E-Malt.com News article: UK: Diageo restructures logistic operations

Until last year, Diageo, one of the world's largest makers of adult beverages, was duplicating efforts when it came to logistics. The company's Customer Service & Supply (CS&S) group was supporting its Spirits and Beer businesses with separate logistics teams, supply chains, and enterprise resource planning (ERP) systems. "Diageo was operating within distinct verticals based on the business needs at the time and on established areas of expertise," says Senior Vice President, Customer Service & Supply Scott Barnhart, Thomson Dialog NewsEdge informed June 19.

Then a series of developments spurred the company to restructure its logistics operations into a single organization. That strategy has introduced many efficiencies and saved plenty of money. But it has also been the catalyst for what Vice President, Logistics Erik Snyder calls "a chain reaction of interdependent initiatives that address our business needs."

After acquiring the Joseph E. Seagram Co.'s spirits and wine business, Diageo was shipping some 85 million cases a year to a larger customer base. Several third-party logistics companies (3PLs) were managing the shipper's ocean, rail, and truck transportation. Meanwhile, driver and equipment shortages, regulatory changes, and record demand for truckload and intermodal capacity were making it difficult to meet the shipper's needs.

It was time to rethink Diageo's logistics strategy. "With the acquisition of Seagram, we increased our scale and challenged ourselves to evaluate the status quo of how we were operating so that we could recognize opportunities for streamlining our business," explains Barnhart.

Toward that end, the team focused on two strategic initiatives. The critical first step was to implement SAP's ERP system for both Spirits and Beer. "SAP enabled CS&S to have total visibility across both supply chains and manage the business holistically," Snyder says.

The second initiative was a restructuring of CS&S. First, the team asked external customers and internal stakeholders about their needs. Based on those surveys, CS&S prioritized several requirements: Ensuring transportation capacity to meet changing market demand; consistently meeting customers' expectations; providing timely, accurate data and proactively communicating exceptions; using preferred carriers; and reducing costs through better asset utilization.

That feedback led CS&S to design a three-part structure. Transportation is responsible for all freight moves; Warehousing handles third-party and plant-located warehouse operations; and Inventory Control/Compliance manages inventory reconciliation and customs compliance.

All of these changes called for a more unified management approach. Diageo issued a rigorous request for proposal (RFP) to its 3PLs, offering them the opportunity to take on the entire operation. After careful consideration, the CS&S team chose Exel Inc.

The partners quickly launched initiatives that led to one improvement after another. Single-source control let them establish dedicated truck fleets in four locations, begin managing raw materials through the network, and introduce continuous, round-trip truck moves. For example, once all truckload volume began flowing through Exel's transportation management system (TMS), Diageo could for the first time capitalize on new synergies in its network and "essentially feed ourselves capacity," Snyder says.

The system has also helped Diageo consolidate its carrier base and implement uniform performance standards and measurements for both Spirits and Beer. And the partners have developed a Web-based tool that lets the shipper, 3PL, and external customers view the status of all domestic shipments.

On-time rates have improved, thanks in part to using dedicated fleets to avoid capacity constraints and ensure delivery of critical shipments. The ability to set up continuous moves across both businesses while leveraging transportation buys and maximizing intermodal usage has greatly reduced costs, Snyder says.

Diageo's strategy can be summed up in a single sentence: Simplicity pays off. "Consolidating the Spirits and Beer networks has created a single, consistent way of working with customer-service and supply-planning teams," says Snyder. Adds Barnhart: "The purpose of the logistics reorganization was to drive costs out of our supply chain. There was a lot more value in simplifying our structure and processes than we could have gained from a head-count reduction in our logistics team."

Diageo posted a revenue of more than 9 billion in Fiscal Year 2005. Its products are adult beverages, including such brands as Smirnoff, Johnny Walker, Guinness, and Tanqueray.


20 June, 2006