January (No. 492)
Warehousing and inventory control
Dan Traucki , Wine Assist Pty Ltd
In a presentation to the 2004 Australian Wine Industry Technical Conference in June 2004 (published in Grapegrower & Winemaker, November 2004) Orlando Wyndham chief winemaker, Philip Laffer, judged 90% of faulty wine complaints resulted from excessive heat at some stage during the journey from winery to consumer. If you think about this, it is a significant cost to the industry. Consider a winery selling 10,000 cases per year, if one in 10 is heat-affected, which is possible, then that winery is shipping 12,000 faulty bottles of wine per year. Even at 5% thatís still 6000 bad bottles. Think of the hidden cost to the winery of these customers who, as a result of buying a ďbadĒ bottle, may never buy the brand again. Think of the negative PR, word-of-mouth, and the extra marketing funds now needed to find new customers to replace the ones that were lost, even though the wine company may have no knowledge of it. Almost every winery gladly replaces crook bottles of wine when they are advised of a problem, but it is well known that most people donít complain, they simply walk away never to return.
Smart planning can minimise this cost as the business evolves. One of the key components in the journey from the barrel/tank to the consumerís glass, is the warehouse. Most Australian wine spends a significant part of its bottled life, in a warehouse. Few wineries bottle to order. Therefore there are other factors, apart from just cost and convenience, which must be taken into consideration when determining the best method of warehousing and freighting wine.
Most wineries begin as small businesses and will warehouse their finished goods in an insulated shed, which has been erected as part of, or near the fledgling winery. As the business grows the viability of this warehousing method tends to wane. There are a number of factors, which have to be taken into consideration when deciding what the best warehousing solution is for your business.
- future expected stock volumes
- capital available to the business
- current and future sales markets
- where these main markets are
- freight routes
- where the bottling is done.
Using a contract warehouseWhile it is great and convenient to have your stock sitting within a stoneís throw of the office, it may well be more practical and cost-effective to store it somewhere completely away from your facility. For example Gormanís Illalangi winery at Waikerie in the Riverland stores its bottled wine in a contract storage warehouse near Port Adelaide because most of its sales are exportbased and the wine is contract-bottled in either the Barossa or in Adelaide.
This is a classic example of ďonly pay for what you useĒ. It avoids the capital expenditure of building an insulated warehouse to cope with the Riverland summer heat, avoids the wine going backwards and forwards, and at the same time it reduces the risk of heat damage by minimising the distance the wine has to travel once bottled.
It is not really necessary to have your own warehouse in these customer service-driven times. I know of at least one company that sells more than 150,000 cases of wine per year, which does not have its own warehouse. All the wineryís stock is stored and dispatched by the contract warehouse with no greater error rate than most companies have using their own warehouse. Think of the capital saving, and provided the cost of the contract warehousing is properly factored in to the costing of the finished goods, your costs will be known and under control, thus not eroding your gross profit margin.
In another case a Melbourne-based wine company, with wines from the Limestone Coast, has its wine bottled and stored in Adelaide. The companyís main sales are export, and the storage charges they face in Adelaide are considerably cheaper than Melbourne. The company keeps a few dozen bottles for samples in the Melbourne office and the rest of the stock is stored in Adelaide and shipped ex-Port Adelaide.
In this age of electronic and mobile communication, it is more important to consider cost of storage and the impact on wine quality/longevity than convenience and accessibility. The less time the stock spends out of the warehouse, in transit, the higher the chance of it getting to the consumer in pristine condition.
In the warmer weather, if at all possible, organise your shipments around the hot weather. If, for example, you had wine due to go from the Barossa to Sydney, and the forecast is for high 30ļs for the next few days, telephone the customer in Sydney and ask if you can delay shipment in order to save you both problems with cooked wines. In most instances the customer should be impressed by your care and consideration, and youíll cut down on the number of faulty bottles of your wine out in the marketplace.
These days you can get liners for containers similar to the silver foil they use in house insulation. Whilst these liners wonít stop your wine from getting cooked, they will reduce the overall temperature to which the wine is exposed by several degrees and also reduce the severity of the temperature fluctuations. It is also a good idea to put a small data-logger in with a shipment of wine, just to see the temperature fluctuations and extremes that your wines undergo when being shipped across the country, or across the world.
If you decide to use a contract warehouse, make sure that you know what you want before you investigate the market. When you inspect a warehouse, the single most critical factor will be the warehouseís insulation. Take note of some of the other wines that are there, and give those wineries a call and ask them how hot it gets in that warehouse in the middle of summer, and how happy they are with the service they get. Most fellow wineries will give you honest answers to those questions, and youíll get a good idea of the level of service you will receive from that warehouse.
When you are inspecting the contract warehouse, have a good look around, how motivated and enthusiastic are their staff? Sullen staff are not going to give you good service. How neat and clean is the warehouse? Remembering that in a high-traffic environment like a contract warehouse, the standard will not be as high as in your own dedicated warehouse, but still if itís a shambles, the service you get will mirror this. I walked through a very conveniently located warehouse in a major Australian city, which offered good rates, but the warehouse was in a very dusty area. The result was that any cartons of wine which spent more than a few months in that warehouse, ended up being covered by a thick film of dust, great presentation to your customers!
Also carefully check freight rates to make sure that these are competitive. In other words make sure that the cheaper storage offered by one warehouse firm isnít offset by higher freight rates, which would see you paying more overall for your storage and distribution.
Stock rotation in storageAn important issue for medium-sized wine companies, which do more than one bottling per vintage of some of their wines, is stock rotation. Whilst it may sound very basic to suggest that all of the wine from the earlier bottling be dispatched before using wine from the next bottling, it happens that the pallets of the newer bottling are stacked in front of the older one, and when the next order is being dispatched the stock at the front gets used first.
Another issue arises if the company doesnít clearly mark cartons in storage which are labeled for different markets. Most medium-sized wineries sell the same product into several markets with the only difference being the back label which carries the importing countryís mandatories. If the cartons are not clearly marked, as to their destination, invariably the wrong ones will end up being shipped. It is traumatic, receiving a call from your importer who says he or she has 100-200 cases of the wrong wine in the container. Believe me it does happen, and it is very costly, in terms of the importerĀfs confidence in you, as well as the cost of shipping replacement stock. One winery I know used to put big tags denoting the destination country on the pallets as they were shrink-wrapped. However, in this particular instance, a few cases had been taken from the pallet and sent to the customer as samples of the new vintage and of course, the tagged carton was one of these samples sent. Through an oversight this simple, when a small order came in, 60-dozen USA stock ended up in Europe. The importer could not sell them, so the winery had to replace the stock, and as it was too expensive to bring the wrong stock back, gave it to the importer to use as tasting stock.
ConclusionWhen warehousing is done properly it is a seamless part of the business of making and selling wine, if not it has a tendency to become a nightmare and one which can have a significant impact on your business.
Whatever you choose, be it your own warehouse, or contract warehousing, it's all about forward planning and thinking carefully.
Dan Traucki is the principal of Wine Assist Pty Ltd, wine industry logistics and marketing consultancy. He started out as an accountant before joining the wine industry 16 years ago. His involvement during that time has included strategic positions of general manager of a medium-sized winery and chief executive officer of a smaller winery. Dan can be contacted on (08) 8382 4920 (phone/fax), 0408 801 795 (Mob) or at firstname.lastname@example.org