Supply chain management system of wines and liquor industry in India

Section B | Group - 5

Akshay Kumar PGP/16/241

Alok Kumar Singh PGP/16/244

Deepto Choudhary PGP/16/256

K N Manish Chandra PGP/16/263

Sagar Tule PGP/16/282

Shrinwanti Banerjee PGP/16/287

Indian Institute of Mangement, Kozhikode

August 11, 2013

*This work is submitted to Dr. Sanjay Jharkharia as a term paper in the course on Supply Chain Management.

Supply Chain Management in Wine and Alcoholic Drinks Industry in India*

Supply Chain Management in Wine and Alcoholic Drinks Industry in India

Section B | Group 5 Indian Institute of Management, Kozhikode 1

Contents

Introduction................................ ................................ ................................ ................................ ..... 3

Procurement ................................ ................................ ................................ ................................ .... 6

Mechanisms: ................................ ................................ ................................ ................................ 6

Local production- IMFL: ................................ ................................ ................................ ............ 6

Upstream supply chain ................................ ................................ ................................ .............. 6

Raw material linkages ................................ ................................ ................................ ..................... 7

Location of input suppliers................................ ................................ ................................ .......... 7

Vineyards and fruit growers:................................ ................................ ................................ ...... 7

Glass makers:................................ ................................ ................................ ............................. 8

Materials Requirements Planning and Scheduling ................................ ................................ .... 8

Grapes and Vineyards:................................ ................................ ................................ ............... 8

Glass bottles and other ancillaries:................................ ................................ ............................. 9

Forecasting and Inventory Mechanisms ................................ ................................ ..................... 9

Procurement Challenges Unique to India................................ ................................ ..................... 10

Potential for Improvements- Recommendations................................ ................................ .......... 10

Process Automation & Improvements ................................ ................................ ...................... 10

IT systems: SRM software................................ ................................ ................................ ......... 10

Production Process ................................ ................................ ................................ ........................ 11

Beer Production Process................................ ................................ ................................ ............ 11

Scheme :................................ ................................ ................................ ................................ .. 11

Wine Production Process................................ ................................ ................................ ........... 11

Scheme :................................ ................................ ................................ ................................ .. 12

Liquor Manufacturing : ................................ ................................ ................................ ............ 12

Mashing:................................ ................................ ................................ ................................ .. 13

Bottling and Packaging:................................ ................................ ................................ ............ 13

Blending: ................................ ................................ ................................ ................................ . 13

Fermentation:................................. ................................ ................................ ......................... 13

Grinding: ................................ ................................ ................................ ................................ . 13

Manufacturing Strategies: ................................ ................................ ................................ ............ 13

Characteristics Table : Functional................................ ................................ ............................ 14

Supply chain : Physically efficient................................ ................................ ............................. 14

Customer Relationship Management: ................................ ................................ .......................... 15



Key features of effective CRM tools................................ ................................ .............................. 16

Distribution pattern................................ ................................ ................................ ....................... 17

Distribution Chain Specifics to Point of Sale:................................ ................................ ............... 18

Shipping:................................ ................................ ................................ ................................ .... 18

Customs Clearance and Storage: ................................ ................................ .............................. 18

Storage, warehousing and product integrity: ................................ ................................ ........... 19

Distribution through wholesalers and retailers:................................ ................................ ....... 19

Three-Tier Architecture:................................ ................................ ................................ ............... 19

Challenges in present distribution system:................................ ................................ ................... 20

1. High Barrier in wine import system: ................................ ................................ ........................ 20

2. Unsynchronized and informal information sharing between different tiers ............................... 21

3. Low economy of scale: ................................ ................................ ................................ ............ 21

4. Road System and Transportation:................................ ................................ ............................. 21

5. Cold Chains in India: ................................ ................................ ................................ ............... 21

Potential problem areas for Logistics in Wine Supply Chain:................................ ........................... 21

Quality ................................ ................................ ................................ ................................ ........ 23

Timeliness ................................ ................................ ................................ ................................ ... 24



IntroductionThe market for wine and liquor industry in India comprises of wine, alcoholic drinks and beer. The

wine market is composed of retail sales of champagne, fortified wine, sparkling and still wine and is

valued per the retail selling prices (including applicable taxes). The market in India has been fast

growing, accustomed andopen to western trends. Growth in the industry had seen a dip in 2008 -2010,

but is expected to revive again going forward in 2014. With total reven ue of approx.. $0.3bn, it

represents a CAGR of 5.8% between 2008 and 2012. Still wine comprises of the largest share of

revenue, approximately 78.5% of the markets overall value. Champagne contributed $34.4bn in 2011,

or approximately 10.5% of overall market value. The forward looking figures suggest a robust growth

of 10% CAGR from 2013-2018 and increase the market to a value of B50.8bn.

