The case of the travelling grapes

SUPPLY CHAIN    DEMAND    OPTIMISATION

Global -Appreciated for its unique taste, French wine has been greatly recognised all over the world, and its secrets lie in its superior quality. But that's not all. This innovative case study on vintner Alliance Loire reveals the supply chain stakes which enable the French wine to be savored at each dining table, anytime, all over the world.

The Wine industry plays a dual role in France: it contributes largely to the primary sector of the economy- Agriculture, and strongly promotes the French culture of "savoir-vivre" throughout the world. Too often, supply chain decisions have been driven by efficiency concerns, whereas customers' requirements have been unfairly left behind or neglected.

As a consequence, to be successful in today's global market where many new competitors are aggressively growing, traditional key players need to differentiate themselves by providing the adequate response to meet the specific demand of various customers.

This case study illustrates the supply chain initiatives that Alliance Loire, one of the leading French wine cooperatives, conducted to re-position themselves in the market place.

Company presentation: A leading French Wine company

Created at the beginning of the 21^st century, Alliance Loire is a company specialised in the marketing, sales and distribution of wines produced from 9 cooperatives in the Loire Valley.

The Loire Valley is one of the France's leading regions for wine production: France's leading AOC (Appellation d'origine contrôlée (AOC), which translates as "controlled term of origin") region for fine sparkling wines,

France's third largest region in terms of production with 4,000,000 hectoliters,including 3,000,000 hl of quality wines, France's fourth largest vineyard in terms of surface area 70,000 hectares, spread over 13 regions, 63 AOC, 400 million bottles.

In order to better identify the "personality" of the wines, Loire Valley set up an innovative methodology based on "lieux-dits" (defined locality) where the constitution of the soil and the micro-climate are taken into consideration for the choice of the grape variety.

This technique enables a better traceability with a census of each winery parcel. Each "lieux-dits" can be traced for special vintages reserved for a client or for a specific distribution circuit.

French Wine Industry challenge: Adapting the supply chain to the dynamic client's demand

The situation of the French wine industry in the global market needs to be depicted, for a better understanding of Alliance Loire's challenges:

Thanks to its scale, diversity, variety and quality, French winegrowing leads the world wine business. France is the number 1 wine exporter and its domestic market is bigger that of any other country. Nevertheless, today the sector is going through a period of deep crisis. While the domestic market is facing both significant price and margin erosion, and substantial decrease in consumption, the development of new vineyards in the so-called "New World" countries, such as New-Zealand, Australia, South Africa, Chile or Argentina is creating more and more aggressive competition on export markets.

The major handicaps of the French wine industry are characterised by a product offering that is too complex and difficult to understand, an obsolete unitary business model, too limited organisational and financial capacity and finally decision-making processes that are too time-consuming and, most of the time, disorganised.

For today's wine companies, the critical challenges are: demand and supply volatility, price and margin erosion, information technology obsolescence, mergers and acquisitions trends.

Wine industry is still struggling to cope with getting the basics right, such as production, purchasing, logistics etc.It fails to see the importance of investing time and effort to better manage and improve its supply chain processes. Without a structured approach, companies find it very difficult to align internal and external supply chain partners towards common goals to compete against other supply chains. Indeed, supply chains compete, companies don't.

In order to improve supply chain efficiency and effectiveness, as well as to restore or to maintain company's competitiveness, traditional business operational model and performance measurement metrics are no longer sufficient success factors.

Alliance Loire business challenges: Translating its new business strategy into an adequate supply chain configuration

In this context, to obtain competitive advantage and increase the revenue of the cooperative's stakeholders, Alliance Loire decided to conduct two combined initiatives, both in marketing and supply chain management.

The decision to combine marketing and supply chain aimed at building a new business model more appropriate to today's challenges (high demand volatility, tremendous pressure on price, highly competitive market and difficult brand recognition).

The solution: To define a new customer- driven strategy, then reconfigure the supply chain accordingly.

As a first step, Alliance Loire conducted a preliminary marketing study on the segmentation of their markets and on their customers' requirements.

Having defined its vision, Alliance Loire undertook the initiative to define what it would take to implement that vision with the support of a supply chain expert: iCognitive.

The mission was to determine how to re-configure their supply chain, in order to align the Execution with their new business strategy.

Amongst the key objectives of the project, Alliance Loire's management targeted to:

• Improve the service level
• Increase the profit margin and the stakeholders' revenue
• Optimize the assets utilization
• Control and improve the performance of the end-to-end supply chain
• Facilitate and fasten the decision making process between the key players along the extended Wine supply chain

As a recognized standard methodology, the supply chain operations reference (SCOR) model has been recommended by iCognitive to redesign the configuration of Alliance Loire's supply chains to meet its new strategic targets.

To conduct this ambitious program, Alliance Loire appointed a diverse project team composed of the CEO, finance director, sourcing manager, distribution manager, quality manager, IT manager and sales manager and included 4 representatives of the major suppliers, and directed by two iCognitive Consultants.

As an end-to-end approach, the project encompasses the first tier suppliers to the first tier customers. 4 major suppliers were involved in the project team: Winery of Saumur, Winery of Vignerons des Terroirs de la Noëlle,Winery of Vouvray and Ackermann Remy-Pannier.

