3rd International Workshop on Food Supply Chain Making Food Supply Chains Efficient, Responsive and Sustainable South African Wine Supply Chain Project Joubert van Eeden 1, Esbeth van Dyk 2, Johan Louw 1 Corneli Jooste 1, Tielman Roos 1, Johan Smit 1 1 Stellenbosch University / 2 CSIR November 2014 Department of Industrial Engineering Faculty of Engineering
Agenda Introduction and Background Project participants SCC Project Implementation Process Where to from here? Preliminary performance measurement frameworks 2
Agenda Introduction and Background Project participants SCC Project Implementation Process Where to from here? Preliminary performance measurement frameworks 3
Copyright Stellenbosch Source: WOSA University
Brief history of SA wine industry In 19th century the British occupation of the Cape and their war with France created a market for SA wines. Vines & wine production increased dramatically 1861 trade treaty between Britain & France SA wine exports collapsed. Overproduction, prices dropped 1918 KWV was formed to alleviate situation by controlling sales and removing surplus from market encouraged overproduction and discouraged quality Approx 1950 KWV withdrew from buying grapes, so farmers needed access to cellars cooperative cellars formed, farmers paid from pool 1997 SA wine industry deregulated fragmentation
Types of wine cellars Producer cellars: Cooperative cellars work on a communal basis, processing grapes of their farmer members into wine. All the grapes are pooled, so farmers with poor quality grapes benefit most. (50 coop cellars press about 80% of SA total harvest). Corporate cellars a coop cellar that has become a company and may thus make a profit Estates a small farm with own cellar where all the wine must come from the farm; not allowed to buy in grapes or wine Private cellars allowed to buy in (all) grapes
Quick stats on SA wine industry (2013) 296 million vines on 99 680 hectares 1.49 million tons of grapes crushed 1156.9 million litres wine, brandy & juice produce 915.5 million litres wine (38% red, 62% white) 517.4 million litres wine exported (compared to 21 million litres in 1992) 9th largest producer & 9th largest exporter (2013) Some 3323 producers and 564 cellars (>300 built in last decade) Contributed R26.2 bn or 10% to SA GDP (2008) Some 275 600 people employed (2013)
Packaged & bulk natural wine export destinations Country Volume (M Litres) % Cumulative % United Kingdom 111 21% 21% Germany 96.5 18% 39% Russia 37 7% 47% France 34.6 7% 53% Sweden 33 6% 59% USA 31.9 6% 65% Canada 22 4% 70% The Netherlands 22 4% 74% Denmark 20 4% 78% Italy 15 3% 80% Total (top Source: 10) SAWIS 2007 423 80% Grand Total 525.6 100%
Worldwide production and export 2013 Country Area under vines - bearing (Wine and table grapes) Wine production (liters) Hectares % of total world surface area Rank Wine Production % of total world production Rank Spain 1 023 000 13.8 1 4 270 000 000 15.4 2 France 794 000 10.7 2 4 201 600 000 15.1 3 Italy 752 000 10.1 3 4 490 000 000 16.2 1 China 600 000 8.0 4 1 170 000 000 4.3 8 USA 408 000 5.5 6 2 200 000 000 8.0 4 Argentina 224 000 3.0 8 1 498 400 000 5.4 5 Chile 207 000 2.8 9 1 280 000 000 4.6 6 Sources: OIV Statistics 2004 & Global Wine Statistical Compendium Australia 158 000 2.1 11 1 245 600 000 4.5 7 South Africa 130 000 1.7 12 1 097 200 000 4.0 9
Project Overview South African Wine Industry Increased exports since deregulation Numerous strategies and distribution channels Improve performance of the supply chain through the development of a performance measurement framework Follow a SCOR approach as a point of departure 3 year project (2014 2016) 10