Alcoholic drinks includes retail sales of spirits, ciders & FABS mostly through retails channel . It had

total revenue of $30.4bn in 2011, with a CAGR of 17.9% between 2008 and 2012. Market consumption

has increased with CAGR of 15.1% in the same period.

On-trade form the major bulk of distributors for wine market (60.5%), followed by specialist retailers

(35.5%), super markets and hypermarkets (3.9%) and department stores (including duty free shops,

0.1%)

Alcoholic drinks have a slightly varying distribution proportions. Specialist retailers handle the bulk

(62.5%), followed by on trade (35.6%). Super markets and hypermarkets (1.4%) and convenience stores

(0.1%) form the last mile distribution system which is accessible most closely to consumers.



The companies that lead the production of alcoholic drinks in India are Pernod Ricard, SAB Miller,

United Spirits Limited and United Breweries Holding Limited.

The leading producers of wine are Grover Vineyards, Indage Vintners, Nashik Vintners and United

Spirits Limited.

The overall wine supply chain is a complex agri-cupply chain which incorporates the following:

1. Internal supply chain: It is the itnergrated flow of material and information within the winery,

from supplier and towards the customer. It measures the process performance of the winery

only.

2. External supply chain. It is the flow of material and information from the winery to the

supplier or to the direct end consumer. It measures the winerys supplier performance or the

performance of the winery with regard to its customer performance.

3. Integrated supply chain: It is the flow of material and information within the winery and

includes multiple trading across suppliers and customers. It provides mutual benefits to the

entire value chain, from the initial supplier to the end consumer.

The typical supply chain of wine and alcoholic drinks industry can be represented by the following

diagram:



Procurement

Mechanisms:

The wine and liquor industry in India can be broadly classified as imported liquor and India Made

Foreign Liquor (IMFL). In the imported category, popular brands of wine and liquor are directly

imported and marketed, usually with a marketing and distribution arrangement with a local player with

established infrastructure. In the IMFL category, the liquor is produced and marketed locally from

ingredients and material usually procured from local sources.

Imported category:

Some examples of imported brands of liquor being marketed in India are:

Pernod Ricard- Indian subsidiary

Howling Wolf of Western Australia- has own, established distribution channel in India

Smith Brooke of Margaret river; Grant Durge, St. Ha llet and Thomas Mitchell of Southern

Australia- marketed in India by Echidna Wine Traders

Xanadu and Cape Mentelle of Western Australia - marketed in India by Fine Wines & More,

Moet Hennessey

BRL Hardy- distribution arrangement with Sula Vineyards, Maharashtra

Local production- IMFL:

Upstream supply chain

The supply chain for wine industry is linear in nature. The various categories of input supplies to the

wine industry are:

Glass and Glass bottles

Fruit and vegetables

Grapes

Flour and starch

Solid paperboard container

The corresponding suppliers and their roles in the supply chain are:

Glass and Glass bottles suppliers: provide glass bottles for long term storage and

transportation to markets. Since the wine/liquor is in contact with the bottle for most of its life,

the quality of these are essential to preserve and maintain the quality of wine and liquor

Fruits and Vegetable suppliers:Fruits are the key ingredient in liquor making. Also, ascorbic

acid and citric acids are also required for manufacturing certain types of wines.

Grapes suppliers: The key ingredient to any wine, the quality of wine depends almost entirely

on the type and quality of grapes obtained from the vineyards and grape growers.



Flour and starch manufacturers: These provide yeast which is used in fermentation

Solid paperboard container: These provide large cardboard containers which are used in the

storage and transportation

From among these supplies and input raw materials, Grapes/grain sources, glass bottles and fruit and

vegetable supplies are identified as critical inputs for the following reasons:

o The role in the wine-making process

o The stage of lifecycle when they are required

o The criticality of these inputs to maintaining the quality of wine

Raw material linkages

The key raw mater ial for the India -Made Foreign Liquor industry is molasses, a by -product of sugar.

Molasses is processed, fermented and distilled to produce ethanol (technically rectified spirit). Those

manufacturers with in -house processing facilities use molasses while others buy ethanol directly.

Molasses supply depends on the production of sugarcane- a cash crop- and its production is cyclical in

nature. The raw material for Beer production however, is barley, the production of which is based on

the season. The cyclicality in barley and sugarcane production depends on the season, weather and other

environmental conditions and lends a commodity nature to molasses. Since production of ethanol is the

primary and largest use for molasses the price of ethanol and therefore t he raw materials to the IMFL

industry depends on the nature of demand -supply relationship for ethanol. The market for ethanol is

equally divided between production of liquor and industrial alcohol.

