OVERVIEW OF BROWN-FORMAN’S
Path of Digital Supply Chain
Steve Whitmer
March 27, 2015
Who is Brown-Forman?
Company Snapshot
• 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 nonU.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"
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
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
5
B-F Supply Chain – Vertically Integrated
Stave
Mills
Cooperage
Other Vendors
(e.g. utilities, grain
corn)
Distilleries Barrel Warehouses
Other Vendors
(e.g. caps, labels,
flavorings, glass, boxes)
Bottling Plants
Agency
Partners
BF Warehouses
Distributors
Retailers
Consumers
6
History of B-F Distribution Supply Chain
The
th
18
Amendment Passes
•Jan 1919 By Jan 16, 36 states have
ratified the amendment
•Oct 1919 Congress overrides
Wilson’s veto
•Jan 1920 Prohibition begins
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
Repeal!
1933- Prohibition ends with
passage of 21st Amendment.
The 21st Amendment
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 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
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
12
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
14
B-F Early Support Systems
Pricing
Order Entry
System
Barrel Inventory
AOWS
SPECS /
BOM
Master
Production
Schedule
Weekly
Production
Schedule
Raw Mtrls
Sales
Forecasts
Purch /
Payables
Whiskey
Tracking
BATF
Reporting
Finished Goods
Inventory
Warehouse Mgmt
System
General
Ledger
Accounts
Receivable
15
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
SAP Implementation 1999
Foundation for Supply Chain Management (Plan,
Source, Make, Deliver & Return)
Glass, Lbl,
Caps, etc
Raw Mtrl Suppliers
BFBW
Distributor
Plan
Order, Sch
Btl
Whse / Dist
Whse/
Dist
Order
Retailer
Consumer
Whse/
Dist
Order
Purch
( Focus of Project Integration )
17
Functional Silos (brought about by Functional
Systems)
Do It
Cheaper
Sales
Fcst
Prod
Plan
Raw
Mtrl
Purch/
Acct
Btling
Brd Mgmt
Prod Chgs
New Prod
Markets
Synchronize with SAP
Ship
Distrib
ASAP
Orders
More
Sales
Promos
Do It
Better
Faster
18
CHANGE MANAGEMENT
2002 Depletions Management System
Stave
Mills
Cooperage
Other Vendors
(e.g. utilities, grain
corn)
Distilleries Barrel Warehouses
Other Vendors
(e.g. caps, labels,
flavorings, glass, boxes)
Bottling Plants
Agency
Partners
BF Warehouses
Distributors
Retailers
Consumers
19
Depletion Management System
U.S.
Control States
NABCA
(Automated)
BDN
(Automated)
U.S.
Open States
SAP Depletion
Management System
B-F Office
(Manual)
INTL
Harmonized with
Internal Data
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)
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
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
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
•
•
•
2004 Implemented Formal S&OP
Processes
Executive S&OP
New Initiatives /
Project Mgmt
Global Supply
Review
Alignment / Synchronization
Global Demand
Review
Market Level
Demand / Supply
Review
Supply Chain Systems Landscape
Business Warehouse (B/W)
Historical Data
Key Performance Indicators
ERP
APO - SCM
Supply Chain Cockpit
Master
Data
Demand Planning
Sales
Orders
Production
Planning and
Detailed
Scheduling
Manufacturing
Execution
Inventory
Management
Depletion / SC
Management
Global
ATP
TL Builder
Transaction
Level
Planning
Supply
Network
Planning
Supply Chain 1999
Bottling Sites (8)
Lvl Supply Planning Managed Inventory (22)
Market/Region SC Managed Inventory (1)
4
2
Percent of 9L cases sold from BF managed inventories: 8%
4
29
Supply Chain 2015
Bottling Sites (20)
Lvl Supply Planning Managed Inventory (45)
Market/Region SC Managed Inventory (44)
2
2 2
Percent of 9L cases sold from BF managed inventories: 56%
4 3
30
Future Initiatives
•
Standardized Production Planning across all Plant
•
Vendor-managed inventory (Via EDI)
•
Customer & Supplier Collaboration
•
Ecommerce
Questions?
Thank You
Appendix
B/W Supports SC Metrics
•
Forecast Error
•
Inventory Turns
•
Customer Service
•
On-Time / In Full
•
Perfect Order %
•
Full Load
•
Container Delivery Times
Shipment Demand Planning
Vendor Reviewed Inventory
Forecast Error
Inventory Management