Accurate Forecasting & Planning

The Keys to Hop Contracting

By Ashton Lewis, BSG, Technical Sales Manager

Overview

1 What is a Supply Chain

Brewery Supply Chains

2008 and Hop Contracts

Hop Contracting Basics

Fun Pics

Hop Rubs & Sniffs

1

2

3

4

5

6

The “beer supply chain” is the sequence of activities required to produce beer. In this example, nanobrew at a tap room.

Produce Raw Materials

Make Packaging Supplies

Fabricate Equipment**

Manufacture Process Aids

Treat Water

Distribution Networks• Transportation• Importation/Customs• Warehousing

Brewing• Mashing• Lautering• Boiling• Cooling• Fermentation• Filtration• Packaginging

Brewery Supply Chain Examples

Farm to Brewery

➢ Barley breeding research➢ Malting variety approval➢ Maltster contracts with grower➢ Brewer contracts with maltster

or Distributor contracts with maltster

➢ Brewer buys from distributor or maltster (sometimes the same)

➢ Bulk shipments➢ Bags➢ Supersacks / totes

Malted Barley & Other Grains

Brewery Supply Chain Examples

Farm to Brewery

➢ Hops breeding research➢ Hop variety approval➢ Hop processor contracts with

grower and/or grower belongs to a hop cooperative or self-processes

➢ Brewer contracts with hop supplier

➢ Processor➢ Co-op / Grower➢ Merchant

➢ Brewer buys from supplier➢ Pellets➢ Cones➢ Extracts

Malted Barley & Other Grains

Hops

Brewery Supply Chain Examples Farm to Brewery

➢ Yeast breeding research – not often!➢ Yeast wrangled from brewery or

nature➢ Strains maintained in liquid nitrogen

vaults, on slants, or lyophilized➢ Yeast supplier produces yeast based

on market forecast, and/or yeast supplier produces liquid cultures for breweries on demand, and/or brewery manages in-house yeast lab and propagation plant

Malted Barley & Other Grains

Hops

Yeast

Brewery Supply Chain Examples Bauxite Mine to Brewery

➢ Bauxite is mined➢ Aluminum is extracted➢ Cans are made➢ Brewery contracts with can

manufacturer to have custom cans decorated

➢ Brewery orders empty cans by the semi-trailer load

➢ Generic can labeled with label, sleeve, or hand-titled label

Malted Barley & Other Grains

Hops

Yeast

Decorated Cansor Crowlers

The Hop Crisis of 2008

Brewers began hearing rumblings

about a hop shortage during the 2008 GABF.

Hop prices of popular varieties, such as

Cascade, quickly shot to over $20/lb.

Breweries became extremely

concerned, almost to the point of panic,

and hop growers literally had brewers

knocking on their doors.

Brewers without strong contracts began contracting. And many breweries over-contracted

at very high prices.

The Little Hop Crisis of 2013

History repeated itself.

Brewers without strong contracts began contracting hops, and many brewers

over-contracted.

Why the Hop Crises?

Flawed accounting systems by major hop

suppliers

Hop warehouse fire Insufficient hop contracts with

breweries and over-dependence on spot

market

Several “Theories”

Hop ContractingBasicsNotes About Hop Contracts

➢ Are contracts really necessary?

They grow on trees, right?

Hop ContractingBasicsNotes About Hop Contracts

➢ Are contracts really necessary?➢ Don’t assume that you can just run

down to the store when you need a bag

Hop ContractingBasicsNotes About Hop Contracts

➢ Are contracts really necessary?➢ Don’t assume that you can just run

down to the store when you need a bag

➢ Fortunately, you don’t have top contract a whole pile of hops!

Many hop merchants have low minimums to encourage contracting!

YEARESTIMATED

VOLUME(BBLs)

ESTIMATDHOP USE

@ 3.5#/BBL(lb)

1 300 1050

2 390 1365

3 507 1775

4 659 2307

Sales models are useful tools with many

purposes, including contracts.

YEARESTIMATED

VOLUME(BBLs)

ACTUALVOLUME

(BBLs)

ESTIMATEDHOP USE

@ 3.5#/BBL(lb)

ACTUALHOP USE

@ 3.25#/BBL(lb)

1 300 290 1050 943

2 390 363 1365 1178

3 507 417 1775 1355

4 659 438 2307 1423

Sales models are useful tools

with many purposes, including contracts

What’s the plan?