In the long term, the demand for ethanol is poised to incr ease due to increasing use of ethanol for

commercial blending with petrol (bio -fuels etc.). However, the supply of ethanol is also expected to

increase on account of increasing number of sugar mills with integrated plants for cogeneration and

distillation facilities.

Location of input suppliers

Vineyards and fruit growers:

The major wine producing regions in India are Maharashtra, Karnataka and Himachal Pradesh.

Maharashtra with 64 wineries contributes about 94% of the total wine produced in the country. Th ese

areas are suitable for growing grapes due to the suitability of weather conditions, specifically, the

amount of sunlight and the relative humidity in the atmosphere.

The major grape producing regions in Maharashtra are Nasik, Satara, Sangli, Ahmednagar , Pune and

Osmanabad, which are located approximately 180 -300 km northeast and south of Mumbai. Thirty

wineries have established production and bottling plants in the Vinchur industrial estate near Nasik.



In addition to the location suitability of the vineyards, the primary concern for grape growers is the long

term sustainability of the vineyards. The average lifetime of vineyards, producing two harvests a year,

in India is around 12 -15 years, while the average lifetime of the vineyards producing a single large

harvest a year is 20 -25 years. In addition, the productivity of the vineyards is dependent on other

problems typical to agriculture such as infestation by pests, controlling the usage of pesticides and

fertilizers among others.

Glass makers:

The aforementioned areas of Maharashtra have been cultivating grapes for several decades. However,

it is only in the past decade that the farmers have shifted to growing grapes suitable for wine -making.

Owing to the burgeoning wine industry in the vicinity, encour aged by the presence of over 65

distilleries, several supporting industries have also been established and encouraged. One such industry

is the glass making industry. Approximately 20 major glass bottle makers serve as the Tier-1 suppliers

for the wine and liquor distilleries in Maharashtra, in addition to numerous small, local manufacturers

that constitute the downstream sub-contracts.

Glass packaging industry had a retail unit volume of 14.1 billion units in 2011 and had grown at 10%

volume Y -o-Y. The win e and liquor industry accounts for a major share of the market for Glass

packaging. Demand for returnable glass bottle remains strong in 2011, due to the existing supply chain,

lower cost of operations and environmental concerns surrounding the usage of plastics. Also, glass has

a perception of vintage and serves to preserve the quality of premium wines better than plastics do. By

2015, glass packaging is expected to see a retail unit volume CAGR of 9% to reach 20.1 billion units.

Materials Requirements Planning and Scheduling

Grapes and Vineyards:

The procurement of grapes and fruits for wine and liquor industry is primarily done through contract

farming schemes. Under these schemes, vintners enter into contracts with local farmers to produce a

certain qua lity and quantity of the desired variety of grapes. The number and size of these contracts

depends on the size of the landholding of the farmers, the nature of the farmland and the suitability for

growing the type of grapes required for a given kind of win e/liquor. In the year 2011-12, grapes were

procured at Rs. 35 per kg from the contract farmers.

The production (fruit harvest) is done in large quantities of one/few varieties at a time and the time

taken for harvest cannot be naturally altered. Therefore, the rest of the supply chain is optimized to suit

the fruit harvesting schedule.

Also, the production of grapes is seasonal and hence discontinuous. The variety and quantity of the

grapes that needs to be harvested are to be scheduled in such a way as to maintain production of



wine/liquor in the forecasted demand quantity. Adding to this is the uncertainty from large proportion

of losses incurred during cultivation, harvesting- hand picking and handling.

The transportation damages and lack of automated mac hinery are the primary concerns in Indian

vineyards. In the year 2011, these causes led to losses amounting to 21% of the total fruit produce.

Indian farms employ manual picking and sorting of grapes and fruit which add to labour costs and

increase the procurement lead times.

Glass bottles and other ancillaries:

These inputs are not influenced by seasonality and cyclicality factors. However, the number of glass

bottle suppliers being less than the number of distilleries, the capacity of their manufacturing is adjusted

to supply the required quantity of glass bottles of the desired variety. Typically, these have short lead

times and are reordered in small quantities frequently.

Forecasting and Inventory Mechanisms

Forecasting requires gathering the right info rmation in time and analytical capability and tools to

identify and predict trends. Appropriate and robust forecasting can result in many improvements in the

procurement process such as:

buying at lower prices

reduced inventory

Shortened supply times

Distribution companies unable to forecast demand accurately are at a distinct disadvantage.

In the wine and liquor industry, forecasting gains criticality due to the seasonality and cyclicality of the

key input resources- grapes, sugarcane and fruits. Since little can be done to alter the natural course of

their harvest, the other operations are optimized and scheduled to suit the harvest schedule so as to

minimize the fruit to bottle lead times.