The approach followed by the project team consisted in two main phases:

• Phase 1: AS IS

- Describe and evaluate the current situation of Alliance Loire's end-toend supply chains

- Identify the key disconnects in terms of organisation, processes, systems, people and performance levels

• Phase 2: TO BE

- Identify options /improvement levers

- Define and prioritise programs to reach blue prints and set improvement targets

- Develop Business Case

The project lasted 7 weeks, including the AS IS and TO BE phases.

THE KEY FINDINGS AND RESULTS ‘As is' phase: understanding the existing supply chain configuration

A critical preliminary step was necessary: to familiarize all involved key players with the concept of supply chain management and SCOR model. In order to align different levels of supply chain knowledge among the participants to a common language and common understanding, a SCOR Workshop was organized for all key players in Alliance Loire's supply chain.

In joint effort with Alliance Loire project team, the entire supply chain has been screened and described, according to two angles of view: span (from grapes to glass) and depth (from strategy to execution), to establish a clear and comprehensive end-to-end visibility.

The description started with the top level activities of each entity within Alliance Loire's supply chain, such as Planning, Sourcing, Delivering and Returning processes, followed by a geographic mapping that locates material flows, inventory positioning and facilities (for Alliance Loire and other key players). As being the supply chain leader, Alliance Loire was accountable and responsible of ensuring that wine bottles were available to the end customer at the right place, right time at the right cost.

To do so, a critical element was missing; the visibility of all partners composing its supply chain. This became clear through the geographic mapping. At this stage, the project team identified a lack of visibility and forecasting along the supply chain that resulted in silos within this extended organisation, where each involved entity had its own objectives, with no integrated and structured planning process with each other.

Instead of having a dedicated supply chain per distribution channel or business line, all flows were managed the same way within one single supply chain. Once the existing configuration has been depicted, at the process level, a very detailed description of the process elements for each process category has been performed.

In complement, additional analysis have helped to deepen the exploration such as financial flow, cycle time, resource allocation, supplier profile, customers profile (margin, volume and distribution channel), IT systems in place and current best practices.

This detailed analysis enabled the company to highlight key disconnects throughout its supply chain such as business rules formalisation, transportation optimisation, data integrity issues, measurement of the performance,IT systems issues.

One of the most important steps of the "as is" phase was to quantify the performance of the current supply chain, and to benchmark it against the industry's peers (SCORCard).

Once the SCORCard was built, it was easier to benchmark Alliance Loire's performance compared to its peers in the wine industry (thanks to the 1,000 data sets of iCognitive benchmark database) and to clearly identify areas of improvement.

‘To be' phase: designing the adequate supply chain configuration

In the ‘to be' phase, Alliance Loire team determined in a joint effort with iCognitive, the future required performance levels of the company, and worked on the design of the new supply chain configuration (in terms of processes, technology and people) in order to achieve this targeted performance.

The focus was put on delivery performance, responsiveness, flexibility,cost and asset management.

The disconnects identified during the "as is" phase were consolidated to segregate the symptoms from the real root causes, in order to recommend appropriate and sustainable solutions.

One of the major leverage factors was related to the cash-to-cash cycle time, especially in one distribution channel (groceries/hotel/restaurant) which could be significantly reduced.

In addition, substantial cash could be released through a better management of the inventory, which was suffering from a lack of end-to-end visibility and integrated planning. In addition, a deep analysis of the existing excess inventory was required to categorise obsolete, non-moving and slow-moving items in order to identify priorities for sales team.

Several options had been discussed to evaluate whether some of the industry best practices such as S&OP, VMI, CPFR, carrier agreements and cross docking would improve the performance of Alliance Loire.

Finally, after having assessed the most feasible options through a detailed business case, Alliance Loire's project team converted the short-listed scenarios into actionable projects.

Amongst the major recommendations, a sales and operations planning (S&OP) process was proposed to solve the lack of planning and forecasting, and improve the visibility throughout Alliance Loire's supply chain.

Another important recommendation was made on the asset utilisation of Alliance Loire, in order to significantly reduce overall costs.

For instance, by pooling bottling lines and warehousing facilities within the nine independent cooperatives, huge economy of scale was expected.

In addition, several short term projects (quick wins) were identified to get quicker returns, which beyond the financial outcomes, participated to maintain and strengthen the motivation of the project team for the completion of the longer-term projects.

Now with an adequate configuration of its supply chain, aligned with its new business strategy, Alliance Loire has created a stronger business foundation with:

• Improved service levels (perfect orders fulfillment)
• Reduced operating costs
• Reduced working capital
• Increased cash flow
  
  

And moreover, Alliance Loire has developed the ability to strive for new levels of growth.

The SCOR project has played a key role as a vector of maturity growth for Alliance Loire's management and brought many qualitative benefits:

• Set-up common supply-chain language across the whole organisation

• Improved internal and external communication between departments and partners
• Defined standard measurement of the performance of the supply chain management
• Formalized detailed process for continuous review & improvement
• Simplified and standardized processes and workflow steps

Conclusion

"Both marketing and supply chain projects have allowed Alliance Loire gaining competitive advantage by aligning our supply chain configuration to the dynamic constraints of the market needs. SCOR Model has provided the required processes to reach higher level of performance," says Pascal Chiaroni, CEO and Raphaël Impinna, Quality & processes manager of Alliance Loire.

Using supply chain management as a strategic leverage is still rarely adopted in the wine industry, and more broadly in the agribusiness sectors. This is probably due to a lack of understanding of the concept of supply chain management which goes beyond the only management of physical flows, but integrates information and financial flows as well.

About the author:

Jean-Jacques Laville is the senior supply chain consultant of iCognitive Europe.

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