0

500

1000

1500

2000

2500

YEAR 1 YEAR 2 YEAR 3 YEAR 4

PO

UN

DS

AMBITIOUS GOALS + HOP CONTRACT TO MATCH

DELTA CUMMULATIVE DIFFERENCE EST. HOP USE ACT. HOP USE

Takeaways from model

Accumulation of errors from aggressive projections quickly leads to large

carryover balances

Breweries with carryover balances do not report these values to any

organization, e.g., the BA

Hop merchants do not share customer data

0

500

1000

1500

2000

2500

YEAR 1 YEAR 2 YEAR 3 YEAR 4

PO

UN

DS

AMBITIOUS GOALS + HOP CONTRACT TO MATCH

DELTA CUMMULATIVE DIFFERENCE EST. HOP USE ACT. HOP USE

The supply of hops on the spot market is primarily been a function of

this “invisible balance”

Brewers should be wary of depending on this unknown quantity

HOP CROP YEAR FORECASTED VOLUME

CONTRACT MULTIPLIER

CONTRACTED VOLUME

2017 1,000 0.90 900

2018 1,150 0.75 863

2019 1,300 0.60 780

Building a tiered hop use model to improve forecasting

This basic method of hop contracting is frequently used

It works when properly managed

Requires annual reviews and adjustments

How did we do using this model?

VOLUME TALLEY CONTRACTS

FORECAST ACTUAL BALANCE #1 #2 #3 #4 #5

1000 1050 -150 900

1150 1093 28 863 259

1300 1300 -102 780 390 0

2079 1767 189 1247 624 187

2287 2241 7 1372 686 35

2401 1441 720

2474 1484

-40%

-20%

0%

20%

40%

2017 2018 2019 2020 2021 2022

Actuals vs. Plan(Decent Forecast)

CONTRACTS ACTUAL VS. PLAN USE ACTUAL VS. PLAN

How about a really poor model?

VOLUME TALLEY CONTRACTS

FORECAST ACTUAL BALANCE #1 #2 #3 #4 #5

1000 1158 -258 900

1500 1350 113 1125 338

2025 1700 235 1215 608 81

1750 1900 31 1050 525 121

2000 2250 -267 1200 600 152

2300 1380 690

2450 1470

-40%

-20%

0%

20%

40%

2017 2017.5 2018 2018.5 2019 2019.5 2020 2020.5 2021 2021.5 2022

Actuals vs. Plan(Poor Forecast)

CONTRACTS ACTUAL VS. PLAN USE ACTUAL VS. PLAN

Material Forecasting 101

➢ Defined recipes

➢ Guesstimate requirements for undeveloped beers

➢ Estimated annual production volume

➢ Beer sales volume by brand … think in percentages

➢ Minimized brewing “BOMs”, or bills of material, makes easier

This is not rocket science,

But it does require math!

MaterialForecasting 101

➢ Defined recipes

➢ Guesstimates

➢ Estimated volume

➢ Volume by brand

➢ Simple “BOMs”• Set up ingredient inventories like a checkbook

• Deliveries = Deposits• Usage = Withdrawals• Difference = Balance

• Order based on forecasted use, pars, and most efficient order quantity

BeerType

~300 BBLs/yr

ContractedMalt

Spot Malts Contracted Hops Spot Hops

Pale Malt Red Wheat Crystal 50 Oats Chocolate Other Magnum Moutere El Dorado Other

IPA 30% 3960 lb 743 lb 248 lb 0 lb 0 lb 0 lb 135 lb 68 lb 68 lb 0 lb

Hazy Daze 35% 1575 lb 1575 lb 0 lb 1575 lb 0 lb 1575 lb 0 lb 158 lb 158 lb 315 lb

Golden Buoy

15% 1620 lb 365 lb 41 lb 0 lb 0 lb 0 lb 34 lb 27 lb 0 lb 7 lb

Dark Ages 8% 864 lb 0 lb 0 lb 108 lb 54 lb 54 lb 18 lb 0 lb 0 lb 6 lb

Other 12% 1080 lb 180 lb 90 lb 0 lb 0 lb 450 lb 0 lb 0 lb 0 lb 72 lb

What is needed over the next 4 weeks?

Scheduled Batches

Batch Size Beer Pale Malt Red Wheat Crystal 50 Flaked Oats ChocolateOtherGrains

Magnum Moutere El DoradoOtherHops

3 2.5 BBLs IPA 44 lb 8 lb 3 lb 0 lb 0 lb 0 lb 2 lb 1 lb 1 lb 0 lb

2 2.5 BBLs Hazy Daze 15 lb 15 lb 0 lb 15 lb 0 lb 15 lb 0 lb 2 lb 2 lb 3 lb

1 2.5 BBLs Golden Buoy 36 lb 8 lb 1 lb 0 lb 0 lb 0 lb 1 lb 1 lb 0 lb 0 lb

2 2.5 BBLs Dark Ages 36 lb 0 lb 0 lb 5 lb 2 lb 2 lb 1 lb 0 lb 0 lb 0 lb

1 2.5 BBLs Other 30 lb 5 lb 3 lb 0 lb 0 lb 13 lb 0 lb 0 lb 0 lb 2 lb

Need for Brewing 750 lb 170 lb 29 lb 98 lb 11 lb 118 lb 17 lb 15 lb 13 lb 22 lb

What is the minimum order?

