overview of brown-forman’s path of digital supply chain steve whitmer march 27, 2015
TRANSCRIPT
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OVERVIEW OF BROWN-FORMAN’S Path of Digital Supply Chain
Steve Whitmer
March 27, 2015
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Who is Brown-Forman?
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• Industry: Producer / marketer of Bev Alc brands, including Jack Daniel's, Woodford Reserve, Old Forester, Finlandia Vodka, So. Comfort, and Sonoma-Cutrer
• Corp. HQ: Louisville, KY. 4,120 people, from 45 nations selling products in 160 countries
• Net sales (F’14): $3.95 Billion
• Global presence: 64% of sales derived from non-U.S. markets
• Ownership: Publicly traded, but majority of voting shares owned by the Brown family – Mkt Cap ~$18.4 Billion
• Value: 10-yr CAGR in TSR of 17%; recognized as S&P 500 "Dividend Aristocrat"
Company Snapshot
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Selected History• Founded in 1870 by George Garvin Brown; presently have 5th generation
Browns at B-F (BOD and Mgmt.). Idea born from entrepr.– Partnership established with bookkeeper, George Forman, in 1890
• First flagship brand - - Old Forester Kentucky Straight Bourbon Whisky
• Prohibition in U.S. 1919- 1933. Survival born from entrepr.
• Acquisitions have driven performance:– First acquisition - - Early Times Bourbon Whisky (1923) Acquisition born from entrepr.– Jack Daniel’s acquired (1956) – Distribution rights secured for Korbel Champagne (1965)– Bolla Italian Wines acquired (1968); divested (2008)– Southern Comfort acquired (1979) Acquisition born from entrepr.– Finlandia Vodka acquired (2000’s) / acquired POL, CZE distribution co.’s– Casa Herradura Tequilas acquired (2007) / acquired MEX distribution co.
• Paul C. Varga named CEO - 2005 • Geo. Garvin Brown IV (“Garvin”, 5th generation) named PCOB - 2010
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A “Brand Building” Company
• Brand building by all employees
• Committed to building high margin brands with strong consumer loyalty
• Long-term vision and commitment– Paul Varga, CEO: “Our end game is to make sure the game never ends.”
• Responsible way of conducting business
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B-F Supply Chain – Vertically Integrated
Distilleries Bottling PlantsCooperage
Other Vendors(e.g. utilities, graincorn)
Barrel Warehouses
Other Vendors(e.g. caps, labels,flavorings, glass, boxes)
BF WarehousesStaveMills
Distributors Retailers
Agency Partners
Consumers
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History of B-F Distribution Supply Chain
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The 18th Amendment Passes
•Jan 1919 By Jan 16, 36 states have ratified the amendment
•Oct 1919 Congress overrides Wilson’s veto
•Jan 1920 Prohibition begins
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Issues with Prohibition
• As Prohibition approaches, the wealthy fill their cellars full of wine and spirits, buying out retailers, saloons, warehouses, wholesalers
• Prohibition becomes increasingly unpopular, especially in big cities. The working class sees a double-standard with the liquor consumption of the wealthy ignored by the police while the poor man gets thrown in jail for drinking.
• Organized crime, of course, thrives through bootlegging and rum running.
• “Repeal” becomes eagerly anticipated. U.S. Government begins to see alcohol taxes as a renewed source of income
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1933- Prohibition ends with passage of 21st Amendment.
Repeal!
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Section 1. The eighteenth article of amendment to the Constitution of the United States is hereby repealed.
Section 2. The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.
Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission here of to the States by the Congress.
The 21st Amendment
The second section bans the importation of alcohol in violation of state or territorial law. This has been interpreted to give states essentially absolute control over alcoholic beverages and many U.S. states still remained “dry” (with state prohibition of alcohol) long after its ratification. Mississippi was the last, remaining dry until 1966; Kansas continued to prohibit public bars until 1987. Many states now delegate the authority over alcohol granted to them by this Amendment to their municipalities or counties (or both). Early rulings suggested that Section 2 enabled states to legislate with exceptionally broad constitutional powers.Source= Wikipedia
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Alcohol Distribution Supply Chain From Prohibition – Still Exist Today
• The Three Tier System (Open States)– Segments producers, distributors, and retailers – Producers can sell their products only to wholesale distributors who
then sell to retailers, and only retailers may sell to consumers
• Control States (about 30% of the US Market)– State Gov’t operate the distribution tier, and sometimes also the
retailing tier ( Monopoly) – Bailment Model
• Maintain Inventory within a State’s Warehouse
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US B-F Distribution Supply Chain
• The Three Tier System (Open States)– Segment producers, distributors, and retailers– Producers can sell their products only to wholesale distributors who
then sell to retailers, and only retailers may sell to consumers
• Control States– State Gov’t operate the distribution tier, and sometimes also the
retailing tier ( Monopoly) – Bailment Model
• Suppliers required to Maintain Inventory within a State’s Warehouse
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Order EntrySystem
SPECS /BOM
Purch /Payables
Raw Mtrls
Barrel Inventory
AOWS
SalesForecasts
MasterProductionSchedule
