Assessment 2
BrewDog Supply Chain Management Review Module: Global Supply Chain & Logistics Management
MSc International Operations and Supply Chain Management
Stephen Espie 1-15-2018
Table of Contents Introduction ..................................................................................................................... 2 Supply Chain Network ...................................................................................................... 3 Logistics & Transportation ................................................................................................ 4 Warehousing .................................................................................................................... 5 Inventory Management .................................................................................................... 6 Globalisation .................................................................................................................... 7 Sustainability ................................................................................................................... 9 Conclusion...................................................................................................................... 11 Limitations ..................................................................................................................... 11 References ..................................................................................................................... 13 Appendix A: Work Flow in Supply Chain .......................................................................... 17 Appendix B: Supply Chain System: Hub and Spoke Design ............................................... 18 Appendix C: Logistics System Overview........................................................................... 19 Appendix D: The Brewing Process ................................................................................... 20 Appendix E: Sales of Leading Craft Beer Brands in U.S 2017 ............................................. 21 Appendix F: Self- Reflection Plagiarism Checklist Form ............ Error! Bookmark not defined.
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Introduction BrewDog is an entrepreneurial story of success which began in 2007, when two founders and a dog from Fraserburgh, Scotland, set off on a mission to make people passionate about craft beer (BrewDog, 2017). The craft beer movement originally started in the UK around the 1970’s, using old-fashioned brewing methods to create more flavourful beers (Oliver & Colicchio, 2011). In an attempt to address the chemically brewed lagers and bland ales that had largely dominated the UK market, the Scottish duo began to brew their own; beginning in small amounts and filling bottles by hand to sell at local markets, helped pave the way for its operation to become Scotland’s leading independent brewery within only its second year of existence (BrewDog, 2017). In 2009, BrewDog had grown its business over 200% and due to its rapid success, the craft beer firm was able to begin expanding its operation, opening a state of the art eco-brewery in Ellon, Scotland in 2012, as well as the launch of its first craft beer Bar in Aberdeen (The Sunday Times, 2012). Equipped with its new brewing capacity of 300,000 hectolitres, the company has continued to grow, offering over 80 active beers, operating 47 bars and exporting 65 million bottles of hoppy craft beers to 56 countries, whilst generating an average annual growth rate of 65% over the last five years (BrewDog, 2016). After recently opening a new brewery in Columbus, Ohio and striking a partnership with an American investment firm, TSG Consumer to provide the necessary growth capital, BrewDog now plans to emulate its achievements in the U.S (Financial Times, 2017). What started out as a hobby, has turned into something of a craft beer revolution, an international movement and a meeting of minds employing over 750 people, amassing 55,000 shareholders in less than a decade. The following report looks to assess BrewDog’s supply chain, including its supply chain network and main partners. The report will also examine the role of logistics within its supply chain, focusing on areas which have been pivotal to the brands success, such as inventory management and warehousing. Lastly, the report will discuss how the company has developed its global reach as well as its sustainability efforts.
