Pernod Ricard (EU:RI)
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6 Mois : De Avr 2019 à Oct 2019
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 firstname.lastname@example.org
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May 09, 2019 05:44 ET (09:44 GMT)
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