In recent years, the introduction of new beer varieties has overhauled the industry and caused a so-called SKU-mageddon. There has been surge of new breweries with distinctive and novel offerings: Fancy a pint of grapefruit flavored sparkling cider or Maple Bacon Ale?
Similarly, the industry setup has changed substantially: Where there were once 4000 distributors and 100 breweries selling 1.2 hundred million liters a year, we are now accounting for 1000 distributors and over 2500 breweries selling twice as much. Competition has intensified dramatically and is driving beer brewers to provide a wider array of product, flavor, package and beverage choices. This is reinforced by increasingly demanding consumers continuously calling for new tastes and styles of beers.
As a result, the brewing industry has gone from a very limited number of SKUs to over 8400, a thorough SKU-mageddon! While the dazzling array of beer choices is great for consumers, adding new brands, varieties, and packages can create chaos within even the most robust supply chains.
In the next 5 weeks, we will dive into an in-depth series of different beer manufacturing challenges and strategies to overcome them. Starting off, let’s take a look at how to manage SKU proliferation in the brewing industry.
Increased retailer power
In spite of the boom in SKUs, retailers have not increased shelf- and bar tap space to accommodate this growth. Moreover, since retailers are eager to avoid revenue declines that result from gaps in inventory, they are making order fulfillment rate a key factor in assessing the quality of a relationship with a brewer. The bad news? Retailers will not hesitate to go elsewhere if a manufacturer cannot supply sufficient goods for peak demand points or promotional initiatives.
To stay ahead, breweries must learn to operate with greater flexibility and make sure their forecasts are accurate. Large retailers may also require customized packaging, increasing the SKU count. More SKUs with smaller volume means that demand volatility increases. Having the right forecasting or demand planning tool is crucial. Without accurate forecasting, your brewery will not be able to use demand to drive supply chain and manufacturing. This will force you to maintain excessive safety stock and risk losing your spot on the retailer’s shelve.
Ask yourself, are you able to: Accurately forecast market and segment sales? Create accurate demand plans based on your sales forecast? Collaborate with retailers to improve forecast accuracy?
Smaller batches & shorter production runs
Retail stores such as supermarkets and large chains of discounters or convenience stores are becoming a vital distribution channel for beer manufacturers.
As consumers move towards specialized formats such as convenience stores, beer manufacturers must find a new balance between volume and price. Instead of large sized-packs of beer, consumers demand smaller and easier-to-carry packages. Consumers are also expecting more innovative packaging which can require additional production complexity. Traditional manufacturing sites tend to be designed for the production of large volumes at low cost and are unsuited to niche products and smaller packages.
The solution? You need to be producing smaller batches and having shorter production runs. An optimal detailed scheduling solution can help you with this. For instance, by sequencing campaigns based on expected batch formulations, equipment cleaning and setup on changeovers, and outbound logistics capabilities, you will manage bottlenecks on the production lines optimally.
Do your: Customers often change orders too close to fulfilment dates? And are you: Not able to produce in time when there is an unexpected machine breakdown?
Increased amount of mergers and acquisition
The boom in SKUs is also due to the popularity of craft beers, causing an influx of new micro-breweries to hit the market. Big breweries are reacting to this by taking over successful smaller breweries. These kinds of mergers and acquisitions often introduce new complexities to the supply chains. So, how can microbrewers transform into thriving macrobrewers? Read more about this in next week’s edition of our Beer Friday series.
Key to surviving SKU-mageddon
SKU proliferation is the largest change the industry has seen in the last decade. Not only do these SKUs bring more challenges to the supply chain, they also require more work from other parts of the business – marketing, branding, etc. The key to managing complex production challenges though, lies in mastering your supply chain planning processes. How? Through an integrated, planning and optimization system that is capable of supporting your business.