The SKU explosion is increasing complexity across the beverage market, putting new pressures on the beverage supply chain and requiring greater levels of sophistication than ever before.

“A couple of years ago we handled 135 to 140 SKUs. We’re at over 200 now, and that number is growing. We’re an exclusive Anheuser-Busch wholesaler, but now they’ve thrown several new products into the mix, such as energy drinks and waters, and that’s only going to keep expanding,” observes Dave Mansky, director of sales for House of LaRose, Cleveland, Ohio.

Part of the solution for House of LaRose, as it has been or will be for many other beverage distributors, was installation of an automated warehouse management system (WMS). It not only records, but also directs the movements of every pallet and case of product from the time it reaches the company’s receiving dock until it’s loaded onto the truck for delivery.

The era of operating with paper-based systems, even for beverage wholesalers, is fast disappearing and the beverage world can expect 2008 to bring it even closer to a paperless industry as more bottlers and distributors embrace warehouse technology. In today’s quickening supply chains, even warehouse control systems that rely on batch processes are fast becoming outmoded. Real-time visibility into the precise location—and condition—of product, throughout the supply chain from top to bottom, is becoming a baseline capability for companies that want to remain competitive.

Just managing proper rotation of date-coded inventory in its current operation would have been impossible with House of LaRose’s old, paper-based systems, Mansky points out. Its WMS makes the task not just easy, but automatic, by directing warehouse staff where to store each lot of product for the most efficient retrieval by date coding, and then instructing them which specific lots to pull for each day’s deliveries.

The SKU explosion is impacting every facet of distribution, adds beverage industry guru John Peter Koss, from processes inside the distribution center, to the types of delivery vehicles needed.

“It even comes down to how many cases you can put on a truck. A 12-bay route truck typically carries 400 cases of product. But with the new SKUs many wholesalers are handling, that’s often no longer enough. So you now find companies using 14- and 16-bay tractor trailers to handle route sales, and we’ll no doubt see more of these in the future,” he observes.

Another trend that has been growing and will probably continue to increase is bulk delivery to chains, Koss comments. The practice is hardly new, but warehouse management systems and new approaches to distribution processes are making it easier for companies to integrate bulk delivery loads with normal route sales operations, and to determine where and when each approach makes the most sense, based not just on sales issues, but also operational efficiencies.

House of LaRose’s automated warehouse management system, for example, has allowed the company to greatly increase its highly efficient bulk route deliveries, by letting it optimize loads and routes on the fly, as orders start coming in early in the day. It then can release bulk routes in waves to be assembled for the most part during the day before route sales vehicle loading begins later in the evening.

Another consequence of the SKU explosion, coupled with continuing consolidation in the beverage distribution industry, may be greater adoption of mechanized warehouse equipment that works hand in hand with today’s advanced warehouse management systems.

Some large soft drink bottlers, for example, already are building new automated warehouses featuring automated guided storage and retrieval systems. These could become more common over the next decade if present trends continue, Koss notes.

As companies contemplate such possibilities, they can take advantage of a new generation of highly flexible and sophisticated supply chain planning and demand forecasting software packages that allow users both to model long-term scenarios and monitor and adjust operations to more efficiently handle near-term trends, in both cases with high degrees of granularity.

As SKU mixes and geographic territories both continue to expand for many beverage houses, decisions about where to store different types of inventory, how many days’ inventory to maintain of each product and even how, where and when to source and store packaging and other supplies that go into the conversion process, all become more complex, Koss points out.

Does it make sense to consolidate several branches into a single, high-density warehouse operation that can justify an investment in automated picking systems? And in that case, what would be the impact on delivery transportation costs?

Or, as SKU mixes grow, does it make sense to store primary inventories of some product lines at one location and other product lines in another location and trans-ship smaller pools of inventory to satisfy nightly orders?

The choices confronting beverage industry supply chain planners and managers these days as they face an increasingly complex playing field are mind-boggling. Luckily, so are the capabilities of many supply chain planning and execution suites, which allow companies to model future demand at the SKU level, based on
actual sales histories and multiple causal factors, and translate those models into detailed operational
scenarios that can be analyzed and compared across a wide variety of benchmarks from inventory investment and space requirements to customer service levels and warehouse labor dollars.

From Beverage World January 15, 2008