Efficiency on Tap

Heineken's latest version of its Operational Planning System (HOPS), a demand planning application that is flexible enough to adjust to event-driven demand for beer, is keeping the Heineken brand popular with loyal customers.

[From iSource Business, June 2001] Mark Greenberg likes to keep Heineken stock on hand. Greenberg isn't one of Heineken USA's 425 distributors, and the Heineken stock he holds isn't delivered in bottles, cans or kegs. As senior vice president and fund manager for Invesco Fund Group's Leisure Funds for the past five years, Greenberg keeps Heineken in the Leisure Fund investment portfolio, noting that Heineken NV (Heineken USA's corporate parent) remains a strong performer due to its ability to sustain brand loyalty.

When I talk with [imported beer] distributors, they often tell me of imports that sell well enough but aren't very profitable to them. These aren't complaints I hear about Heineken, says Greenberg. Distributors like Heineken brands because they are popular at stores, in bars and at restaurants, and they command a premium price.

In early 1997 when Heineken USA set up its Heineken Operational Planning System (HOPS) based on Logility's Value Chain Solution (LVCS) demand planning application, it was one of the first companies to implement a collaborative supply chain solution. We implemented HOPS as a better way to work with our distributors. Our goals were to improve customer-service levels and reduce inventories, while keeping all of our products consistently in stock to distributors, says supply chain manager Tom Bongiovanni, director of operations planning at Heineken USA.

A Matter of Time

Beer from the Heineken Breouwerijen B.V. brewery in Amsterdam has been imported to the United States ever since the ban on imported beer was lifted shortly after Prohibition ended in 1933. Despite the extra     50-year advantage over most of its competitors to build brand loyalty, Heineken suddenly faced new competitive pressures from domestic brewers several years ago.

Unlike wine and hard liquors, beer must be sold while it's still fresh. Freshness regulations dictate that cans and bottles of beer remain on store shelves for no longer than 180 days after their date of manufacture. All eight of the brands that Heineken imports to the United States are brewed and bottled in Holland. That means they have to spend at least 10 to 14 of their 180 days on a trip across the Atlantic Ocean, plus an extra week or so to get to the West Coast.

Seizing upon freshness as its competitive advantage, Budweiser embarked on an advertising campaign that featured a prominently displayed born on date stamp on each label or can. This born on campaign made consumers more aware of manufacture dates than ever before. Because of their long ocean voyage, the very freshest Heineken brands' have born on dates that are at least two weeks later than their domestic counterparts, if they are purchased on the East Coast, and later still if they are sold on the West Coast.

The fallout from this ad campaign on the freshness of beer served to underscore the idea that supply chain efficiencies are now more important than ever before. Monthly forecasting via the HOPS extranet is much more efficient and accurate than the time-consuming process of having district managers fax orders from Heineken USA's White Plains, N.Y. headquarters to Amsterdam.

We used to push inventory out to the distributors. Now they pull it from us. It takes distributors five minutes to order the beer they will need for an entire month, says Dan Tearno, Heineken USA's vice president of corporate affairs. Our sales managers used to spend about 20 percent of their time faxing sales projections to us. Now that distributors can enter the forecasts and change forecast orders themselves, the lead times for ordering and delivering are dropping. Since the original introduction of HOPS in 1997, lead times for bringing beer from Amsterdam dropped from 12 weeks to four weeks on the East Coast and from 12 weeks to six weeks on the West Coast.

Now Heineken distributors are using the HOPS extranet to send weekly, rather than monthly, depletion and replenishment forecasts. Weekly updates make it possible for Heineken brewers to adjust production in response to updated forecasts. The transition to weekly forecast updates was implemented concurrently with a change in the way distributors take possession of their inventory. Instead of requiring distributors to bring trucks to meet the container ships at ports, Heineken USA now has the containers transported to various, independently operated regional warehouses it calls demand points.

A Tidy Package

Until recently, a shipping container of Heineken beer was the smallest quantity a distributor could purchase. Now Heineken USA allows the purchase of partial containers. Being able to order Heineken brands more frequently and in smaller quantities means distributors potentially retain higher profits because there is less spoilage due to beer that hasn't sold before its expiration date.

Heineken USA partnered with Logility to bring about some of the changes in the new release of LVCS. The application now includes a containerization module that supports the logistics of moving containers  from ships to warehouses, improved exception management to support weekly depletion and replenishment reports, and a routing and scheduling module that helps get container ships from Holland to their U.S. destinations as efficiently and quickly as possible.

A key advantage of HOPS 3.0 over the original version is its flexibility to adjust to event-driven demand for beer. Consider, for example, fluctuations in the demand for Heineken brands in the Oakland and Baltimore metropolitan areas in mid-January when the Oakland Raiders battled the Baltimore Ravens in the NFL Super Bowl playoffs. In Raider country, desolate fans meant an overstock of fresh beer in the Oakland warehouse. Using the new exception management features of HOPS 3.0, distributors with an overstock could send their excess inventory on to Long Beach or possibly Seattle. In Raven territory, on the other hand, the Baltimore warehouse might run short on stock and need to call upon the Richmond warehouse to provide reinforcements in time for the victorious team's homecoming.

Now that distributors are providing weekly inventory updates, the HOPS data repository is quickly becoming a valuable information asset. The HOPS database provides an opportunity to capture business intelligence. Heineken USA will be able to exploit this business intelligence to select optimal locations for its future U.S. distribution centers so that lead times can continue to shrink, says Karin Bursa, Logility's vice president of marketing.

Peggy King Martin is a freelance writer based in Oakland, Calif.