Project Overview Steering committee VinPro, Winetech, SAWIS, SU, CSIR Guide process & track progress Initial industry segmentation Bulk / Packaged Local / Export Organise wine cellar participation Project aims Gather information from interviews, focus groups, visits to wine cellars, surveys and experimental studies Compile a literature study on a variety of benchmarking methods Develop a performance measurement framework and benchmarks for each identified segment 11
Agenda Introduction and Background Project participants SCC Project Implementation Process Where to from here? Preliminary performance measurement frameworks 12
Project Team Mr Joubert van Eeden (SU, Industrial Engineering) Project Leader Prof Johan Louw (SU, Logistics Management) Mr Konrad von Leipzig (SU, Industrial Engineering) Dr Esbeth van Dyk (CSIR) Ulrike Kussing (PWC Advisory) Students: 5 x Final year students in Industrial Engineering (workstream 1) 6 x B Com Honours students in Logistics Management (workstream 1) 3 x Masters students in Industrial Engineering (workstream 2) Supporting stakeholders: Winetech (Approved project) Vinpro PWC (Insights Survey 2010, 2012, 2013, 2014) 13
Work stream 1 Supply Chain Analysis Method: Analysis of the supply chains of 16 wine cellars. Use method as proposed by the Supply Chain Council. Analysis of the AS IS, performance measurement, Business process analysis and proposal of opportunities for improvement. Resources: Five 4th year Industrial Engineering, six Logistics Management Honours students Part of their research projects. (Supported by study leaders)
Work stream 1 Supply Chain Analysis Duration : April to October 2014. Outputs: 16 Case studies: one per cellar for cellars own benefit. High level summary information about the opportunities and lessons learned will be reported to the wine industry organisations, and wine interest groups.
Work stream 2 Supply Chain Measurement Framework Method: Focus on the priority segments identified at workshop Packaged export / Bulk export / Packaged local / Bulk local Formulating the measurement framework for each of the chosen wine industry segments. Process attempt to: Identify metrics that indicate success in the wine industry segment, Measure a larger population of wine cellars in that segment, and Provide feedback on opportunities to the industry about large scale and/or individual changes possible by the industry or individual cellars.
Measurements - Reliability x y z 80% 90% 99% 90 th percentile = 97% 50 th percentile = 90% 70 th percentile = 94% 17
Measurements - Reliability x x y z z 18
Measurements - Reliability x y z 84% 92% 99% 90 th percentile = 97.5% 50 th percentile = 92% 70 th percentile = 95% 19
Measurements - Reliability x y z 20
Work stream 2 Supply Chain Measurement Framework Resources: Three Masters students in Industrial Engineering (2014) Each focussing on one of the priority segments of the SA wine industry. Study leaders are part of the project team
Work stream 2 Supply Chain Measurement Framework Duration: April 2014 to August 2015 (interim milestones to coincide with the project objectives) Outputs: Three masters theses. Supply chain measurement frameworks for three priority segments of the SA wine industry (or some for alternative focusses). Articles in academic journals and wine industry publications. Conference presentations. Feedback to industry organisations and individual cellars that contributed measurement values to the project team.
