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Holding patterns

Published:  23 July, 2008

Inventory is ignorance! Now there's a mantra from supply-chain seminary, if there were such a place. It's actually just an abridged truism from the field of logistics: warehouses full of products represent a hedge against uncertainty. You stockpile because you don't have - or can't have - a comprehensive understanding of your suppliers or your customers. Indeed, most companies accept that as given.

All of that is seemingly sensible advice. But is commercial storage purely a choice between handling it yourself and outsourcing? Is it really a black-and-white decision?

Not at all,' says Gleave. I know storage is often disregarded or seen just as dumping stock somewhere for a while. But that's discounting the complexity of wine as a product. For example, we have different arrangements for different products. We use a third-party bonded warehouse for three-quarters of our needs - mainly our faster-moving SKUs. But for fine wines that are likely to be in storage for anything longer than a couple of months, we have our own temperature-controlled, duty-paid warehouse. That second facility represents a cost to us, but it's weighed against the type of service we want to provide.' He adds, Restaurants order at midnight and they need delivery before mid-day the next day. We can't get a third-party provider to do that for us reliably, so we do it ourselves. Unless we can fulfil that sort of service we will lose the business.'

The Wine Society also divides its inventory, but for different reasons. We hold about three-quarters of it at our main facility in Stevenage, and then use a third-party warehouse for overflow storage,' says Styne. It's not ideal. There's a cost to this arrangement. So we'll expand our own holding, but that has to be done in steps. We certainly have the land in Stevenage, but one tends to wait for the overflow to build up to the point where it justifies a permanent change to your own warehouse capacity. We're not quite there yet.'

These double warehousing arrangements at both Liberty and The Wine Society (and plans for expansion at the latter) seem contrary to the inventory-minimising ideals put forth by the logistics and supply-chain gurus - and embraced by world-class organisations like Dell computers. So even if wine is a more complex proposition than many other FMCGs, shouldn't these already successful businesses really be shrinking their storage requirements by driving stock through their supply chains faster and faster?

For most industries, and certainly computers, storage detracts from value. It's a pure cost,' says Styne. But wine is very unusual: I can buy a good claret from a good year and store it for 10 years and probably sell it for more than the original price and all the associated costs. Storage actually adds value.

So wine is one of the few products that can benefit from time - at least if it's aged well. And that means warehousing is an important part of the business, even if it's not the sexy part. I know that good warehousing and logistics services never win sales; but bad service will most certainly lose them.'