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The C word

These laws may not be directly relevant to the subject of wine distribution at the moment, but the overall issues of supply chain visibility and efficiency have never been more significant.

Whether the focus is on freight forwarding, warehousing or end distribution, it can't be easy being a logistics company. Most people don't understand you, don't care about you and simply want to use you for their own ends. The UK consumer might want to know what country their latest bottle of vino has come from, but they are highly unlikely to be interested in how it came to be sitting on a shelf in the local supermarket. On top of this lack of recognition, today's wine logistics provider also has to contend with the secular problems of dictating grocers, global suppliers, driver shortage, theft, fraud, increasing competition, new technology and the ever-important task of cutting costs without impairing service. Not to mention little quirks such as the European laws against truck driving on Sundays.

Driving forces

Taking all these concerns into account, two of the most vital driving forces for logistics companies at present are consolidation and technology. The first of these is a term that means different things to different people, but basically it's about integration and working towards a stronger supply chain. One major company to see a recent improvement in this area is Sainsbury's.

In 2004, Sainsbury's faced embarrassing stock shortages caused by the failure of automated distribution centres that were returning perfectly good products to suppliers for no reason. However, under the influence of international development manager Nick Deaves, the supply chain is undergoing a partial facelift at the source, with a view to avoiding any future problems with availability.

Deaves explains, 'We have set up consolidation centres (regional warehouses) or cross-docking operations (central collection points) in all southern-hemisphere countries that supply wine to Sainsbury's.

A similar solution has been implemented in France, and in 2006 we will roll this out to both Italy and Spain. This gives us total visibility of stock at origin, with reduced lead time and the ability to order what we need on a single-pallet basis.' A further result of this quicker and more precise ordering process is a reduced need for storage of safety stock in the UK and, therefore, a more streamlined supply chain.

FFG Hillebrand is another company that knows all about consolidation. It is not only a freight forwarder but also a source of comprehensive supply-chain management. 2003 saw the completion of a project with Thresher Group designed to tailor its supply chain to the specific needs of the company through consolidation. David Mawer, joint managing director, agrees with Deaves. 'Consolidation centres enable companies

to order much smaller quantities cost-effectively. By managing the volume of stock coming into the UK, you are taking out the uncertainties, as well as reducing the need for bonded warehouses or safety stock - potentially saving millions. This is what's happened with Thresher Group, and it is now our proof of concept.'

Points of difference

There are many methods of consolidation, however, and Anglo Overseas, part of The Ziegler Group, considers its own point of difference to be the provision of a 'grape-to-glass service', which involves a fully integrated transportation, warehousing

and delivery service all in one. Unlike FFG Hillebrand, wine logistics is a relatively small part of a larger operation at Anglo Overseas, although David Scace, general manager for road freight, sees this as an asset. 'Loch Fyne restaurants used to be with Hillebrand, but now they're with us because they like the flexibility of being able to transport more than just wine - they recently asked us to move a bar top, for example.'

The wine department is in the process of expansion at the moment. Scace continues, 'We started the bonded warehousing side in 2000, and this immediately gave us a USP. Now we've found something really great in creating a new computer system that integrates our original track-and-trace (T&T) software with the wine-warehouse side, and we are currently writing our own program for this to provide unique visibility throughout the whole process.'

Whether this really is unique, however, remains debatable. Exel also operates both wine warehouses and freight services, and according to international development director Mick Jones, 'linking these two together is absolutely key to delivering real value to an end-to-end supply chain'.

Following Kuehne + Nagel's acquisition of ACR Logistics, completed at the beginning of January '06, it has become another freight forwarder to go down the warehousing route. Eric Wright, operations director of the wine and spirits division at Kuehne + Nagel, points out, 'ACR Logistics has 600,000 sq m of warehousing in the UK. We already have mutual customers and delivery points, and they understand our storage product/trade requirements, as well as having the experience in handling the products.'

The future of the warehouse

With integration such as this, one might wonder about the survival of the independent bonded warehouse, especially when the key to success in the FFG Hillebrand and Thresher Group partnership was the complete removal of this particular link in the supply chain. However, nothing is ever that simple,

and Mawer is also quick to say that 'the same solution doesn't work for everyone'. He adds, 'We work very closely with the warehouses because one of our strengths is knowing the different workings of the various warehouses.'

And the warehouses themselves are not slow to address this point. Michael Lainas, managing director of Octavian (CERT Group), observes, 'There is a growth in ex-cellar deliveries, which takes products directly from the growers to supermarket shelves, but while this may be cheaper than using a bonded warehouse, it's not nearly so convenient.' Convenience is always vital, and Octavian is keen to play this card. Lainas continues, 'Clearly, anything you can do to reduce the cost of delivery is desirable, and although there's a lot of consolidation going on in countries of origin, we're pursuing our own brand of consolidation by building warehouses around the country to keep stock as close to the customer as possible. For example, we have opened three places in Leicestershire for easy access to the north of the country.'

Jeremy Pearson, sales director of London City Bond (LCB), agrees with this philosophy. 'You have to make sure your warehouses are in the right places: a lot of custom is about being closest. We have 21 distribution platforms across the UK

to ensure a next-day service,' he says.

'Of course, everyone wants to cut costs and/or links from the supply chain. Hillebrand have tried, but really they subcontract us.'

