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Supply Chain Management in Wine and Alcoholic Drinks Industry in India

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Section – B | Group - 5
Akshay Kumar Alok Kumar Singh Deepto Choudhary K N Manish Chandra Sagar Tule Shrinwanti Banerjee PGP/16/241 PGP/16/244 PGP/16/256 PGP/16/263 PGP/16/282 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

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

Section B | Group 5

Indian Institute of Management, Kozhikode

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..................... .................................................... Kozhikode 2 ....... ................ 21 Quality ................................................ Road System and Transportation:................................... ... 21 Potential problem areas for Logistics in Wine Supply Chain: ................................. Cold Chains in India: ....................................................................................... .... 17 Distribution Chain Specifics to Point of Sale:................................................................... 18 Storage....................................... ....... 19 Challenges in present distribution system: ............................ ...... 21 3................................ ...... ............... High Barrier in wine import system: ......... Low economy of scale: .. Unsynchronized and informal information sharing between different tiers ........................ ........................................................................ ........ ...... ...................... ....... ............................. .................. ........ ...... ............................................................................................................ 16 Distribution pattern.......... 19 Distribution through wholesalers and retailers: ................ ............................................................................................................... ................. ............................................................................... 18 Customs Clearance and Storage: ............................... ....................................... ............... ..................... . ............ ... 20 2....................... .......... warehousing and product integrity: ........................ ....................... ........................................... ........................ 18 Shipping: .........................Supply Chain Management in Wine and Alcoholic Drinks Industry in India Key features of effective CRM tools..... 24 Section B | Group 5 Indian Institute of Management................................. ........ 19 Three-Tier Architecture:.......... 20 1. ........................... ................. 21 4.. .. .................... ..... .......... 23 Timeliness .............. ............................................................... ....................... . 21 5..............................

5%).4%) and convenience stores (0. Specialist retailers handle the bulk (62. Section B | Group 5 Indian Institute of Management.9% between 2008 and 2012. The forward looking figures suggest a robust growth of 10% CAGR from 2013-2018 and increase the market to a value of B50.5%). Champagne contributed $34. Kozhikode 3 .. followed by on trade (35. approximately 78. On-trade form the major bulk of distributors for wine market (60.4bn in 2011.8% between 2008 and 2012. Alcoholic drinks includes retail sales of spirits. fortified wine. it represents a CAGR of 5.6%). ciders & FABS mostly through retails channel .5% of overall market value. Super markets and hyperma rkets (1.4bn in 2011.5% of the market’s overall value. or approximately 10. Growth in the industry had seen a dip in 2008 -2010.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Introduction The market for wine and liquor industry in India comprises of wine. The market in India has been fast growing. Still wine comprises of the largest share of revenue. With total reven ue of approx. It had total revenue of $30. The wine market is composed of retail sales of champagne.1%) form the last mile distribution system which is accessible most closely to consumers. with a CAGR of 17. 0.3bn.8bn.5%). alcoholic drinks and beer. Market consumption has increased with CAGR of 15. accustomed andopen to western trends.1% in the same period.9%) and department stores (including duty free shops. sparkling and still wine and is valued per the retail selling prices (including applicable taxes). but is expected to revive again going forward in 2014. followed by specialist retailers (35. super markets and hypermarkets (3.1%) Alcoholic drinks have a slightly varying distribution proportions. $0.

It is the flow of material and information from the winery to the supplier or to the direct end consumer. SAB Miller. 3. The leading producers of wine are Grover Vineyards. from supplier and towards the customer. Integrated supply chain: It is the flow of material and information within the winery and includes multiple trading across suppliers and customers. It measures the winery’s supplier performance or the performance of the winery with regard to its customer performance. Nashik Vintners and United Spirits Limited. It provides mutual benefits to the entire value chain. Kozhikode 4 . External supply chain. United Spirits Limited and United Breweries Holding Limited. Indage Vintners. from the initial supplier to the end consumer. It measures the process performance of the winery only. The typical supply chain of wine and alcoholic drinks industry can be represented by the following diagram: Section B | Group 5 Indian Institute of Management.Supply Chain Management in Wine and Alcoholic Drinks Industry in India The companies that lead the production of alcoholic drinks in India are Pernod Ricard. The overall wine supply chain is a complex agri-cupply chain which incorporates the following: 1. 2. Internal supply chain: It is the itnergrated flow of material and information within the winery.

