Beer Distribution Problems Brewing

John T. Phelan, Jr., P.E., TriFactor

      It’s a safe bet that when you’re sitting on your patio deck enjoying a cold Bud, you don’t give much thought to how it went from St. Louis to your local liquor store. But for the nation’s 1,500 breweries, 2,800 beer distributors, and approximately 530,000 retail businesses that sell beer, it’s a time-honored route laden with checks and balances.

      Known as the three-tier system, a brewer can only sell beer to a state-licensed distributor, who in turn can only sell to a state-licensed retailer, who in turn can only sell to an adult consumer of legal drinking age. But of the three tiers, none has been affected more, or seen the way they do businesses drastically altered over the past 30 years, than the beer distributor.

     Decades ago, the beer distribution business was somewhat of a cookie-cutter operation. Back then there were fewer than 100 brewers pumping out suds in mostly standard-sized bottles and cans that were shipped by distributors in full pallets, all bolstered by the battle cry “stack ‘em high, and let ‘em fly!”

     Then, in the Eighties, the game changed.

     “In the early Eighties, we were dealing with mostly full and half-pallets, and less than 100 SKUs,” recalls Joey Lopez, VP of Operations for Cone Distributing, Inc., which operates two warehouses servicing 11 counties in Central and Northern Florida. “But then Coors started the regional beer boom in the mid-1980s, and things started to change. Now, we are dealing with over 600 SKUs.”

     The proliferation of microbreweries, or “craft brewers,” has greatly affected the beer distribution industry, says Eric Criss, President of the Florida Beer Institute. “The number of craft beers has grown as consumer palates have become more sophisticated and more people are enjoying different types of beer,” says Criss. “Brewers like Sam Adams have pretty much led that charge with their seasonal beers. What were once four or five different beers has now become hundreds, creating a real challenge for the beer distribution industry.”

     The craft beers are definitely here to stay, points out Criss. Craft beers may only reflect 2% of the beer market, but it has shown 40% growth. In 2008, the craft brewing industry produced 8.6 million barrels of beer in the US.

     Bernie Little Distributors, an Anhueser Busch Wholesaler, has felt similar growing pains.  Richard Harper of Bernie Little shares, “Up until 2005, since we were an exclusive wholesaler for Anheuser Busch, our SKU count held steady at around 200.  However, since then, with the increase in demand for specialty brews and the acquisition from Inbev, our SKU count has doubled and will continue to grow.  As a result, the processes that made us successful in the past are no longer efficient.  My biggest challenge these days is developing systems that can allow me to increase the number of SKUs that I store and still maintain the ability to pick accurately and ship on time.”

      As the number of SKUs increases, the need for automation becomes more and more of a factor in an industry historically reluctant to change. But with some high-volume distributors now pushing out upwards of 100,000 cases of beer per day, a number that is capable of increasing by as much as 25% during the high-peak seasons, that reluctance may become a requirement.  Eric Criss thinks that warehouse automation in beer distributors has to happen to keep up with consumer demand for a wider selection of products. “Distribution centers will have to rely more and more on automation as the number of SKUs continues to increase,” says Criss. “Although it’s not a concept the distribution industry has fully embraced.”

     As a rule, beer distributors need to be able to anticipate distribution needs three to four months out, while always holding enough inventory for 15-30 days. Lopez explains, “That’s the timeframe we found when consumers will buy beer, consume the beer, and return to buy more.”  In addition, most distribution centers store enough stock per SKU to last two days in their forward picking area, in an effort to reduce travel time.

     The beer distribution industry may be driven by the three-tier system, but unfortunately there’s no “reverse” shift on this vehicle. If a retailer doesn’t sell his beer before it expires, it can’t go back to the distributor. And, subsequently, if the distributor doesn’t move the product out the door, there’s no returning it to the brewer. It’s an industry where First In-First Out (FIFO) rules the day. A distribution center better have the means and processes in place to follow the rules, or the result will be lost revenue.

     Based in Lakeland, FL, TriFactor, LLC has been an industry leader in bringing material handling solutions to some of the largest beer and wine distributors in the country, including Southern Wine & Spirits, ABC Fine Wine & Spirits, Thies Distributing and Premier Beverage. They see the issues facing their distribution centers as automation continues to make its way into their business. 