Largely, the planning and scheduling of raw material sourcing i.e., harvest of grapes and fruits in India

are based on previous year averages and are largely empirical in nature. Forecasting with such short -

term data leads to inaccuracies creeping in and hence varying quantity forecasts. Also, the inefficiencies

in the non-automated production process lead to further distortion of the forecasts.

Certain large manufacturers control significant landholding under grape cultivation so as to enable tight

monitoring of the quality and quantity of produce. These large vintners outsource only about 20% of

fruit production to external farmers. This is to enable flexible procurement and thereby shortened lead

times and associated cost savings.



Procurement Challenges Unique to India

Wine and liquor industry in India faces certain peculiar challenges caused by the government regulation

procedures, tax regime linked to the procurement of raw material and distribution of finished products.

The tax regimes vary across the states. For instance, in UP, there are seven or eight types of tax es that

are imposed while in some other states there are 12 types of taxes. In Maharashtra, there is an entry tax,

octroi, and quantity tax. Each state has its own set of policies, rules, and regulations.

Lack of mechanization and automation in the grape -growing and harvesting process in India is quite

unlike similar industries elsewhere in the world. This is one of the reasons why losses due to wastage

in the industry are much higher than the world averages. Also, the average life -time of a vineyard is

much lower in India than in similar vineyards in other countries.

Potential for Improvements- Recommendations

Process Automation & Improvements

Also, increasing the level of process automation would help reduce lead times and losses and help in

retaining the quality of the raw material and thereby have a direct impact on the quality and quantity of

the final wine/liquor output.

IT systems: SRM software

Supplier Relationship and Procurement Management software allows procurement across a wide

variety to help ac quire the right quantity and quality of inputs at the right time for the best available

price. In conjunction with intelligent warehousing and inventory routines that maintain optimum safety

stock levels and ensure timely restocking, the automated procurement processes help minimize the total

supply costs and help avoid stocking problems. These solutions include advanced methods such as

automated sourcing strategy models that also help reduce administrative overheads.

Some salient features of a SRM system are:

Automated purchase order creation

Evaluation and Analysis

Purchase suggestion Management inventory management

Supplier agreement and price negotiation

Advanced RFQ capabilities

Keeping track of various taxes and duties in the supply and distribution channels

IT applications such as mailing solutions, disaster recovery, looking for Supplier Relationship

Management and Procurement Management etc. could help manage the procurement process better.

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Production Process

The whole Alcohol Industry broadly divided into three groups

a. Beer

b. Wine

c. Liquor

Beer Production Process

All beers are brewed using a process based on a simple formula. Key to the beer making process is

malted grain, depending on the region traditionally barley, wheat or sometimes rye.

Scheme :

To make beer, brewers use water and barley to create a sweetened liquid (called the wort), which they

flavor with hops, then ferment with yeast. The basic process may be simple but the execution is highly

sophisticated. The stages are malting, milling, mashing, brewing, cooling and fermentation - followed

by maturation (racking), filtering (finishing) and packaging.

The process involves the microbial reaction so strong quality control measures are adopted.

Wine Production Process

Winemaking or vinification, is the production of wine, starting with selection of the grapes or other

produce and ending with bottling the finished wine. Although most wine is made from grapes, it may



also be made from other fruits or plants. Mead is a wine that is made wi th honey being the primary

ingredient after water.

Winemaking can be divided into two general categories: still wine production (nipple wine // without

carbonation) and sparkling wine production (with carbonation natural or injected).

Scheme :

Liquor Manufacturing :

Liquor Manufacturing is described in the following diagram :



Besides optimum fuel efficiency, the entire process is designed to have minimal impact on the

environment. All by-products are re -used, recycled and sold to relevant industri es to minimize

cost and maximize efficiency at every stage

Manufacturing Strategies:

The products is not innovative but functional in nature, therefore manufacturing strategy is make to

stock .

Mashing: The Grist is mixed with hot water and the resulting mixture is fed into a mash tub. The mash tub is kept covered to retain the heat and constantly stirred. In this process enzymes act on the starch and convert it to sugar. The resultant mixture is called wort.The spent grain that remains in the tank at the end of this process is collected in separate containers and dried in aspecial process and sold as cattle feed

Bottling and Packaging: Globus Spirits has made steady progress in building key brands that are becoming increasingly popular in both the IMFL and IMIL segments

Blending: At Globus Spirits, our master blenders then take over the manufacturing process. The alcohol goes through several stages of testing, blending and tasting to create our signature brands.

Distillation: The wash is made to flow into the wash charger and the actual process of distillation is initiated. The fermented wash is conveyed to the still where it is boiled. Since alcohol boils at a lower temperature than water, alcohol vapours are the first to rise to the neck of the still from where they are transferred to a worm tub where they are condensed.The spirit collected at this stage is called low wine and it goes through yet another process of distillation to yield 95% alcohol.