Kozhikode 5 .Supply Chain Management in Wine and Alcoholic Drinks Industry in India Section B | Group 5 Indian Institute of Management.

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. In the imported category. St. ascorbic acid and citric acids are also required for manufacturing certain types of wines.marketed in India by Echidna Wine Traders Xanadu and Cape Mentelle of Western Australia .Supply Chain Management in Wine and Alcoholic Drinks Industry in India Procurement Mechanisms: The wine and liquor industry in India can be broadly classified as ‘imported liquor’ and ‘India Made Foreign Liquor’ (IMFL).Indian subsidiary Howling Wolf of Western Australia. Kozhikode 6 . Also. Grant Durge. Ha llet and Thomas Mitchell of Southern Australia. established distribution channel in India Smith Brooke of Margaret river. In the IMFL category. Grapes suppliers: The key ingredient to any wine. 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. Section B | Group 5 Indian Institute of Management.has own.marketed in India by Fine Wines & More. Maharashtra Local production. the quality of wine depends almost entirely on the type and quality of grapes obtained from the vineyards and grape growers. 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.distribution arrangement with Sula Vineyards. popular brands of wine and liquor are directly imported and marketed.IMFL: Upstream supply chain The supply chain for wine industry is linear in nature. usually with a marketing and distribution arrangement with a local player with established infrastructure. Moet Hennessey BRL Hardy. Since the wine/liquor is in contact with the bottle for most of its life.

Supply Chain Management in Wine and Alcoholic Drinks Industry in India § § 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. which are located approximately 180 -300 km northeast and south of Mumbai. Location of input suppliers Vineyards and fruit growers: The major wine producing regions in India are Maharashtra. Grapes/grain sources. glass bottles and fruit and vegetable supplies are identified as critical inputs for the following reasons: o o o The role in the wine-making process The stage of lifecycle when they are required 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. Pune and Osmanabad.and its production is cyclical in nature. Sangli. fermented and distilled to produce ethanol (technically rectified spirit). Thirty wineries have established production and bottling plants in the Vinchur industrial estate near Nasik. The market for ethanol is equally divided between production of liquor and industrial alcohol. Th ese areas are suitable for growing grapes due to the suitability of weather conditions. However. The raw material for Beer production however. specifically. Section B | Group 5 Indian Institute of Management.). the demand for ethanol is poised to incr ease due to increasing use of ethanol for commercial blending with petrol (bio -fuels etc. 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 supply of ethanol is also expected to increase on account of increasing number of sugar mills with integrated plants for cogeneration and distillation facilities. Kozhikode 7 . the amount of sunlight and the relative humidity in the atmosphere. is barley. Maharashtra with 64 wineries contributes about 94% of the total wine produced in the country. a by -product of sugar. Karnataka and Himachal Pradesh. weather and other environmental conditions and lends a commodity nature to molasses. Satara. Molasses supply depends on the production of sugarcane. Those manufacturers with in -house processing facilities use molasses while others buy ethanol directly.a cash crop. The major grape producing regions in Maharashtra are Nasik. The cyclicality in barley and sugarcane production depends on the season. Molasses is processed. In the long term. the production of which is based on the season. Ahmednagar .

1 billion units. 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. lower cost of operations and environmental concerns surrounding the usage of plastics. encour aged by the presence of over 65 distilleries. the nature of the farmland and the suitability for growing the type of grapes required for a given kind of win e/liquor. Under these schemes. glass packaging is expected to see a retail unit volume CAGR of 9% to reach 20. the productivity of the vineyards is dependent on other problems typical to agriculture such as infestation by pests. Glass packaging industry had a retail unit volume of 14.1 billion units in 2011 and had grown at 10% volume Y -o-Y. due to the existing supply chain. vintners enter into contracts with local farmers to produce a certain qua lity and quantity of the desired variety of grapes. the production of grapes is seasonal and hence discontinuous. In the year 2011-12. in India is around 12 -15 years. Also.Supply Chain Management in Wine and Alcoholic Drinks Industry in India In addition to the location suitability of the vine yards. Therefore. Demand for returnable glass bottle remains strong in 2011. producing two harvests a year. glass has a perception of vintage and serves to preserve the quality of premium wines better than plastics do. in addition to numerous small. The number and size of these contracts depends on the size of the landholding of the farmers. several supporting industries have also been established and encouraged. Owing to the burgeoning wine industry in the vicinity. Glass makers: The aforementioned areas of Maharashtra have been cultivating grapes for several decades. 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. the primary concern for grape growers is the long term sustainability of the vineyards. 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 Section B | Group 5 Indian Institute of Management. while the average lifetime of the vineyards producing a single large harvest a year is 20 -25 years. However. The win e and liquor industry accounts for a major share of the market for Glass packaging. it is only in the past decade that the farmers have shifted to growing grapes suitable for wine -making. 35 per kg from the contract farmers. The average lifetime of vineyards. grapes were procured at Rs. In addition. Kozhikode 8 . the rest of the supply chain is optimized to suit the fruit harvesting schedule. Also. By 2015. local manufacturers that constitute the downstream sub-contracts. controlling the usage of pesticides and fertilizers among others. Approximately 20 major glass bottle makers serve as the Tier-1 suppliers for the wine and liquor distilleries in Maharashtra. One such industry is the glass making industry.