The bonded warehouses are more than aware of the need to be all things to all people, and this versatility is one of their greatest strengths. While the major grocers are still providing the big business, deliveries and warehousing for specialist merchants, the on-trade and private customers are where flexibility really counts. Lainas notes, 'It's vitally important that people strategically review their supply chains according to the different demands of the customer. A case in point is our recent review with Diageo, which looked into streamlining the supply chains of Percy Fox and Justerini & Brooks at the same time as recognising the fundamentally different logistic requirements of each company.'

Working with the on-trade is different again but equally important, in Lainas's opinion. 'Some customers of ours are electing not to sell to supermarkets at all and to focus on the on-trade instead,' he reports. Pearson is also looking after the small people; he comments, 'Parcel and home delivery have traditionally been awful in the UK, but over the past year we have introduced a system with full insurance for products in the warehouse and in transit to try to improve this side of things.'

The power of the supermarkets is undeniable, but it would seem that small-scale picked-order distribution still plays an important role in the distribution market. Adam Hodgson, logistics manager at Hatch Mansfield, explains: 'As the market polarises to the big retailers, the gap for personal service widens, which requires some backup.' Jock McMillan, operations manager at WaverleyTBS, agrees, commenting that the on-trade sector 'still has a large requirement for this kind of small delivery'. He adds, 'We were the first to install an operation at our two main wine and spirit regional distribution centres (RDC) that allowed a separation of bottle and case picking.'

Traceability

Something that everyone involved has in common - and the other main driving force in the industry - is new and existing technology. All the major logistics companies have their own track-and-trace software and, naturally, they each claim that their system is the best. In general, the basic purpose of all the programs - whether it be FFG Hillebrand's Axis, Kuehne + Nagel's KN Login or Exel's Lognit - is to allow the customer to manage their supply chain as efficiently as possible. And this is achieved by providing maximum visibility of products from the source through to the shop floor. So it's back to the traceability issue and on to a subject that affects every aspect of social and commercial society: the identity card.

The computer systems currently used for supply-chain management might be fairly thorough, but theft and fraud in the drinks-distribution industry are still major issues, and there is also always work to be done towards achieving the optimum balance between supply and demand. To this end, some of the major retailers have been conducting trials with a tagging system known as Radio Frequency Identification (RFID). The idea is to stick a tag on individual cases - even bottles - at the source. The tag would carry the product and transit information of each item through every step of the distribution process, right up until the end purchase. Effectively, this would be like a wine identity card, carrying details of birth, home and upbringing, as well as following its every movement.

This is not a new phenomenon; RFID tagging is already in place within other retail sectors, but as yet the trials with wine and spirits have not shown conclusive results. There are also a number of controversial issues involved; these include: Who would have to foot the bill? Is it really necessary? and Would the tag continue to remain active after purchase, thereby encroaching on consumer privacy? On the whole, the reaction of the logistics companies is one of quiet resignation: if the supermarkets want it, then we'll do what's necessary. However, Mawer's (FFG Hillebrand) personal reaction is more voluble: 'Quite frankly, is the customer really that interested to see the exact whereabouts of every bottle on the ocean?' He does concede, though, that the device would 'give a more accurate stock position and help prevent pilferage'.

Other logistics providers are more actively positive. Jones (Exel) suggests that 'more visibility is always a good thing, and RFID tagging could be a key way forward'. His feeling is that it's not so much about affecting the movement of the product but more about the movement of information. 'It would give a far better understanding of what's happening in the supply chain and, therefore, a greater opportunity to add and subtract information, correct mistakes and make better ordering decisions.'

He added that Exel is already investing time and money into the research of RFID with various retailers - not necessarily in relation to wine, but that's next on the list. Richard Sharrock, director of Schenker (wine division), is similarly optimistic,

saying, 'The single factor that would transform efficiency would be standardisation of packaging and package marking - namely RFID.' Lainas (Octavian) concludes that 'it's a technology just waiting to be standardised; a lot of people want to be the pioneers of this'.

Mark Gillot, chairman of the RFID Forum at the Chartered Institute of Logistics and Transport, confirms the progress of this form of tagging. 'Some of the trials of RFID for wine and spirits are quite advanced. The trial work is focusing on two main areas: identification and development of suitable technical solutions, and the return-on-investment (ROI) calculations for any deployment.' He also made reference to

the potential security benefits in terms of anti-counterfeiting, brand protection and shrinkage reduction.

When asked if it would be the suppliers who would be forced to pay for the tags, he made the following point: 'While retailers are very tough in their negotiations on price, they do say that it is not in their interests to go out of their way to bankrupt a supplier - a low-cost product is only of value if it is available to sell. That said, if a supplier just waits until it is told to implement RFID, then there is a good chance that it will come off on the wrong side of the cost model. The best option is for the supplier to proactively investigate how it can derive benefit from RFID so that it is able to hold constructive discussions with the retailer.' As for consumer privacy, he adds, 'The current focus of most activity is on tags that are removed before or at the point of sale, so the consumer does not take them away.'

Technology is clearly a key piece in the logistics jigsaw, but it would be redundant without the manpower to implement it appropriately. Graham Donald, marketing director at Matthew Clark, comments, 'It is the ability to provide ongoing investment in both our people and our technology that makes a difference. Claiming that technology alone provides a USP shows a lack of imagination.' And Ian Barker, commercial manager at Great Western Wine, also puts computers in their place. 'It is not the capability of technology that is important - it's how effectively you use it.

If you are not customer service-focused, it doesn't matter how good your software is.' Indeed. But that very software could mean restaurant sommeliers will soon be able to tell their customers which vine, in which plot, in which vineyard, produced their glass of California Chardonnay that goes

so well with the house sea bass from Pacific Ocean block B.

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