Fermentation: The wort is cooled to the ideal temperature and activated yeast is added to initiate fermentation. This process produces alcohol and Carbon dioxide. The fermentation process continues for 2-3 days and the resultant alcohol rich mix is called wash. The Carbon dioxide generated is purified and bottled and then sold to be used in the making of carbonated drinks.

Grinding: The grain is coarsely ground in a mill and the resulting product is called grist



Characteristics Table : Functional

Product Life Cycle Indefinite ( From the Start of Human civilization to

current , and will be in future )

Contribution Margin More than 50 %

Product variety High in general , but leverage the existing

manufacturing process . one unit make few types of

product only

Average margin of error in the forecast at

the time production is committed

Very low , since demand is stable and not affected by

market economics .

Average Stock out rate Low , below 10 %

Average forced end of season markdown

as percentage of full price

0%

Lead time required for made to order

products

3 to 6 months

Demand Highly Predictable

Supply chain : Physically efficient

Primary process Supply predictable demand efficient at the lowest

possible cost

Manufacturing process Maintain high average utilization rate

Inventory Strategy Manufacturers generally has good chunk of

inventory

Lead time focus Shorten lead-time at the end of retailers

Approach to choosing suppliers Select primarily based on quality , an d

relationship based

Production design strategy Strong quality control , maximize performance



The Indian wine, spirits and beverages industry is facing ever -shifting demand for products, strict

regulation (tax regime, protocols) and increasing price c ompetition. World-class companies in this

mature industry are succeeding by scaling up production, streamlining their supply chains, expanding

into new geographic areas, implementing more efficient processes, cleverly marketing products, and

focusing on ever closer relationships with suppliers, partners and customers.

The general strategy adopted by the industry leaders focus on particular market niches and putting

efforts to specialize in it, which is product innovation part of the value chain. But it has been observed

that, in the Indian context, some of the lesser-known or smaller players gain advantage in the market by

going-first with the innovation and putting special emphasis on marketing old products in an effective

manner.

he Indian wine industry is image-conscious, thus driving every market player to develop innovative

ways of marketing the products. The methods are generally indigenous. Customer centric campaigns,

product placement in the popular media (newspapers, TC shows and IPL sponsorship be ing the most

recent example), viral marketing. All these methods along with word-of-mouth recommendation affect

the sales figure significantly.

Marketing to retailers is the most important activity in Indian wine industry. It can make or break a

brand, especially when a new brand is being brought to market. The marketing system majorly runs on

personal relation between the company S&M executive and the retailer. Keeping a tab on retailer

preference, their modus operandi is critical in the marketing scheme.

Customer Relationship Management:

CRM is important as keeping contact details for both existing and potential customers,

and managing complex marketing campaigns happens to be important pointers for the sales and

marketing team of the organization. More importantly, these details must feed back

results to the demand forecasting process.

Sales forces and customer relationship management (CRM) drive the wheel of success for beverages

distributors. The sales force must be able to manage complex pricing issues, provide on-the-spot product

information and maintain top relations with customers. All system information is generally available to

help build and maintain good customer relationships. Maintaining exhaustive details of customer

interactions and detailing helps in delivering value to the customer. Such meticulous CRM exercise not

only helps in maintain existing customer but also in fetching new client.



Key features of effective CRM tools

1. Pricing flexibility: CRM tools work on built -in pricing methods to attract and keep customers

but also include discount methods, customer rebates, buying groups, baskets and order

summary discounts, with complete sales price visibility to let customers know exact cost

details. The schemes are an integral part of the pricing for regular customers, thus maintaining

proper data is critical.

2. Credit checks and payments: This is a check in the CRM module to minimize overall credit

exposure. It helps in holding back the orders when credit limit is exceeded. Credit holds at order

line level allow efficient management of orders per sales order line.

3. Call and contact planning: This aids the sales team of a particular geography. The planning is

based on solid information collection related to customers like contact no., operation time etc.

It streamlines the way sales team should operate and serves as a direct platform for placing the

purchase orders.

4. Electronic catalog support: It gives customers 24 -hour access to an organizations business

through web -based product catalogs, price lis ts, product availability lists an d personalized

shopping lists.

5. Substitutes and complementary products: This feature gives automatic recommendations for

product substitutions to help win and maintain sales in case of inventory outage. The system

provides listings of items with the same or similar characteristics, as well as complementary

items.

6. Sales wake-up calls: The CRM module generally automatically reminds the customers to place

sales orders when time is running short, helping to reduce lead -times, ensure re-orders, and

keep customers pleased with your service.