the inefficiencies in the non-automated production process lead to further distortion of the forecasts.e. 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. This is to enable flexible procurement and thereby shortened lead times and associated cost savings. the other operations are optimized and scheduled to suit the harvest schedule so as to minimize the fruit to bottle lead times. In the year 2011. The transportation damages and lack of automated mac hinery are the primary concerns in Indian vineyards. the capacity of their manufacturing is adjusted to supply the required quantity of glass bottles of the desired variety. Kozhikode 9 . Typically. However.Supply Chain Management in Wine and Alcoholic Drinks Industry in India wine/liquor in the forecasted demand quantity. Also. sugarcane and fruits. These large vintners outsource only about 20% of fruit production to external farmers. Certain large manufacturers control significant landholding under grape cultivation so as to enable tight monitoring of the quality and quantity of produce. Since little can be done to alter the natural course of their harvest. Indian farms employ manual picking and sorting of grapes and fruit which add to labour costs and increase the procurement lead times. harvest of grapes and fruits in India are based on previous year averages and are largely empirical in nature. forecasting gains criticality due to the seasonality and cyclicality of the key input resources.. the number of glass bottle suppliers being less than the number of distilleries.grapes. these causes led to losses amounting to 21% of the total fruit produce. Forecasting and Inventory Mechanisms Forecasting requires gathering the right info rmation in time and analytical capability and tools to identify and predict trends. Glass bottles and other ancillaries: These inputs are not influenced by seasonality and cyclicality factors. Adding to this is the uncertainty from large proportion of losses incurred during cultivation. the planning and scheduling of raw material sourcing i. harvesting. Forecasting with such short term data leads to inaccuracies creeping in and hence varying quantity forecasts. these have short lead times and are reordered in small quantities frequently.hand picking and handling. Largely. In the wine and liquor industry. Section B | Group 5 Indian Institute of Management.

and regulations. 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. Section B | Group 5 Indian Institute of Management. the average life -time of a vineyard is much lower in India than in similar vineyards in other countries. Lack of mechanization and automation in the grape -growing and harvesting process in India is quite unlike similar industries elsewhere in the world. The tax regimes vary across the states. octroi.Recommendations Process Automation & Improvements Also. looking for Supplier Relationship Management and Procurement Management etc. This is one of the reasons why losses due to wastage in the industry are much higher than the world averages. For instance. could help manage the procurement process better. In Maharashtra. These solutions include advanced methods such as automated sourcing strategy models that also help reduce administrative overheads. Each state has its own set of policies. the automated procurem ent processes help minimize the total supply costs and help avoid stocking problems.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Procurement Challenges Unique to India Wine and liquor industry in India faces certain pe culiar challenges caused by the government regulation procedures. In conjunction with intelligent warehousing and inventory routines that maintain optimum safety stock levels and ensure timely restocking. rules. tax regime linked to the procurement of raw material and distribution of finished products. Also. 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. there are seven or eight types of tax es that are imposed while in some other states there are 12 types of taxes. 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. there is an entry tax. disaster recovery. in UP. and quantity tax. Potential for Improvements. Kozhikode 10 .