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Supply Chain Network Supply Chain Management systems are designed to help visualise the entire supply chain of a business (Appendix A), allowing supply chain managers to maximise strengths and efficiencies at every level of the process to generate a highly competitive, customer focussed supply system that is extremely flexible and able to adapt immediately to changes in supply and demand (Chopra & Mendl, 2013). Supply chain oriented companies often report lower inventory, transportation, warehousing and packaging outlays (Meorkens & Pollock, 2000). This is largely due to the coordination and collaboration with channel partners, such as suppliers, intermediaries, third-party service providers and customers, integrating effective supply and demand management within and across companies (Coyle et al., 2013). The four cornerstones of BrewDog’s operation and supply chain strategy are planning, procurement, customer service and logistics, with its objectives focussing on delivering great tasting beer and service whilst continuously driving improvements to keep up with its growth (BrewDog, 2017). BrewDog operates a ‘hub and spoke’ supply system, a model which originated from industry efforts to develop more efficient networks and help steer away from the principles of direct-route operations, that often led to disorganised transportation networks and financial burdens (Inbound Logistics, 2014). BrewDog fulfils its store, retailer and web orders, which include ‘doorstep’ delivery of its beverages by making use of distribution centres. Orders are centrally picked from a single state of the art, highly automated warehouse, often referred to as the customer fulfilment centre (CFC). This type of supply network design is the reason it is termed a ‘hub and spoke’ system, where its central (hub) services regional (spoke) distribution points (Appendix B). The benefits of a hub and spoke design (also known as Cross-docking) is that it allows for the consolidation of materials with little or no inventory, by providing a central site for products/orders to be sorted and subsequently shipped to multiple destinations in a fast and cost-effective manner (Kreng, 2008). The design eliminates the high costs associated with smaller shipping systems and also reduces the need for multiple business relationships as normally a broker will assign the appropriate handler to complete the final stage (Christopher, 2000). However, as suggested by Wells and Young (2004) there can be disadvantages associated with hub and spoke systems, as during periods of economic down turn, operational
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inefficiencies have been evidenced within the airline industry, hindering financial performance. Furthermore, as road use if often the most common form of transportation there is the possibility of increased congestion at a ‘hub’ during peak times, which may increase the likelihood of delays, and negatively impacting on customer relations (Mayer & Sinai, 2003; Rushton, 2006). The craft beer firm makes use of multiple third-party logistic firms to perform the majority of it logistics functions, with the scheduling of these multiple activities triggered by the flow of information, one of the key factors in a successful order fulfilment process (Appendix C). The flow of information is what contributes to a lean supply chain and is often achieved by implementing a Kanban scheduling system (pull production), an optimisation tool that regulates item production, based on consumer supply and demand (Ohno, 1988; Sanders, 2012). When a supply chain is fully synchronised, the system can signal and place restocking orders as required, as well as track lead and replenishment times to ensure necessary stock levels are always available (Kreipl & Pinedo, 2004). This ‘just-in-time’ way of working streamlines the manufacturing efficiency of BrewDog’s supply chain; from the brewery to its packaging suppliers of glass bottles (Beatson Clark) and cans (Crown Holdings), providing greater control to the rate of production and making the firm better prepared to changes in demand (BrewDog, 2016; Cimorelli, 2016).
Logistics & Transportation Logistics management within a supply chain is responsible for planning, implementing and controlling the efficient, effective forward and reverse flow and storage of goods, as well as relaying information between point of origin and point of sale in order to meet customer demand (Bozarth & Hanfield, 2016; Council of Logistics Management, 1985). BrewDog predominantly uses road as its preferred method of transportation, as road use largely dominates the UK and Europe’s logistics infrastructure due to the geographic extension of supply chains, which continues to grow as it is one of the most flexible modes of transportation (Bozarth & Handfield, 2016; BrewDog, 2016). The firm contracts ARR-Craib, one of the UK’s leading pallet delivery network as its primary haulier, which has remained in business with the firm since the very beginning and has seen shipments increase from 2
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pallets every few days to regular shipments of over 200 pallets per day to selected distribution centres (Palletline, 2017). Both companies share Aberdeen as home for its headquarters, which has helped the two firms develop a meaningful and trusting relationship with one another and has also led to the haulage firm assisting with raw material inbound freight, making it become an essential component within BrewDog’s supply chain (BrewDog, 2016).
