A leading producer, marketer, and seller of luxury and lifestyle wines from California, Italy, Chile, and Australia was experiencing tremendous downward price pressure from an influx of lower-priced imported and domestic wines into the market. They made a public commitment to their shareholders to scour the supply chain looking for strategic cost reduction opportunities.
Consuming Responsibly: Reducing Cost in the Global Wine Supply Chain
Formal strategic sourcing and spend analysis were completely new to the corporate procurement group.
- Despite having an ERP system, they had done very little coding or classification of corporate spend, making the data unusable for detailed analysis and demand management.
- Individual brand teams typically had the final say on sourcing decisions, and the long-term relationships they had formed with a small group of regional suppliers made them lax about building internal category knowledge.
- The grower relations team accepted pass-through costs from their vineyard management providers without attempting to manage or reduce them.
Increased market pressures had finally rendered all of these legacy practices unsustainable.
The executive team hired Tenzing to lead a rapid and aggressive strategic sourcing effort—one that would involve several stakeholder groups as well as first and second-tier suppliers.
Formal sourcing strategy and improved business discipline drove over 40% savings
Procurement had to clearly prove their case in support of centralized spend management and broad scale spend analysis. Disciplined use of traditional strategic sourcing and increased influence over third-party managed vineyard spend allowed the company to deliver an average cost reduction of 42% in three key spend areas: labels, chemicals, and point-of-sale print services. The team also tackled several additional sourcing projects, resulting in the development of long-term, repeatable sourcing strategies. They built on their early successes by using creative approaches such as testing synthetic material alternatives and developing new negotiation approaches to create better visibility and control over second-tier costs like corrugated cartons and inbound transportation.
In the fast-paced competitive world of lifestyle wine sales, speed and visibility are a matter of survival.
The company’s label portfolio was selected as the pilot project for strategic sourcing. After a highly analytical supplier screening process, a very public bidder conference, and intense negotiations, the results were clear: the supply base could be consolidated to cut costs by 50% without sacrificing quality. Based on the success of this pilot, the executive team launched a spend assessment to find similar opportunities. They identified several targets including point-of-sale (POS) print and vineyard chemicals, categories that had traditionally been outside of procurement’s control.
Quickly producing and delivering POS print materials to distributors and retailers is fundamental to an effective wine marketing program. The marketing and creative departments were highly reactive to field requirements but did not consider supply base or cost management strategy.
Every request for POS print materials became a new project. There were no preferred suppliers, no prenegotiated terms, no segmentation of requirements. After looking at aggregate requirements, it became clear that there was a great deal of predictable demand that did not require short lead times.
Since printers tended to have competences in either large-run efficiency or rapid set up, market economics would work in the winery’s favor if they structured their buying differently. By focusing on regional short-run press shops for small quick turnaround projects and national printers for predictable demand, the cost of POS print could be reduced by over 50%.
Vineyard chemicals were bought by vineyard management providers on behalf of the winery. Market analysis showed that the winery’s combined chemical spend was larger than that of any of its individual vineyard management suppliers. The team created a bid for chemicals as well as services that had historically been rolled into chemicals pricing. The detailed quotes revealed great results; by consolidating spend with a few key chemical suppliers, vineyard chemical costs could be reduced by 15%.