Kozhikode 11 . Wine c. brewing. The process involves the microbial reaction so strong quality control measures are adopted. Scheme : To make beer.followed by maturation (racking). cooling and fermentation .Supply Chain Management in Wine and Alcoholic Drinks Industry in India Production Process The whole Alcohol Industry broadly divided into three groups a. Although most wine is made from grapes. Key to the beer making process is malted grain. wheat or sometimes rye. starting with selection of the grapes or other produce and ending with bottling the finished wine. Liquor Beer Production Process All beers are brewed using a process based on a simple formula. brewers use water and barley to create a sweetened liquid (called the wort). milling. filtering (finishing) and packaging. Wine Production Process Winemaking or vinification. Beer b. is the production of wine. mashing. The basic process may be simple but the execution is highly sophisticated. The stages are malting. depending on the region traditionally barley. it may Section B | Group 5 Indian Institute of Management. then ferment with yeast. which they flavor with hops.

Scheme : Liquor Manufacturing : Liquor Manufacturing is described in the following diagram : Section B | Group 5 Indian Institute of Management. Mead is a wine that is made wi th honey being the primary ingredient after water.Supply Chain Management in Wine and Alcoholic Drinks Industry in India also be made from other fruits or plants. Kozhikode 12 . Winemaking can be divided into two general categories: still wine production (nipple wine // without carbonation) and sparkling wine production (with carbonation — natural or injected).

The mash tub is kept covered to retain the heat and constantly stirred. 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. Kozhikode 13 . recycled and sold to relevant industri es to minimize cost and maximize efficiency at every stage Mashing: The Grist is mixed with hot water and the Grinding: The grain is coarsely ground in a mill and the resulting product is called grist resulting mixture is fed into a mash tub. Blending: At Globus Spirits. This process produces alcohol and Carbon dioxide. blending and tasting to create our signature brands. The spent grain that remains in the tank at the end of this process is collected in separate containers and dried in a special process and sold as cattle feed Distillation: The wash is made to flow into the wash charger and the actual process of distillation is initiated. The Carbon dioxide generated is purified and bottled and then sold to be used in the making of carbonated drinks. Section B | Group 5 Indian Institute of Management. The fermentation process continues for 2-3 days and the resultant alcohol rich mix is called wash. All by-products are re -used. Fermentation: The wort is cooled to the ideal temperature and activated yeast is added to initiate fermentation. The fermented wash is conveyed to the still where it is boiled. The spirit collected at this stage is called low wine and it goes through yet another process of distillation to yield 95% alcohol. In this process enzymes act on the starch and convert it to sugar. Since alcohol boils at a lower temperature than water. our master blenders then take over the manufacturing process. the entire process is designed to have minimal impact on the environment.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Besides optimum fuel efficiency. The resultant mixture is called wort. The alcohol goes through several stages of testing. therefore manufacturing strategy is ‘make to stock’ . 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 Manufacturing Strategies: The products is not innovative but functional in nature.

below 10 % types of Average forced end – of season markdown 0% as percentage of full price Lead time required for made to order products Demand Supply chain : Physically efficient Primary process Supply predictable demand efficient at the lowest possible cost Manufacturing process Inventory Strategy Maintain high average utilization rate Manufacturers generally has good chunk of inventory Lead time focus Approach to choosing suppliers Shorten lead-time at the end of retailers Select primarily based on quality . an relationship based Production design strategy Strong quality control . since demand is stable and not affected by market economics . one unit make few product only Average margin of error in the forecast at the time production is committed Average Stock out rate Very low .Supply Chain Management in Wine and Alcoholic Drinks Industry in India Characteristics Table : Functional Product Life Cycle Indefinite ( From the Start of Human civilization to current . and will be in future ) Contribution Margin Product variety More than 50 % High in general . Low . maximize performance d Highly Predictable 3 to 6 months Section B | Group 5 Indian Institute of Management. Kozhikode 14 . but leverage the existing manufacturing process .