CRM Pricing Flexibility

Check on payments and

credit risks

Call planning for sales team

Electoronic Catalogue

Substitutes and complimentary

products

Sales wake-up calls



Distribution pattern

Sales control mechanism is very much state specific. With current pattern of consumption more states

are allowing easy channels like super markets. Stores selling only win e and alcohol are given license

at cheaper rate in comparison with super markets which sells alcohol with other brands. The states of

Karnataka, Maharashtra, Haryana, Goa and Punjab have a liberal retail policy, encouraging the

continuous growth through th ese channels. Delhi government is more inclined to control distribution

and retail chain still restrictive relatively. More investment friendly policies are likely to change the

market trends, with the retail sector expanding during the every year. Each st ate requires a set of

wholesalers with excise license for selling wine and alcohol. The importers and distributors must sell

their products through these wholesale license holders. The state of Haryana allows retail sales through

a license issued annually. Retailers must buy through wholesalers who has valid excise license. The

distributors have to sell through these wholesalers, adding to the cost of distribution. With giants like

UKs Berkmann Cellars, UB, and Diageo making entry in Indian market, and dom estic producers like

Champagne Indage and Sula stepping up imports, the distribution chain and hierarchy is expected to

see a major change in coming years.

Major Wine

Markets

Major domestic

wine growing regions

Major Shipment Port

Major Warehousin

g regions

Major Consumption

regions



Distribution Chain Specifics to Point of Sale:

Here we will see how distribution c hain works to the point of sale in wine and liquor industry. There

are four stages in distribution management system as follows.

Shipping:

Nava Sheva port in Mumbai is the preferred port for wine shipping as Mumbai being the finance capital

in India and easy access from Europe and US to the west of our country. In case of wine being imported

from west coast of US, Singapore is the common transhipment point. Though if wine is being

transported from east coast trade will directly arrive at Nava Sheva port.

Shipment can be ordered either on full container load basis or partial container load basis. For cost

efficiency refrigerated container or reefer is not in common use for low cost alcohol shipments. With

increasing demand for high end wine brands, the use of reefer is increasing every year. For non -

refrigerated shipments government has specific rules regarding where the shipments to be placed and it

specifically mentions the storage location has to be under deck and away from engine.

Primarily due to high e ntry barrier in wine import business, the new importers have not been able to

make a significant impact so far and the old order remains. Brindco is the largest importer and it has

maintained leadership consistently. In recent years it has seen 70% growth in sales.

Sonarys is the second largest importer in indian market and owns bonded warehouse. In third place is

Moet Hennessy, which has successfully promoted its Champagnes and other wines, pushing the volume

to 21,000 cases. Global Tax Free Traders has been stagnating in fourth place at around 13,000 cases.

Customs Clearance and Storage:

The imported alcohols and wines have to be stored in custom bonded warehouses. Sometimes public

warehouses also can be used if it has custom certified facilities. Once t he bill of entry for a cargo is

received the imported wines could be stored in the ware house for 90 days with 15% annual tax and no

demurrage fees for that period. Now a days customs are asking for bank guarantees in case of default.

There is always a cus tom officer in charge for each bonded warehouse. In case of release of wine or

liquor from store requires payment for duty of the officer. For a duty free release option duty free sellers

license or ministrys letter is required. Before the release of a s tock to a retailer, hotel or restaurants a

transport permit has to be issued. In a warehouse only brands and labels registered with excise

department could be stored. To avoid unlawful movements of stock different measures are taken in

different states. So me states like Delhi issues a hologram to restrict unlawful trafficking of alcohol.

Some state has a monopoly control over distribution. Karnataka controls all supply to retailers, hotels

and restaurants through KSBCL. All supplies are made to KSBCL which in turn releases stock to

retailers, hotels and restaurants.



Storage, warehousing and product integrity:

The custom bonded warehouses require heavy investments in terms of infrastructure and process

management and maintenance to comply with facilities defined by the excise and customs department.

The warehouses are primarily located in Mumbai and Delhi. Mumbai is preferred choice because

shipments are done mostly in Mumbai and have easy access to regions in our country where alcohol

consumption is high. Quality control mechanisms of storage facilities throughout different warehouses

vary drastically. In some warehouses high quality control measures are followed like temperature

controlled atmosphere and good insulation system. Some warehouses do not follow these rules specified

by excise and custom departments to reduce cost. Quality control program is essential in warehouses to

reduce loss in products and keep the quality of products intact during storage time.

Distribution through wholesalers and retailers:

After the materials are stocked in a warehouse importers can distribute wines and alcohols only through

licensed wholesalers. In some states retailing is allowed through private parties. In some state retailing

is done only through government owned retai l shops. In Delhi almost all retail shops are owned by

government. Very recently 15 retail shops by private parties have been established. In Maharashtra both

private and public parties are allowed to run retail shops provided necessary license is obtained.

