Mapping the use of Operations
Research in the Wine Industry
Martin Kunc
9th Annual Conference of the American Association of Wine Economists AAWE in Mendoza (May 26-30, 2015).
Agenda
• What is Operational/Operations Research (OR)?
• Strategic OR vs. OR Supporting Strategy
• Mapping the application of OR to the Wine Industry
• My personal experience
• Conclusions
What is OR?
• Operational research (OR) encompasses a wide range of problemsolving techniques and methods applied in the pursuit of improved
decision-making and efficiency, such as:
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•
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•
•
•
•
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simulation,
mathematical optimization,
queuing theory and other stochastic-process models,
Markov decision processes,
econometric methods,
data envelopment analysis,
neural networks,
expert systems, decision analysis, and
analytic hierarchy process.
What is OR?
• When operational researchers faced a new problem must determine
which techniques are most appropriate given:
•
•
•
•
the nature of the system,
the goals for improvement defined by the owners of the systems,
constraints on time and feasibility to find a solution,
Issues related to the implementation of the solution
Strategic OR vs. OR Supporting Strategy
• Strategic OR (SOR) is defined as operations research that achieves a
sustainable competitive advantage.
• Primary evidence of the existence of strategic OR is the existence of
firms which are achieving a sustainable competitive advantage from
their use of OR.
• American Airlines (Yield Management, Crew Pairing, and Arrival-Slot
Allocation)  Sabre
• National Car Rental (revenue management system)  now standard in
vehicle renting
• Sadia (PIPA Project: integrated poultry planning system)
• P&G (optimally positioning manufacturing operations)
Supporting Strategy using OR
Supporting Strategy using OR: Multiple
Activities/Multiple tools
Supporting Strategy using OR: Multiple
Supporting Strategic Development
Activities/Multiple tools
Process
Direction
Visioning
Creation
SWOT
Scenario
Planning
Rehearsal /
Evaluation
Balanced
Scorecard
Choice
Strategic
Modelling
Frameworks, Methods and Models
Implementation
Project mgmt
QM
Mapping the applications of OR in the wine
industry
SSM: Soft System Methodology – DSS; Decision Support System – MCDA/MCDM: MultiCriteria Decision Analysis/Making – VCA: Value Chain Analysis
TOWS: Threats/Opportunities/Weaknesses/Strengths Matrix
Research performed by Florian Buguet-Francois, MSc BAC
Mapping the applications of OR in the wine
industry
My personal experience
• System Dynamics applications in Forecasting Wine Tourism
Kunc, M. 2009. Forecasting the development of wine tourism: The case of Chile, International Journal of
Wine Business Research, 21: 325-338
My personal experience
• Business Dynamics of On-Premise Wine Trade
Number of Customers
+
+
A
Service Quality
+
+
+
B
+
Wine sales
processes in onpremise
+
Sales
Customer
Satisfaction
+
+ +
+
Word of
Mouth
Service Management
Servicescape 
Premise Size
D
+
Staff Motivation
C
Premise
Atmosphere
Central Location
Turnover
+
Front line
employees

Word of
mouth

Staff Helpfulness
+
Wine List Diversity
Staff Training

Progressive
Pricing
+
+Staff Knowledge
+
+
Costs
Profit
+
-
+
Issues
Wine list management
(e.g. diversity,
preparation),
inventory, pricing
Implications
Size of wine list can impact on level of
service and profits for on-premise. Success
may increase wine list. Strategies:
Specialisation vs. Extensiveness
Pricing affects inventory turnaround
External and internal
settings arrangement
(e.g. interior design,
ambience,
architecture, car park)
Staff knowledge (e.g.
sommeliers in fine
dining)
Servicescape should be consistent with the
pricing and market positioning of the onpremise
Staff knowledge needs to be developed as
the business attracts more clients but it
should not be at the expense of making the
service more complex.
Customer satisfaction Customers respond positively to a coherent
(e.g. consumption
market positioning: alignment between
experience)
wine sales processes, servicescape and
front line employees. Word of mouth can
be powerful engine to make business more
complex as managers try to satisfy
everybody.
Kunc, M. Hwang, J. 2015. Business Dynamics of On-Premise Wine Trade: Cases from South Korea,
International Journal of Wine Business Research (forthcoming)
Conclusions
• The increasing availability of data will facilitate an increase in the
application of Strategic OR in diverse areas:
• production areas, for example, an increase in the adoption of linear
programming models to support harvest scheduling, labour allocation, and
routing decisions.
• market research, for example, data mining and statistical analysis to predict
human wine taste preferences and quality assessment
• vine management, for example, managing the amount of fertilisers
• The use of OR to support strategy in the wine industry remains
challenging given the strong use of “intuition” and belief in
“uniqueness” existing in the industry.
Gracias
Questions?
Email: mhkunc@gmail.com