Sales forces and customer relationship management (CRM) drive the wheel of success for beverages distributors. partners and customers. product placement in the popular media (newspapers. streamlining their supply chains. and focusing on ever closer relationships with suppliers. Kozhikode 15 . their modus operandi is critical in the marketing scheme. expanding into new geographic areas. Section B | Group 5 Indian Institute of Management. Such meticulous CRM exercise not only helps in maintain existing customer but also in fetching new client. It can make or break a brand. viral marketing. World-class companies in this mature industry are succeeding by scaling up production.Supply Chain Management in Wine and Alcoholic Drinks Industry in India The Indian wine. thus driving every market player to develop innovative ways of marketing the products. TC shows and IPL sponsorship be ing the most recent example). strict ompetition. The general strategy adopted by the industry leaders focus on particular market niches and putting efforts to specialize in it. these details must feed back results to the demand forecasting process. Customer centric campaigns. implementing more efficient processes. provide on-the-spot product information and maintain top relations with customers. 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. All system information is generally available to help build and maintain good customer relationships. More importantly. Customer Relationship Management: CRM is important as keeping contact details for both existing and potential customers. cleverly marketing products. he Indian wine industry is ‘image-conscious’. Maintaining exhaustive details of customer interactions and detailing helps in delivering value to the customer. which is product innovation part of the value chain. The methods are generally indigenous. Keeping a tab on retailer preference. But it has been observed that. 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. and managing complex marketing campaigns happens to be important pointers for the sales and marketing team of the organization. The marketing system majorly runs on personal relation between the company S&M executive and the retailer. protocols) and increasing price c -shifting demand for products. especially when a new brand is being brought to market. The sales force must be able to manage complex pricing issues . spirits and beverages industry is facing ever regulation (tax regime. in the Indian context.

Electronic catalog support: It gives customers 24 -hour access to an organization’s business through web -based product catalogs. 6. Pricing flexibility: CRM tools work on built -in pricing methods to attract and keep customers but also include discount methods. The planning is based on solid information collection related to customers like contact no. price lis ts. Substitutes and complementary products: This feature gives automatic recommendations for product substitutions to help win and maintain sales in case of inventory outage.. 4. 2. The schemes are an integral part of the pricing for regular customers. product availability lists an d personalized shopping lists. thus maintaining proper data is critical. buying groups. The system provides listings of items with the same or similar characteristics. helping to reduce lead -times. It helps in holding back the orders when credit limit is exceeded. Call and contact planning: This aids the sales team of a particular geography. as well as complementary items.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Key features of effective CRM tools 1. Credit holds at order line level allow efficient management of orders per sales order line. 5. operation time etc. customer rebates. with complete sales price visibility to let customers know exact cost details. baskets and order summary discounts. 3. Kozhikode Sales wake-up calls Section B | Group 5 16 . ensure re-orders. Call planning for sales team Electoronic Catalogue Check on payments and credit risks Substitutes and complimentary products Pricing Flexibility CRM Indian Institute of Management. It streamlines the way sales team should operate and serves as a direct platform for placing the purchase orders. Sales wake-up calls: The CRM module generally automatically reminds the customers to place sales orders when time is running short. Credit checks and payments: This is a check in the CRM module to minimize overall credit exposure. and keep customers pleased with your service.

More investment friendly policies are likely to change the market trends.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Distribution pattern Sales control mechanism is very much state specific. UB. Goa and Punjab have a liberal retail policy. The state of Haryana allows retail sales through a license issued annually. Delhi government is more inclined to control distribution and retail chain still restrictive relatively. Major Consumption regions Major Wine Markets Major domestic wine growing regions Major Shipme nt Port Major Warehousin g regions Section B | Group 5 Indian Institute of Management. and Diageo making entry in Indian market. The importers and distributors must sell their products through these wholesale license holders. encouraging the continuous growth through th ese channels. The states of Karnataka. With giants like UK’s Berkmann Cellars. Retailers must buy through wholesalers who has valid excise license. With current pattern of consumption more states are allowing easy channels like super markets. Haryana. Each st ate requires a set of wholesalers with excise license for selling wine and alcohol. and dom estic producers like Champagne Indage and Sula stepping up imports. Stores selling only win e and alcohol are given license at cheaper rate in comparison with super markets which sells alcohol with other brands. Kozhikode 17 . The distributors have to sell through these wholesalers. with the retail sector expanding during the every year. Maharashtra. the distribution chain and hierarchy is expected to see a major change in coming years. adding to the cost of distribution.