Warehousing Warehousing also plays a key role in BrewDog’s supply chain strategy, especially due to its commitment to quality and taste which is apparent from the meticulousness steps taken throughout its brewing process (Appendix D). Beer by its very nature can never be 100% consistent, as the use of malts, hops, water and yeast are ingredients that are blended together during the maturation stage and are highly dependent on the environment (Central State Brewing, 2016). This process produces a medley of flavours that shifts year to year and results in slight batch-to-batch variances in the firm’s products, unlike Budweiser who invest heavily to ensure the taste of its beer remains the same on a global scale (Somani, 2013). As quality and freshness is paramount to the BrewDog brand, a new chilled supply chain process was launched in 2017, by appointing XPO logistics for all warehousing services in the UK, ensuring all beer products are now stored and distributed at 8 degrees Celsius (LBR Supply Chain, 2017). The decision has also led to improvements in stock visibility, order processing and accuracy due to enhanced software systems between both enterprises (Motor Transport, 2016). The strategy is part of a wider commitment from the firm to ensure freshness and has also prompted its international handlers to utilise temperature-controlled shipments to its expanding bar division (BrewDog, 2017). Stewart Bowman, head brewer at BrewDog plc provides an insight into the priorities that shape the firm’s decision on matters like warehousing; “We are not so concerned about the bottom-line, or the cost implications of our processes, we are more concerned about making amazing beers… beer kept cold keeps its flavour and quality longer, and that is a fundamental requirement for us.” (BrewDog, Press Release, 2017).
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BrewDog’s contract with XPO bodes well for the beer firm, as XPO is a leading logistics company and operates the second largest warehouse network in the world. Although the relationship between the two parties is at an early stage, the logistics giant is operational in the U.S (XPO, 2017), which may help facilitate a smoother transition into an unfamiliar market.
Inventory Management Due to the continued success of the business and to protect the brand from ‘growing pains’, BrewDog in 2012 acquired the expertise of Synergy Suite, an integrated back office system to provide the firm with a better analysis of running costs, such as food and beverage costs, labour costs as well as information on what customers were purchasing (BrewDog, 2017). The firms worked together to create a Just-in-Time (JIT) Inventory management system to enable the flow of real time information between the firms’ brewery and store locations (Figure 1). JIT is an integrated, problem solving management technique aimed at meeting demand instantly, with the desired quality and zero waste (Davey et al., 1992) by facilitating timelines in supply, production and distribution (Sanders, 2012). A key philosophy of JIT is simplification, the main advantages of which are improved performance together with increased profit margins resulting from improved productivity, greater responsiveness to customer demand due to shorter lead times and also the identification of activities that add no value, due to its emphasis on waste reduction (Fullerton & McWatters, 2002; Kinney & Wempe, 2002). Applying a JIT management system to BrewDog’s operation allowed it to keep gross margins steady, as this technique was implemented through Synergy Suite’s cloud platform, using point-of-sale, to pull sale transaction data combined with the firm’s food and beverage menu, as well as its supplier information. Once all data was synchronised to each of BrewDog’s bar locations, Managers could then perform stock counts and view inventory depletion in real time, making it possible to process any necessary orders from the nearest brewery or thirdparty supplier instantaneously (Synergy Suite, 2016). As a result, BrewDog bars became much more efficient, reducing inventory levels and waste almost immediately. This also allowed for more cost-effective production and delivery, as only the necessary quantity and type of beers were being produced by the brewery for the right 6
location at the right time (BrewDog, 2016). The JIT approach was also applied to other areas of the business and provided a daily analysis of gross profits, which was used to highlight underperforming stores, and improve forecasting accuracy, generating more control for the organisation, by taking the guess work out of the decision-making process (Synergy Suite, 2016). Figure 1. Just in Time Supply Chain
Source: Operations Management (Slack et al., 2013:15.9)
