Managing A Beverage Supply Chain?

How to tackle the beverage industry's biggest challenge: SKU proliferation

We've all heard the phrase "less is more." However, when it comes to the biggest trend impacting beverage supply chains, the phrase "more is more" comes to mind. Given the current proliferation of beverage stock keeping units (SKUs), more is actually a lot more.

Beverage Supply Chain

Beverage World Magazine recently hosted its annual State of the Beverage Market webinar, sponsored by Ryder System, Inc. The event provided an in-depth look at the performance of every major beverage category, data from top research firms and expert analysis from a panel of beverage industry insiders. I had the privilege of providing insight into how industry trends are impacting supply chains. One of the most challenging: SKU proliferation.

What's SKU proliferation and what's driving it?

As beverage makers expand their portfolios to provide a wider array of product, flavor, package and beverage choices, SKU proliferation is driving the need for smarter use of labor, distribution networks, warehousing space and transportation resources.

So what's behind the explosion? At its core: competition. Beverage makers are competing to quench growing consumer demand for beverage type, flavor, package, and size variety. The panel explored the challenge and discovered different drivers depending on the beverage category. Some examples include:

The bottled water phenomenon

Consumers can now buy water in an array of bottle sizes, in cans and multi-packs, and with all kinds of variations: with bubbles, vitamins, or fruit essences. In addition, manufacturers are using recycled or lighter-weight plastic to save money and address environmental pressures.

New product categories

The emergence of entirely new product categories is a huge contributor to SKU proliferation. Case in point: coconut water. This emerging segment grew 27% in 2013[1]. Other new product segments include aloe, chia and focus/concentration/brain beverages. The rapid growth of new categories challenges supply chains, distribution networks and fleets.

Wine & spirits flavor and packaging variety

It used to be there was one way to purchase alcoholic beverages: in a glass bottle. All that's changing as consumers demand more portable and eco-friendly packages. Today, wine & spirits come in standard and mini bottles, boxes, cans and pouches, all of which add to packaging, distribution and transportation complexity. These new packaging options are expected to fuel further growth. Given the growing diversity of spirit flavors and boutique wines, some wine and spirits distributors handle as many as 15,000 SKUs.

The craft beer movement

In the last 10 years, beer wholesalers have seen the number of SKUs jump from 300 to more than 1,000 SKUs[2]. While premium and value brand beer sales fell in 2013, two segments turned in a stellar year: super-premium and craft beers. As big brewers increase the premium offering in their portfolios, distributors must be able to keep up.

The hard cider revolution

There's another emerging segment that's going gangbusters: hard cider, which grew by double digits in 2013. Like beer, the cider market is segmented: craft ciders, high-end imports, and mainstream domestics. As the category expands and millennials and women embrace cider, SKUs are expected to multiply, once again challenging beverage supply chains.

Challenges and implications

While the dazzling array of beverage choices is great for consumers, adding new brands, varieties and packages can wreak havoc on even the most robust supply chains. Supply chain and fleet managers face a number of challenges, including:

Growth in shipping volumes and orders with more complex fulfillment requirements.

Need for more efficient picking processes, and the right technology to handle portfolio depth and complexity.

Increased need for warehousing capacity, including mobile storage alternatives, and inventory management systems.

Demand for better means of handling and storing lower-volume SKUs.

Flexible transportation systems to handle surges in capacity and smaller quantity shipments.

Need to improve and/or retrofit existing infrastructure to fulfill new requirements

All without driving up costs…and preferably lowering them.

What to do?

The beverage SKU explosion, together with competitive pressures, is driving the need for smarter transportation and supply chain strategies. To tackle the challenge, consider these tips:

The right vehicle specification and configuration can save you money and maximize your payload capacity. Make sure your fleet of beverage trucks and trailers is tailored to your specific needs.

Focus on operating practices, including warehouse automation and LEAN processes to drive supply chain efficiency and continuous improvement while reducing costs and eliminating waste.

Reliable vehicle maintenance and convenient access to a nationwide network of service centers can maximize your fleet uptime and get you moving quickly in the event of a breakdown.

Investigate dedicated transportation solutions that can handle driver management, fleet maintenance, route design and delivery, so you don't have to.

Explore the fuel efficiency and environmental benefits of a "greener" fleet: alternative fuels such as natural gas can help lower your fleet's carbon emissions footprint as well as your overall fuel costs.

Consider asset-based and supply chain management solutions that give you the flexibility to adapt to changes in demand, staffing and service with ease.

Don't let SKU proliferation create too much of a detour for your transportation and supply chain strategies. Consider improvements from the manufacturing floor to the distribution center to the trucks that deliver goods to retail stores. Don't have the resources in-house? Consider teaming up with a transportation/supply chain partner with expertise in food and beverage.

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