs of energy, fuel, labor and commodities will stabilize is risky and not borne out by history

Thus the best path for survival is to exploit the current warehousing/distribution paradigm as it applies to the beverage industry, which rests on the following consensus:

  • It is a process fully under a firm’s internal control
  • The technology for dramatic improvement exists and is proven

Inefficient Supply Chain

A common but key observation of industry insiders is that the overall supply chain process for beverages in the US is one of marked inefficiencies from bottling to end consumer: specifically multiple product handling and inventory points. This creates an environment where attacking the problem individually at each part of the process provides only for an incremental improvement to the overall supply chain cost. What is felt to be the future innovation required is a radical change in the nature of end consumer supply, with both information technology and material handling automation systems as the enablers.

Current supply chain for the beverage industry is marked by bottlers and major distribution centers handling single SKU pallets until downstream where multi SKU order configurations are prepared.

Multi-Point flow of Beverage Distribution today

With information technology providing end customer demands back up through the supply chain, configuring mixed SKU orders via “upstream automation” drives savings providing:

  • Custom picked multi-SKU pallets for sub-distributors
  • Custom picked multi-package pallets for bulk & conventional side load delivery vehicles
  • Custom picked orders placed directly on pallets or platform trucks
  •  

Automation a Must

Automation technology can provide the ability to directly assemble rainbow or individual mixed case configurations from layer picking and case picking solutions. These can be done in a similar high labor efficiency environment which manufacturing operations are accustomed to operating within. By moving these operations at or close to the manufacturing sites, greater economies of scale are also available to amortize the not insignificant capital investments needed in providing automated, highly efficient systems. A further driving force for these projects comes from the long term reduction opportunities in levels of working capital from inventory (less stock points = less inventory needed to buffer unanticipated demand).  In addition to inventory savings, this process model also reduces the costly process of order fulfillment one entire cycle.

Future Distribution Process – Increasing Inventory Velocity and Cash-Flow

Embrace and Implement Innovation

Clearly the changes outlined above will not be welcome by all in the supply chain; jobs will be eliminated, local control over inventory will be reduced and decisions will seem to be made further from the eventual retail point of sale. All of this will result in significant pushback to implementation proposals. But then again, the history of major innovation is typically fraught with the status quo fighting to keep it as such. The winners in the industry will be those willing to embrace innovation and having the diligence and tenacity to see it through to implementation.

To be continued shortly.

 

Inefficient Supply Chain

3 Responses to Innovate to Survive

  1. Pinghong says:

    We are struggling with the unstability to survive……

  2. Johan Vinkx says:

    interesting ideas
    a) what’s the difference in responsiveness between the two models?
    b) is the supply chain time of the proposed improvement adequate in a US beverages environment?

    p.s. thx Andy Blair for forwarding the link

    • Bill Leber says:

      Dear Johan

      Thanks for your questions – here are my answers:

      a) What’s the difference in responsiveness between the two models?

      The 2nd model can have the same or even better response time provided Point-of-Sale information is immediately available back at the manufacturing or major distribution center.

      b) Is the supply chain time of the proposed improvement adequate in a US beverages environment?

      The opinion of our senior beverage industry insider was that 48 hour response, from point of sale to resupply, was sufficient for the U.S. market.

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