Globalisation Business today is in a global environment, which offers tremendous opportunity, as well as increased risk in the development of global supply chains (Chopra & Meindl, 2013). This environment forces companies to consider international markets in their competitive strategy analysis, as globalisation enables organisations to simultaneously increase revenues and decrease costs (Wagner et al., 2009). The world economy is becoming borderless as companies continue to modify their operations and logistic activities in search of popular growth potential within foreign marketplaces. Changes in trade, the spread of modernisation of transport infrastructures and intensification of competition have elevated the significance of flow management to another level (Kearney, 2008). Businesses that make strategic decisions early about entering new markets, balancing risks and managing the complexity associated with tactical choices are more apt to remain leaders within the industry (Kaplan & Mikes, 2012). BrewDog has demonstrated its global intent from a very early stage, exporting to Sweden, Japan and American within 2 years of its operation, and its renowned ‘PUNK’ IPA became the top selling ale in Scandinavia that same year (The Guardian, 2016). The firm opened its first bar the following year in Aberdeen and by 2014 it had a total of 25 bars, expanding into foreign markets as far afield as Brazil and Japan, making
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it ‘top dog’ in The Sunday Times Fast Track 100 list, and recognised as the UK’s fastest growing food and drink company (The Sunday Times, 2014). BrewDog continues to make use of many other globalisation tactics to ensure its success as a leading craft beer organisation by launching ‘Equity for Punks’, offering the public the opportunity to buy shares in the company through an online crowdfunding scheme, designed to raise funds to aid future expansion plans (Financial Times, 2017). This form of marketing ploy has seen the company generate over £51 million investment, producing over 55,000 shareholders and forming a new kind of business model in the process (The Independent, 2017). Despite BrewDog becoming a leading brand of craft beer and having a valuation of approximately £1 billion, it chooses to be less connected with traditional forms of marketing and instead relies on social media to showcase its latest products, producing some of marketing’s most bizarre and shocking publicity stunts (Marketing Week, 2015). Stunts have ranged from dropping taxidermy ‘fatcats’ from a chartered helicopter over the streets of London, to creating the world’s strongest beer (55% ABV), and naming it ‘Tactical Nuclear Penguin’, as well as recently taking a stab at politics in an open protest against America’s decision to withdraw from the Paris Accord. In an attempt to urge World leaders to prioritise issues relating to climate change, BrewDog launched a new beer dubbed ‘Make The Earth Great Again’, containing ingredients from areas most affected by global warming and features packaging that shows President Trump battling a polar bear (Glasgow Live, 2017). The somewhat controversial style of BrewDog’s marketing activities has resulted in the business having over 250,000 Facebook followers, as well as thousands of views on its YouTube channel, which continues to supply the company with a global audience and a suitable platform for enhancing its customer relations. It could be argued BrewDog are on a mission to become the leading craft beer company not only domestically but internationally, after recently opening its new advanced eco-brewery in the U.S as well as gaining financial backing from an American private equity firm in a deal worth £213 million (Financial Times, 2017). In addition, there have been comments made by James Watt, co-founder at BrewDog expressing further plans to begin constructing breweries in Asia and Australia as part of its long-term goal in making other people passionate about craft beer (The Telegraph, 2017). 8
It’s clear the firm is making use of every opportunity to revolutionise its supply chain by choosing to construct and locate multiple breweries across the globe, on top of its expanding bar division, which may add the necessary control and flexibility to its supply network in order to remain competitive (Joseph, 2013).
Sustainability Sustainable development concerns five key principles relating to quality of life; fairness and equality; participation and partnership as well as care for the environment (Figure 2), recognising that business activities must meet the needs of present generation without compromising the ability of future generations being able to meet their own (Bruntland Commission Report, 1992). Figure 2: Sustainable & Socially Responsible Supply Chain
Source: Coyle et al., (2013), Chapter 15. BrewDog presents a mixed picture in relation to its sustainability efforts and considerations; for example, in 2008 when the company was adjusting to new levels of success, co-founder James was required to submit a form for Entrepreneur of the Year award (for which the business had been shortlisted), and in response to Corporate Social Responsibility and Environmental matters, James reacted with an outburst of profanity expressing he wasn’t ‘Mother Teresa’ (BrewDog, 2017). This was very representative of the self-styled punk attitudes and controversial swagger of the Scottish duo during the early years, however, in recent years there has been a culture shift, as recognised by Grieg Anderson, co-founder of the firm (Freytag Anderson) behind the redesign of BrewDog’s visual identify in 2014; “As the brand has grown, the visual identity along with the tone of voice has developed and mellowed slightly. It still has an edge and a punk undertone but appears to have become a little more civilised in its advancing years.”