Three-Tier Architecture:

Indian wine industry follows a three tier sales and distribution system. The three players in the

distribution system are importers, wholesalers and distributors.

1. Importer: Importers are responsible for successful shipments, proper maintenance during shipment

period, refrigerated packaging in case of high end wine imports and finally successfully stocking

materials in warehouses. Importers are not allowed to export refrigerating devices. So they have to

make tie ups from domestic players who provide refrigerated packaging equipment. Requirements

vary from state to state, but the importer must have a registered office in the state.

2. Wholesaler: Wholesalers are responsible for storing in bound materials in bonded warehouses. In

several states, the wholesaler must apply for a foreign liquor marketing license (FL-1 license) from

the state excise department.

3. Retailer: Retailers are responsible for selling the products directly to consumers. They must apply

for license to sell liquor in the designated state excise department.



Challenges in present distribution system:

1. High Barrier in wine import system:

Though there have been policy changes and government have already reduced stringent rules in

importing wine there are many other reasons which kept the barriers to import high comparative to the

global standard.

The first restriction is heavy investment in bonded warehouses which also requires significant guarantee

from banks. To obtain license distributor and wholesalers had to pay hefty amount of money to renew

license. These two restrictive measures set a sufficiently high barrier to new entrants, who are generally

forced to use the services of existing bonders. The commission importers have to pay for these two

services alone varies between 10-20% of the cost of wine. This poses high barrier for small importers.

But with the increase in per capita income and alcohol consumption new importers are making a place

for themselves. There are few exits every year and the number of import ers is steadily going up, even

though the market is not big enough to accommodate all of these new importers.



2. Unsynchronized and informal information sharing between different tiers of distribution system:

In the current scenario the information related to sales goes informally from retailer to wholesaler and

wholesaler to importer. There is no synchronized and automated system to share information in between

these distribution channels. Due to differences in policies between different states, informati on from

one state cannot be shared with other states which create barrier to create proper forecast and inventory

management.

3. Low economy of scale:

Due to differences in policies between different states the distribution operation has to be state specific

which restricts economies of scale without increasing the cost of product. Replicating the business

model of one state to another due to different compliances, taxes and duty fees asked by different state

governments becomes more difficult to achieve economy of scale.

4. Road System and Transportation:

The most vulnerable part of wine distribution system in India is its infrastructure of roads, rails, ports

and airports. Absence of high speed roads, 2.4 million kilometers of paved roads and more than a million

kilometers of unpaved roadway pose threat to reliability for modern transportation system. India's rail

network exceeds 63,000 kilometers, also has the same problem and the infrastructure is old not to the

mark.

5. Cold Chains in India:

Poor cold chain infrastructure is another problem for product warehousing and storing. High investment

is necessary to improve the facilities of existing cold chains to comply with the requirements asked by

the excise and customs department. The quality control mech anism of insulation and controlled

temperature varies greatly over different cold chains. This issue causes high operational cost during

product storage procedure and a big challenge to overcome in the coming years.

Logistics in Wine Supply Chain:

A typical 3 tier distribution system has been described in the earlier section. The logistics for such a distribution system looks as follows:



Source: Modeling and Measuring Logistics Performance in Wine Supply Chain, Garcia, Ing.

Fernanda A.

In order to get closer to a customer, some of the ex-cellars sell directly to final consumers by buying

different kinds of wines from several wineries in small quantities. The supply chain gets consolidated

as follows:


Fernanda A.

In any of the situations, the retail logistics providers have to provide a certain set of services and

facilities. They are:

1. International freight forwarding services

2. Import and export handling

3. Optimal cellarage conditions including:

a. Standard warehouse equipped with temperature and humidity control facilities

b. Custom temperature controlled conditions for storage of different kinds of wines

c. Stable and optimal storage conditions

d. High level of security and integrity of wine storage and transporters

e. Shelving system for wine cellaring

4. Domestic distribution facility, which includes:

a. Proper packaging and transporatation in temperature controlled vehicles.

b. Delivery of wine/alcoholic products in any market with a certainty of services



c. B2B based platforms for booking of orders from bulk order providers.

5. Inventory management technique

Potential problems faced by End to End Logistic Service Providers

1. Bottle suppliers may have long delays due to shortage in stock. This will result in delay in

bottling and labelling activities. In some circumstances, the deliveries may be in inappropriate

condition

2. Non-integrated supply chain network due to absence of IT or inoperability between supplier

and customer infrastructure. This cause s an impact on supply chain visibility and results in

higher cycle times, safety stocks, costs of carrying, etc.

3. Production and consumption in geographically different markets, like overseas operations can

cause risk of bullwhip effect and reduce the accuracy of forecasts.

