By Paul Page
Absolut Vodka, the world's No. 2-selling vodka brand after
Smirnoff, is using modern supply-chain technology to maintain a
decidedly old-school approach to its production.
The spirits maker says demand-planning software is helping
improve its distribution to an increasingly complicated
international market marked by the proliferation of products aimed
at shifting consumer tastes. That's also allowing Absolut to keep
its production, from sourcing materials to distilling and bottling,
anchored in a small corner of southern Sweden.
Established in 1879, Absolut sees the tight focus on a single
site as central to its quality control and brand. However, the
approach was hitting margins and expansion efforts when the
business decided to upgrade the technology in a supply chain
entrenched in another era.
"The way we were managing the supply chain was not working,"
Peter Neiderud, director of marketing and supply chain at the
Absolut Co., said in an interview.
It involved going through a single master planner, who sought to
manage the flow of materials into production sites in tiny Ahus,
Sweden, and then the movement of finished goods into shifting and
changing international markets. It was in keeping with its
artisanal traditions, but was wildly out of step with the direction
global alcohol business was heading.
The company turned to demand-planning software from ToolsGroup
BV, an Amsterdam-based provider of technology that uses machine
learning in consumer goods, retail and manufacturing.
Absolut wanted to bring down its inventories, Mr. Neiderud said,
but the bigger goal was to ensure that the right products were
delivered to the right places to keep supply-chain costs in check
even as the growing complexity of consumer markets made its
production more complicated. "We wanted to make sure we could
deliver as promised even though we would cut inventory by 20%," he
said. "Now, we've used it for three years and we have the same
delivery performance as before with lower inventory."
Growth in the data-science and machine-learning software market
has been accelerating as companies bring more automation to their
planning technology, according to research and advisory services
company Gartner Inc. Overall, revenue from the segment rose 12.2%
in 2017, the last year for which data was available, to $2.6
billion, making it one of the fastest-growing segments in the
analytics and business-intelligence software market, Gartner
said.
Absolut is acting as liquor companies are seeing big changes in
core markets, with consumers in general drinking less and
gravitating away from big brands toward smaller, newer and often
pricier spirits. They also are drinking less beer and high-quality
spirits, spurring a race in that market for premium customers.
Demand in Asia is leading sales growth at Absolut's France-based
parent Pernod RIcard SA. Overall, company sales in China rose 21%
in the nine months ending March 31, 2019, far faster than overall
organic sales growth, the company said in its latest earnings
report. The company said Absolut production for China is also
rising, but didn't disclose figures.
Deeper market competition is coming in the kinds of spirits
customer are looking for.
Market analyst Rob Wilson, of L.E.K. Consulting LLC, in a report
said "craft spirits" are leading the growth in spirits, with the
number of distilleries in the U.S. increasing some 35% since 2011
and the market for craft spirits in the U.S. growing about 20% a
year by value since 2012. Large brands are "hopping on the craft
bandwagon" with their own licensed distilleries, the report
said.
That includes Pernod RIcard, which has a separate unit called
Our/Vodka that licenses local microdistilleries around the
world.
Absolut Vodka's supply chain is rooted in Ahus, a village on the
Baltic Sea that counts fewer than 10,000 residents most of the year
and triple that in the summer. That puts the business close to
wheat farmers and other suppliers that send ingredients to
Absolut's single distillery and two materials production sites.
The glass for the bottles that Absolut produces is the biggest
single component, Mr. Neiderud said, and most suppliers are within
a four-hour drive from the distillery and factories.
"That gives us better control of quality and sustainability"
over sourcing ingredients from far-flung suppliers, said Mr.
Neiderud. "We can control how to grow and other factors. The
downside obviously is that we have to ship from there to around the
world."
The company keeps just three hours of safety stock on hand, a
tight schedule that Absolut has maintained since the early 1990s.
"We have a system that supplies us with one truck every hour," he
said.
The operation pushes out 11.5 million nine-liter cases a year,
connecting to feeder vessels at the small Ahus port, and then two
or three times a week to larger container ships at Germany's Port
of Hamburg that carry Absolut products to the rest of the
world.
That would be complicated enough to manage, but bigger changes
in the alcohol market have made distribution networks vastly more
complicated.
Absolut's supply chain took on far more layers even as sales
remained largely static from 2008, when Pernod Ricard bought
Absolut, until 2013. The number of stock-keeping units over that
time increased by 20%, and the number of flavors grew from 11 to
18, as the company tried to goose sales by tapping into new
tastes.
Absolut keeps a human hand on its logistics levers at the start
as it rolls out new flavors, with planners at first manually
tracking and forecasting sales while passing the information
downstream through the supply chain. "Then after a year, we can
trust the planning tool," Mr. Neiderud said.
The key, he said, is getting the correct data to make its plans.
"As all companies do," Mr. Neiderud said, "we struggle with getting
good market information, a good forecast."
Write to Paul Page at paul.page@wsj.com
(END) Dow Jones Newswires
May 09, 2019 05:44 ET (09:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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