Liters in sample [Millions] % of industry Current industry partners 2014 16 producer wine cellars committed to process Participants represent the industry well 160.0 140.0 120.0 100.0 80.0 60.0 40.0 27.2% 32.6% 19.9% Million Liters % of Industry 13.4% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 20.0 5.0% 0.0 Bulk Local Bulk Export Packaged Local Packaged Export 0.0% 23
Agenda Introduction and Background Project participants Project Implementation Process Where to from here? Preliminary performance measurement frameworks 24
The SCOR model an industry open standard SCOR is a supply chain process reference model containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental management Organized around the five primary management processes of Plan, Source, Make, Deliver and Return Plan Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Return Return Return Return Return Return Return Return Suppliers Supplier Supplier Your Company Customer Customer s Customer Internal or External Internal or External 25
7 Steps of a Benchmarking Program 1. Supply Chain Definition 2. Supply Chain Prioritization 3. Supply Chain Strategy 4. Selecting Metrics 5. Sourcing Data 6. Creating a Balanced SCORcard 7. Performing Benchmark 27
Supply Chain Definition: The Matrix We now place the customer list as column headings repeating until finished And then the products list as row headings repeating until finished For each product that flows to a customer, we put an X in the cell Retailers Group 1 On premise Group 2 Bottler Packaged wine Bulk wine Product 1 Product 2 Product 3 Product 4 Customer A Customer Restaurant B Customer Restaurant Walmart Tesco C Customer D chain A chain B X X X X X X 28
Four Supply Chains identified Through a process of definition and prioritisation the following supply chains were selected Local Export Bulk wine Bulk - Local Bulk - Export Packaged wine Packaged - Local Packaged - Export 29
Preliminary performance measurement framework Packaged Local Supply chain prioritisation 70% Local distribution per channel 60% 50% 40% 30% Distribution by value 20% 10% 0% Retailers On-Trade Other Source: Marketline 2014 30
Preliminary performance measurement frameworks: Packaged Export (measure up to importer) Supply chain prioritisation Country Average yearly growth UK -3.49% Sweden -2.64% Netherlands -2.88% Germany 3.72% China 37.84% Nigeria 20.60% 31
Preliminary performance measurement frameworks: Bulk Export (measure up to bottler) Supply chain prioritisation Prioritisation is according to volume exported 37.34% of the total wine produced in South Africa is exported in bulk format 120,000,000 Bulk export L i t r e s ( l ) 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Years UNITED KINGDOM RUSSIA CANADA EUROPE (GERMANY & FRANCE) 32
Supply Chain Strategy Identify priority attributes of supply-chains A supply chain strategy is defined by selecting: 1 Superior attribute (90 % percentile) 2 Advantage attributes (70% percentile) 2 Parity attributes (50% percentile) Attributes Reliability On time? Complete? Undamaged? Responsiveness From Customer Request to final acceptance? Agility How long to scale up? How expensive to scale down? Cost Cost of Processes? Cost of Goods Sold? Assets Cash to cash cycle time? Inventory days of supply? 33
Supply Chain Strategy in 5 Minutes Build Strategy Model Lifecycle Likely Priority Buy Make ETO MTO MTS Start Middle Commodity EOL 1. Assets 2. Cost 1. Reliability 2. Response 1. Assets 2. Reliability 1. Flexibility 2. Response 1. Cost 2. Reliability 1. Cost 2. Assets 1. Assets 2. Cost 34
Supply chain Strategy of Participating Cellars Bulk local Bulk export Packaged local Packaged export SCC Performance Attributes S* A** S* A** S* A** S* A** Reliability 1 4 7 1 2 4 1 3 Responsiveness 2 2 1 6 1 4 4 2 Agility 1 3 0 4 0 2 0 1 Cost 2 2 0 4 3 2 1 2 Assets 1 3 0 0 1 2 0 3 Number of wine cellars focusing on the specific segment 7 8 7 6 35
Internal Customer Selecting Metrics First round of metrics Attribute Metric Unit Reliability Perfect Order Fulfillment % Responsiveness Order Fulfillment Cycle Time Days Agility Upside Supply Chain Flexibility Days Per bottle (packaged) or Storage Cost Cost per litre (bulk) Transportation Cost % of Revenue Assets Inventory Days of Supply Days 36
Agenda Introduction and Background Project participants SCC Project Implementation Process Where to from here? Preliminary performance measurement frameworks 37
Where to from here? Up to Sep 2015 Finalise supply chain segmentation Dec 2014 Finalise supply chain metrics Mar 2015 Perform measurement round 2 Apr 2015 Analyse Adjustments Perform measurement 3 Jul 2015 Analyse Publication 2015 and 2016 Implement in SA industry Facilitate change where improvements are required International comparisons 38
Collaboration opportunities 1. Measure for supply chains from your country to similar markets 2. Perform comparative measures from customers perspective Responsiveness and Reliability To Northern hemisphere markets From Southern hemisphere countries I.e. SA vs Chili vs Argentina vs Australia 39