(The Drum, 2017). 9
In August 2017, BrewDog launched its Unicorn Fund, a lifetime commitment to gift 20% of the firm’s profits each year to charities chosen by its shareholders, as well as going one step further to show the business is less about profit and more about purpose by making a 7-year commitment to reinvest all of its remaining profits, with the investment directed at its beer and its people, helping to fuel growth through to 2025 and pioneering a new type of blueprint for businesses in the 21st century (BBC, 2017). Further advances in its employment practice have also been recognised by the business becoming a living wage employer in 2015, reinforcing the innovative and forward-looking company BrewDog is fast becoming (Scottish Living Wage, 2015). Despite BrewDog sending a case of its ‘climate change beer’ to the White House, there is very little evidence documented on its environmental activities. Most notably the company introduce the use of aluminium cans in 2011, with the notion that due to the export orientated brewery it has become, can recycling is easier and more energy efficient than bottle recycling (Digital News Room, 2011). Furthermore, it remains unclear the lengths, if any, the firm takes to influence its suppliers to reduce carbon emissions, which may be of particular importance to the business as the demand for ethical consumer goods has been displaying radical growth in recent years, leading to consumers boycotting organisations with questionable corporate and environmental practices (Ethical Consumer Markets, 2016; Harrison et al., 2017). Although the company continues to operate out of high-tech, ecofriendly breweries; there remains the large potential for waste use reduction across the industry (California Division of Flood Management, 2015) and therefore essential for breweries, as stewards of the land to enforce suitable policies that limit their environmental impact and by changing its business inputs into business outputs in such a way that adds greater value to the company (Figure 3). Figure 3: Sustainability Considerations
Source: The Sustainability Institute, 2017 [Online] 10
Conclusion It appears BrewDog values and understands the importance of collaborative relationships as it has invested and developed key relations in its attempt to become a global leader in the craft beer industry. It is possible that owning its own logistics system would limit the firm’s ability to respond to changes in the marketplace or supply chain as this is not its area of expertise and therefore by deciding to outsource and shift from transactional to more strategic relationships appears to have benefitted the firm’s growth exponentially, especially when considering the age of the company. It could be argued the firm has the required volume to justify a private logistics system, but by choosing various third-party providers for its transportation needs, warehousing, as well as information-based technologies, enables BrewDog to remain lean, agile and ultimately more profitable when it comes to delivering the desired service for its customers. Nonetheless, there is the possibility of the business becoming too dependent on hubs, as they may represent a high share of other business dealings, which may not be adequate as capacity may become limited during attractive times and potentially jeopardise the company’s profits. Following the opening of the company’s’ new 42-acre state of the art eco-brewery in America it will be interesting to see if it continues to outsource its transportation and warehousing needs given its strategic location (within 500 miles of over half US population), or whether it changes to in-house in an attempt to gain a competitive edge in America’s thriving craft beer landscape (Appendix E). In view of BrewDog’s extensive growth, it remains a young company and therefore its size and level of sophistication is still in early development. This is recognised in its use of annual reports, which include minimal information on its social compliance efforts in regard to ethical sourcing, forced labour policy and the environment, which would be of interest to ethical consumer organisations as the company continues to develop internationally.
Limitations This report is not without limitation as there is limited research on BrewDogs procurement of materials for its bar/restaurant division (shop fittings), or details of raw material utilisation in its brewing process. Although the brand open-sourced its recipes to the public in 2016, 11
making it a form of free beer (The Guardian, 2016), it may be the source of its alcohol content remains a ‘trade secret’ and consequently there is a lack of information on the relationship and procurement activities, if any, used within this area of its supply chain.
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Appendix A: Work Flow in Supply Chain
Source: Information Management & Consulting, 2017 [Online]
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Appendix B: Supply Chain System: Hub and Spoke Design
Source: Introductions to Operation and SCM (Bozarth & Handfield, 2008) Chapter 12.
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Appendix C: Logistics System Overview
Source: Hands on Management Consultants Inc, Moerkens & Pollock (2000).
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Appendix D: The Brewing Process
Source: BrewDog, 2017.
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Appendix E: Sales of Leading Craft Beer Brands in U.S 2017
Source: The Statistics Portal, Dollar Sales of leading Craft Beer Brands USA, 2017
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