Supply Chain Management in the Alcohol Industry

Learn more about what makes supply chain management in the alcohol industry unique and how businesses are responding to recent challenges.

Consumers rarely consider all of the different steps and efforts that are necessary to make products, including alcoholic beverages, readily available. However, most businesses are acutely aware of all the mechanisms that must be in place to produce and distribute their products. One little kink in the supply chain can have a domino effect that influences their bottom line and ability to deliver products to expectant customers. The alcohol industry in particular faces unique supply chain challenges, which have only grown more abundant in recent years.Learn more about what makes alcohol supply chain management special and how businesses are responding to new obstacles.

Understanding Supply Chain Management 

The ultimate goal of supply chain management is to find and maintain a competitive advantage while also maximizing value for the customer. This means being deliberate about making decisions that improve efficiency and effectiveness at every major point along the supply chain. Since a supply chain can include everything from sourcing, product development, and production, to logistics and information systems, supply chain management is no easy task.

Physical Flows and Information Flows

It is also useful to think of supply chains as linking together organizations either through physical or information flows. Physical flows involve the production, shipping, and storage of both materials and goods. Generally, it is much easier to visualize a physical flow.

Information flows tend to be more behind the scenes and less concrete. This type of supply chain requires organizations throughout the supply chain to coordinate efforts, form long-term plans for reliable delivery, and monitor and control the daily flow of materials as they move through the supply chain.  

Supply Chain Management Definition

When you get down to it, supply chain management can be defined by two main principles:

  1. Creating and distributing a product to an end-user is the cumulative effort of many organizations and businesses. This collaborative effort has become known as the supply chain.
  2. The supply chain has long been a mainstay, but most businesses tend to only be concerned with their individual roles and fail to take into account the bigger picture. By taking a myopic view of the supply chain, they are inadvertently contributing to the ineffectiveness and inefficiencies of supply chains. This ultimately affects their ability to reliably deliver products at a set price. Recognizing the importance of each component of the supply chain and managing them when possible, gives businesses a competitive edge. 

Supply Chain Management Vs. Operations

Supply chain management and operations have a lot in common, especially in smaller companies. In the past, operations experts were responsible for managing both operations and the supply chain. This made sense at the time because both positions require a similar skill set that includes leadership, finance, decision making, organization, and goal setting. Both positions also deal with people, supplies, and parts, which means that they have to be able to effectively communicate across departments and with external parties. 

However, in today’s ever-evolving landscape, supply chain management has become increasingly complex and has garnered the need for trained supply chain specialists. This has helped to create a greater distinction between the two professions.

Essentially, supply chain management involves sourcing and transporting the materials required to create a product and then managing the distribution of the final product. Operations is primarily concerned with the phase where raw materials turn into a product. Associate Professor of Supply and Logistics, Lee Budress breaks it down even further, “Supply chain is how you get it and get it to customers. Operations is how you make it.” So while operations are focused on internal issues, supply chain has to deal with a lot of external factors. 

The Unique Demands of Liquor Supply Chain Management

Alcohol is a unique product in the world of supply management because it requires adhering to strict  compliance policies and is regulated by a three-tier distribution system. To further complicate things, each state has different laws and regulations, which can require obtaining alcohol transport permits for several states. Alcohol is also an expensive commodity to transport because the combination of liquid and glass creates a heavy shipment and requires compliance with bulk transport of liquid regulations. Finally, bottling alcohol takes certain expertise and shipments must be temperature controlled to ensure quality. All these factors serve to create a more complex decision-making process when it comes to supply chain management.   

Current Issues with Supply Chain Management in the Alcohol Industry

In recent years, the alcohol supply chain has struggled with a variety of problems that have made it difficult and costly for producers and distributors to make, bottle, and sell their beverages. These problems have been further exacerbated by the COVID-19 pandemic and forced businesses to rethink every aspect of supply chain and operations. Here are some of the main challenges the industry is facing:

  • Lack of warehousing space. The space that is available is being hoarded by big box stores and e-commerce giants so that smaller businesses are left with few options.
  • The increased cost of shipping. 
  • Port congestion and longer transit times for trans-oceanic shipments. In some cases, U.S. ports simply aren’t capable of handling the larger ships that are being used to transport goods. 
  • Carriers are capitalizing on demand and increasing their fees. The shipping trade is ruled by a few major companies. This allows them to join forces and collectively raise prices when demand is high. 
  • Disruptions are causing a higher exposure to risks. As you might expect, any unexpected change in plans can open the door to further problems. 
  • Damaged or expired goods due to long delay times. Some products are forced to sit in ports for months, which leads to waste and losses. 

Overcoming Supply Chain Management Challenges

Even conservative estimates show that these supply chain management challenges will last well into 2022. Many of these challenges are a result of an inefficient system that has failed to innovate and automate, which means that businesses can’t afford to wait out the storm. As the industry tries to get up-to-date and recover from the effects of COVID-19, here are some strategies that businesses can use to overcome challenges:

  • Prepare for delays and adjust lead times. Businesses need to adjust their expectations and plan for the worst. 
  • Consider using air freight to keep the supply chain moving. While this mode of transportation is more expensive and could eat into profits, it will allow you to deliver products and prevent you from losing loyal customers to more available brands. 
  • Rethink routes. Is there a better way to control the movement of products or a more convenient warehouse location? Assess the demand points and modalities to try and cut costs.
  • Planned for increased costs as you create your budget for 2022 and 2023. This could mean raising the price of certain products while keeping your flagship products at their usual price. 
  • Be an advocate and fight to regulate carriers so that they can’t price gouge according to the markets.
  • Make sure you have adequate insurance coverage. You may need a more comprehensive plan that will cover the risks at play today. Take the time to run simulations for moving your product along the supply chain to better understand your responsibilities and liabilities.
  • Develop a product disposal strategy. You want to be prepared to safely dispose of expired products in an environmentally friendly way.    

Everyone along the alcohol supply chain is all too familiar with the challenges that have emerged in recent years. These obstacles have forced businesses to rethink practically every aspect of their business from marketing and brand management to sustainability and how they bottle and package their products. Since these challenges will be a part of the supply chain management landscape for the foreseeable future, it is important to continue to find ways to adjust so that you can continue to reliably deliver products to customers. 

FAQs

What is supply chain management? 

Supply chain management involves finding the most effective and efficient ways to control a supply chain in order to meet customer needs and maintain a competitive advantage in the market. 

What is the difference between supply chain management and operations? 

Supply chain management deals with sourcing and transporting raw materials and then distributing the final product, while operations’ focus is on the process of creating the product itself. 

What is unique about the supply chain management of liquor? 

First, alcohol is controlled by a three-tier distribution system and alcohol laws and regulations can vary by state and even county. Alcohol is also an expensive product to distribute because of the combined weight of liquid and glass. This can require further transportation compliance. Lastly, alcohol requires expert bottling skills and temperature-controlled transportation. 

What are some issues with supply chain management in the alcohol industry? 

Congested ports and delays, not enough warehouse space, expensive shipping costs, service disruptions, inadequate shipping capacities, carriers raising prices when demand is high, damaged and expired goods, and higher exposure to risk.

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