Pale Malt Red Wheat Crystal 50 Flaked Oats Chocolate Other Magnum Moutere El Dorado Other

Inventory 255 lb 100 lb 200 lb 165 lb 55 lb 225 lb 11 lb 2 lb 5 lb 32 lb

Need for Brewing 750 lb 170 lb 29 lb 98 lb 11 lb 118 lb 17 lb 15 lb 13 lb 22 lb

Min Order 495 lb 70 lb -171 lb -68 lb -44 lb -108 lb 6 lb 13 lb 8 lb -10 lb

Zero Balance Order 495 lb 70 lb 0 lb 0 lb 0 lb 0 lb 6 lb 13 lb 8 lb 0 lb

What’s my predicted balance in the future?

Pale Malt Red Wheat Crystal 50 Flaked Oats Chocolate Other Magnum Moutere El Dorado Other

Inventory 255 lb 100 lb 200 lb 165 lb 55 lb 225 lb 11 lb 2 lb 5 lb 32 lb

Need for Brewing 750 lb 170 lb 29 lb 98 lb 11 lb 118 lb 17 lb 15 lb 13 lb 22 lb

Min Order 495 lb 70 lb -171 lb -68 lb -44 lb -108 lb 6 lb 13 lb 8 lb -10 lb

Zero Balance Order 495 lb 70 lb 0 lb 0 lb 0 lb 0 lb 6 lb 13 lb 8 lb 0 lb

Order volume required to meet brewing schedule

What’s my predicted balance in the future?

Pale Malt Red Wheat Crystal 50 Flaked Oats Chocolate Other Magnum Moutere El Dorado Other

Inventory 255 lb 100 lb 200 lb 165 lb 55 lb 225 lb 11 lb 2 lb 5 lb 32 lb

Need for Brewing 750 lb 170 lb 29 lb 98 lb 11 lb 118 lb 17 lb 15 lb 13 lb 22 lb

Min Order 495 lb 70 lb -171 lb -68 lb -44 lb -108 lb 6 lb 13 lb 8 lb -10 lb

Zero Balance Order 495 lb 70 lb 0 lb 0 lb 0 lb 0 lb 6 lb 13 lb 8 lb 0 lb

Order volume required to meet brewing schedule

Inventory balance after scheduled

brews

Making Par

A par is a minimum inventory that is used to keep enough product to

operate. Most households have pars

without formally knowing it. The extra 6-

pack in the garage or spare package of coffee

are pars.

What do I really need to order?Note that order has been adjusted with Excel logic so that future balance is ≥ par.

Pale Malt Red Wheat Crystal 50 Flaked Oats Chocolate Other Magnum Moutere El Dorado Other

Inventory 255 lb 100 lb 200 lb 165 lb 55 lb 225 lb 11 lb 2 lb 5 lb 32 lb

Need for Brewing 750 lb 170 lb 29 lb 98 lb 11 lb 118 lb 17 lb 15 lb 13 lb 22 lb

Min Order 495 lb 70 lb -171 lb -68 lb -44 lb -108 lb 6 lb 13 lb 8 lb -10 lb

Zero Balance Order 495 lb 70 lb 0 lb 0 lb 0 lb 0 lb 6 lb 13 lb 8 lb 0 lb

Future Balance w/o Par Correction

0 lb 0 lb 171 lb 68 lb 44 lb 108 lb 0 lb 0 lb 0 lb 10 lb

Par 55 lb 25 lb 55 lb 55 lb 55 lb 55 lb 11 lb 11 lb 11 lb 11 lb

Par Correction 55 lb 25 lb 0 lb 0 lb 11 lb 0 lb 11 lb 11 lb 11 lb 1 lb

ORDER 550 lb 95 lb 0 lb 0 lb 11 lb 0 lb 17 lb 24 lb 19 lb 1 lb

Future Balance 55 lb 25 lb 171 lb 68 lb 55 lb 108 lb 11 lb 11 lb 11 lb 11 lb

Grown in latitudinal zones 33-35˚

Brewers like coming to selectionto get close to the supply

Brewers like coming to selectionto get close to the supply

Farm Tours, Hop

Rubs, & 0,5 Liters!

THANK YOU!

Ashton LewisNational Accounts Manager, BSG

Cell: (417) 830-BEEREmail: alewis@bsgcraftbrewing.com