WeeklyProductionSchedule
WhiskeyTracking
Finished GoodsInventory
Warehouse MgmtSystem
General Ledger
AccountsReceivable
BATFReporting
Pricing
B-F Early Support Systems
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1999 Enterprise Resource Planning System Implementation
• Solid foundation for future growth• Sets the stage for Formalized supply chain management• Streamline and integrate business processes• Leverage best business practices • Enter data once, and get one answer • More time analyzing (less compiling)• Supports cross-departmental movement• Everyone uses the same system• Solves Y2K
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Purch
Order
Order
PlanOrder, Sch
Btl Whse / Dist
Whse/Dist
Whse/Dist
ConsumerConsumer
BFBWBFBW
DistributorDistributor
RetailerRetailer
Raw Mtrl SuppliersRaw Mtrl SuppliersGlass, Lbl, Caps, etc
( Focus of Project Integration )
SAP Implementation 1999Foundation for Supply Chain Management (Plan, Source,
Make, Deliver & Return)
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Brd Mgmt Prod Chgs Brd Mgmt Prod Chgs
New Prod Markets
New Prod Markets
MoreSales
Promos
MoreSales
Promos
Do ItBetterFaster
Do ItBetterFaster
DistribASAP Orders
DistribASAP Orders
Synchronize with SAPSynchronize with SAP
ShipShipRawMtrlRawMtrl
ProdPlanProdPlan
SalesFcstSalesFcst
Purch/AcctPurch/Acct
BtlingBtling
Do ItCheaper
Functional Silos (brought about by Functional Systems)
CHANGE MANAGEMENT
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Distilleries Bottling PlantsCooperage
Other Vendors(e.g. utilities, graincorn)
Barrel Warehouses
Other Vendors(e.g. caps, labels,flavorings, glass, boxes)
BF WarehousesStaveMills
Distributors Retailers
Agency Partners
Consumers
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2002 Depletions Management System
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Depletion Management System
BDN(Automated)
NABCA(Automated)
B-F Office(Manual)
SAP Depletion Management System
U.S.Open States
INTL
U.S.Control States
Harmonized with Internal Data
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Depletion Management System
• Global Depletion Reporting– Best Barometer of our Total business
• Mthly RAD / SAM (300K accounts)–Retail Account Data –Statistics for Alcohol Management –TDLINX (Customer Classification)
• Package Level Distributor Inventories • Daily Information (later)
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Depletions Management Transition to Supply Chain Information System
• Demand / Supply Balancing• Distribution Transfers / Constraint Management• Quicker reactions to Innovation
– Assumption Management» Number of Accounts / Targets» Velocity
– Repeat Purchases• Quicker package transitions (reduce inventory)• Price Increase monitoring (limit buy-ins)• Disprove “Noise”• Developed Robust Supply Chain Planning Process
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Depletions Management Transition to Supply Chain Information System
• Demand / Supply Balancing• Distribution Transfers / Constraint Management• Quicker reactions to Product Innovations
– Assumption Management» Number of Accounts / Targets» Case Velocity
– Repeat Purchases• Quicker package transitions (reduce inventory)• Price Increase monitoring (limit buy-ins)• Disprove “Noise”• Developed Robust Supply Chain Planning Process• Implemented Formal S&OP
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2004 Implemented Formal S&OP Processes
• Supported by Planning Tool (SAP-APO-SCM)• Reduced inventory levels • Enhanced customer service• Improved forecasting and scheduling • Improved product costing• Shorter lead times• Better Decisions with less Effort • Enhanced Teamwork Across the Organizational
Disciplines• Improved Business Performance
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2004 Implemented Formal S&OP Processes
Executive S&OP
New Initiatives / Project Mgmt
Market Level Demand / Supply
Review
Global Demand Review
Global Supply Review
Alignment / Synchronization
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APO - SCMAPO - SCMERPERP
GlobalATP
Demand Planning
SalesOrders
ManufacturingExecution
InventoryManagement
SupplyNetworkPlanning
Supply Chain Cockpit
TL Builder
ProductionPlanning and
DetailedScheduling
Master Data
Supply Chain Systems LandscapeBusiness Warehouse (B/W)
Key Performance IndicatorsHistorical Data
Transaction Level
Planning
Depletion / SC Management
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Supply Chain 1999
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Percent of 9L cases sold from BF managed inventories: 8%Bottling Sites (8)Lvl Supply Planning Managed Inventory (22)Market/Region SC Managed Inventory (1)
24 4
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22
Bottling Sites (20)Lvl Supply Planning Managed Inventory (45)Market/Region SC Managed Inventory (44)
2
Percent of 9L cases sold from BF managed inventories: 56%
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Supply Chain 2015
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Future Initiatives
• Standardized Production Planning across all Plant• Vendor-managed inventory (Via EDI)• Customer & Supplier Collaboration• Ecommerce
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Questions?
Thank You
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Appendix
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B/W Supports SC Metrics
• Forecast Error• Inventory Turns• Customer Service
• On-Time / In Full• Perfect Order %
• Full Load• Container Delivery Times
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Shipment Demand Planning
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Vendor Reviewed Inventory
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Forecast Error
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Inventory Management