      John T. Phelan, Jr., COO of TriFactor, LLC, has worked with beer distributors with warehouses ranging from 50,000 square-feet up to 200,000 square-feet. He noted that those implementing manual picking, mostly using pick sheets to pull from floor-stacked pallets, would typically average 180 cases per hour.  While others utilizing some form of high-tech picking, such as pick-to-voice using pallet flow racking and carton flow racking, could up that average to 220 cases per hour.  This is a significant differential when taken over the course of a full day or longer period of time.

     Still, Phelan says, well before any kind of automation is put into place, it’s important that a slotting analysis be performed. “It allocates the various SKUs into the proper storage medium needed, such as pallet flow and carton flow,” Phelan points out. “It also places each SKU into the best location, whether it’s the primary or secondary location in the warehouse, or at the beginning or end of the pick path.”

     Phelan also emphasizes the importance of routinely scheduled re-slotting of the warehouse. “Slotting should be done on a periodic basis and prior to seasonal demands,” he says. “The SKU count can increase or decrease by a certain percentage, as beer warehouses are commonly adding 10-20 SKUs each month, while losing less than five each month.”

     Bernie Little Distributors’ Richard Harper adds, “In today’s economy and with the increasing level of competition as exclusive wholesale arrangements are diminishing, we need to run our operations as efficiently as possible so that we maintain the highest quality and service at the lowest possible operating cost.  Establishing benchmarks with respect to cases picked per hour, pick accuracy rates, delivery route management and inventory accuracy are just some of the aspects of our business that I am examining.”

     So automation is a “must,” but how can it be justified on the bottom line?    The added complexity due to the vast number of ever-changing SKUs calls for better ways to package and ship these fragile goods.   “Rainbow palletizing” is not new to material handling, but has only recently made its way to the beer distribution centers.  A typical rainbow pallet holding 50 cases of beer will contain not only a mixture of different beers, but also different case shapes and sizes (12-ounces, Longnecks, 22-ounces, quarts, 6-packs, 12-packs, 30-packs, etc.). And building a rainbow pallet can be a challenge without an automated system.

      “Automation can take every SKU shape, size, weight and every other unique feature into consideration, to stack in an order that totally maximizes stability,” says Phelan. “Usually, the rule of thumb is to place major brands on the bottom, because they have fairly standard dimensions and craft beers on top.”  Additionally, we have integrated into our picking software the physical characteristics of each case of beer so that the pallet is built effectively in order to maximize stability without diminishing the speed of the picking process.

     Phelan adds that the automation process should include some type of automated stretch-wrapping system to help stabilize the load, and a checkweigh scale integrated with either a Warehouse Management System or Warehouse Control System.  The checkweighing system can improve shipping accuracy by ensuring the weight of the individual cases that were supposed to have been picked equals the total actual weight of the pallet within a certain specified tolerance.

     The last aspect of the automation system should take into consideration the method of delivery of the products to the retail stores.  Beer delivery trucks typically come in two styles, either side loaded or end loaded.  In addition, most retailers are only delivered a pallet or two of products per day.  Therefore, the order that the pallets are loaded into the truck must be integrated with the truck route so that the driver can efficiently deliver the pallets without having to waste time at each stop.  Therefore, the automated picking and pallet building system must accommodate these variables in order to maximize the efficiency of the supply chain. 

     Although the challenges associated with SKU proliferation and the increased pressure to reduce the cost of the supply chain continues to brew in the beer industry, the good news is that solutions are available to stay ahead.  Solutions that provide scalability, can accommodate future growth in throughput and SKU count and solutions custom designed by experienced material handling engineers.  For it was our great President Abraham Lincoln in the 1860’s that recognized way back then the need for engineers to take on these challenges through an effective beer supply chain when he stated, “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts, and beer.”

John T. Phelan, Jr., P.E. is Chief Operating Officer of TriFactor, LLC, a material handling systems integrator based in Lakeland, Fla. He can be contacted at 863-577-2243 or jjphelan@trifactor.com. For more information visit www.trifactor.com.