4. Legal constraints on alcoholic drinks can cause delays in delivery.

5. Imposition of excess taxes can result in loss of accuracy in financial planning

Quality

Fig: Quality Issues in Supply Chain of Wine Industry


Fernanda A.

Wine supply chain, being an agri -supply chain is highly dependent on the optimal climatic

conditions like humidity, weather, environmental pollution, etc. Grapes are prone to oxidat ion,

rendering them unsuitable for winemaking. Another area resulting in poor quality grapes is due to

poor training of workers, resulting in broken grapes, though this can be resolved by training. Out

of time harvest, when grapes have not reached optimal maturity can impact the deterioration of

grapes, with a downstream impact on quality of wine. In India, there is an absence of planning and



scheduling techniques for harvesting of vineyards since they are generally under the control of

owners. The conditio n to which wines are exposed during transporation also plays an important

impact on quality. High temperatures and humidity have an adverse impact. Low real estate of

vineries and poor transportation infrastructure means that trucks generally block entranc es,

resulting in deterioration of quality during transportation.

Supplies form a bulk of inputs, and hence a potential source of problems. Bottles, corks, labels and

cartons are generally sourced from suppliers and any improper packaging, incomplete our n on-

delivery of items, etc can affect the packaging and conservation of wine. Poor quality corks can

cause wine to come in contact with air and deteriorate rapidly. Poor delivery of final product can

affect the relation with customer and market loss. The tr ansportation vehicles are generally

temperature controlled by using refrigerated chambers, subsoil caves, etc. Any variation or

fluctuation in temperature impacts quality and hence, a constantly cooled environment is preferred.

Timeliness

Fig: Problems relating to Time in Supply Chain of Wine Industry


Fernanda A.

When using MTO strategy, suppliers may not be able to fulfil requirements during the preparation

of orde rs. Bottles and labels have strict procurement requirements, i.e. specific delivery time,

product specifications, etc. If supplier causes delay in delivery of these items, it can lead to long

lead time in delivery of the overall order. The requirement of labels varies with the design of bottle

suppliers, and could elongate the long lead time due to sequential nature of the problem.

Quality testing is a critical process during the entire chain because it ensures that the quality of wine

is good. It can sometime turn into a bottle neck due to the time consumed by tests. It involves lots



of set up of machines and excess of setup can waste time during bottling process. However, this

can be covered during deciding the capacity of the plant.

Improper scheduling of bottling and other activities can lead to loss in efficiency in the overall

supply chain, more so if integrated IT systems are not installed to track the process. Another factor

which is not under the control of the exporter is bad co -ordination among c ontainer transport

freights, inspection and certifications and slow movement of transport vehicle due to poor

infrastructure. This can lead to delay in the distribution cycle and is not measurable or controllable

by the company.

An overall summary of the quality, timeliness, production and capacity of the overall logistics in

supply chain of wine industry can be summaried in the following table:

1. Supplier performance: Measured as the extent to which winerys specifications are met my

activities of suppliers and the quality of delivery. This can be a measure of claims made by the

winery regarding the unacceptable quality of supplies like bottles, corks, labels, etc.

2. Right quality of grapes percentage: Factors like bad weather conditions, problems during

harvesting, treatment of grapes during transportation, expose to extreme weather and

temperature or poor storage condition on arrival at winery.

3. Production performance index: It is the percentage of units which are produced in the winery

to specification.

4. Inventory performance index: It is measured as forecast accuracy, product obsolescence,

inventory accuracy, stock outs, etc and is benchmarked against industry standards.

5. Warehouse performance: It includes activities like picking accuracy and shipping accuracy of

finished goods.

6. Customer satisfaction index: Overall indicator of customers satisfaction, measured as

percentage of orders that meet customers specifications against the claims received by the

company. It is broken down into the following sub-levels:

a. Perfectly purchased supplies

b. Product unit perfectly bottled

c. Perfectly fillable

d. Perfectly picked and packed

e. Perfectly delivered

f. received

7. Timeliness of the logistics can be measured as:

a. New demand response time, which is the average time required by supplier to respond

to new orders.



b. Total production cycle time/production lead time, which is the average time required

for performing elaboration and aging of product, quality testing followed by bottling.

c. Delivery cycle time, which is the average time required for freight.

d. Total logistics time: it is the average time elapsed between customer order placement

and time when it is actually delivered to the customer. It includes:

i. Order processing

ii. Purchase cycle time

iii. Bottling time

iv. Warehouse processing time

v. Delivery time

vi. Return time

vii. Backorder duration



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Modeling and Measuring Logistics Performance in Wine Supply Chain, Garcia, Ing. Fernanda A.

Supply chain management system of wines and liquor industry in India

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