Few will dispute the uncertainty of investing in the wine industry. Patience, deep pockets, and a passion for wine are the minimum entry qualifications whilst business knowledge is welcome, although optional. Whilst cost pressures challenge wine producers to be innovative and “think out of the box”, the importance of procurement strategies has been greatly underestimated. Here are three practical “supply-side” moves that will yield quick gains for medium and small wine producers.
Exploit the power of collaboration. Don’t see your competitors as the enemy, “they want something from us”, but as potential collaborators and a resource for reducing costs. By combining assets and capabilities wineries can gain the benefits of scale that they would be unable to achieve alone. Packaging, labeling, bottling, warehousing and logistics are all areas ripe for potential savings and efficiencies. Bottling companies should take their expertise to the next level by seeing themselves as more than just labeling and bottling operations, and rather as supply chain management companies.
Operate lean and mean. Unlike fine wine, packaging inventory doesn’t improve with age. From an accounting perspective inventory is treated as an asset, but savvy companies now base their business models on the concept that inventory is a liability. Many managers are unaware of the costs of holding inventory. This includes damaged, lost and redundant stock, and don’t forget the warehousing, insurance and financing costs. Reduce your inventory and you will reduce debt and improve your cash flow.
Reign in costs. Because the wine industry operates in a time sensitive environment suppliers now have to be a source of competitive advantage. Value is added by intense communication and information flows. Build a culture of cost control into your daily operations and leverage the brainpower of your suppliers.
For the wine industry, with cost of sales running up to 70%, it is clear that purchasing of inputs is a critical issue. In determining viability size does not have to be a determing factor and by building alliances with competitors and suppliers wine producers can jointly build a competitive advantage.
By Mike Carter.