Singapore is the common transhipment point. For a duty free release option duty free seller’s license or ministry’s letter is required. All supplies are made to KSBCL which retailers. There are four stages in distribution management system as follows. There is always a cus tom officer in charge for each bonded warehouse. Global Tax Free Traders has been stagnating in fourth place at around 13. In third place is Moet Hennessy. hotel or restaurants a transport permit has to be issued. Karnataka controls all supply to retailers. hotels and restaurants.000 cases. Though if wine is being transported from east coast trade will directly arrive at Nava Sheva port. which has successfully promoted its Champagnes and other wines. Now a days customs are asking for bank guarantees in case of default. To avoid unlawful movements of stock different measures are taken in different states. In recent years it has seen 70% growth in sales. In a warehouse only brands and labels registered with excise department could be stored. With increasing demand for high end wine brands. So me states like Delhi issues a hologram to restrict unlawful trafficking of alcohol. the use of reefer is increasing every year. the new importers have not been able to make a significant impact so far and the old order remains. Some state has a monopoly control over distribution. In case of wine being imported from west coast of US. pushing the volume to 21. Primarily due to high e ntry barrier in wine import business. in turn releases stock to Section B | Group 5 Indian Institute of Management. Sometimes public warehouses also can be used if it has custom certified facilities. Sonarys is the second largest importer in indian market and owns bonded warehouse. 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. 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.000 cases. 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. Shipment can be ordered either on full container load basis or partial container load basis. In case of release of wine or liquor from store requires payment for duty of the officer.Supply Chain Management in Wine and Alcoholic Drinks Industry in India 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. Kozhikode 18 . For cost efficiency refrigerated container or ‘reefer’ is not in common use for low cost alcohol shipments. Before the release of a s tock to a retailer. Customs Clearance and Storage: The imported alcohols and wines have to be stored in custom bonded warehouses. Brindco is the largest importer and it has maintained leadership consistently. hotels and restaurants through KSBCL.

Retailer: Retailers are responsible for selling the products directly to consumers. In Maharashtra both private and public parties are allowed to run retail shops provided necessary license is obtained. Kozhikode 19 . 3. 2. The warehouses are primarily located in Mumbai and Delhi. Requirements vary from state to state. Very recently 15 retail shops by private parties have been established. but the importer must have a registered office in the state. the wholesaler must apply for a foreign liquor marketing license (FL -1 license) from the state excise department. Importers are not allowed to export refrigerating devices. Three-Tier Architecture: Indian wine industry follows a three tier sales and distribution system. refrigerated packaging in case of high end wine imports and finally successfully stocking materials in warehouses. Quality control program is essential in warehouses to reduce loss in products and keep the quality of products intact during storage time. Quality control mechanisms of storage facilities throughout different warehouses vary drastically. The three players in the distribution system are importers. Distribution through wholesalers and retailers: After the materials are stocked in a warehouse importers can distribute wines and alcohols only through licensed wholesalers. 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. In several states. 1. Importer: Importers are responsible for successful shipments. 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. Section B | Group 5 Indian Institute of Management.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Storage. They must apply for license to sell liquor in the designated state excise department. So they have to make tie ups from domestic players who provide refrigerated packaging equipment. pro per maintenance during shipment period. In some state retailing is done only through government owned retai l shops. 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. Wholesaler: Wholesalers are responsible for storing in bound materials in bonded warehouses. In some states retailing is allowed through private parties. wholesalers and distributors. In Delhi almost all retail shops are owned by government.

Section B | Group 5 Indian Institute of Management. Kozhikode 20 . who are generally forced to use the services of existing bonders. 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. This poses high barrier for small importers. There are few exits every year and the number of import ers is steadily going up. These two restrictive measures set a sufficiently high barrier to new entrants. The commission importers have to pay for these two services alone varies between 10-20% of the cost of wine.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Challenges in present distribution system: 1. even though the market is not big enough to accommodate all of these new importers. But with the increase in per capita income and alcohol consumption new importers are making a place for themselves. 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.

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. 2. Road System and Transportation: The most vulnerable part of wine distribution system in India is its infrastructure of roads. Kozhikode 21 . Absence of high speed roads. The quality control mech anism of insulation and controlled temperature varies greatly over different cold chains. The logistics for such a distribution system looks as follows: Section B | Group 5 Indian Institute of Management. This issue causes high operational cost during product storage procedure and a big challenge to overcome in the coming years. Due to differences in policies between different states. Logistics in Wine Supply Chain: A typical 3 tier distribution system has been described in the earlier section. rails. There is no synchronized and automated system to share information in between these distribution channels.000 kilometers. High investment is necessary to improve the facilities of existing cold chains to comply with the requirements asked by the excise and customs department. Replicating the business model of one state to another due to different compliances. India's rail network exceeds 63. Cold Chains in India: Poor cold chain infrastructure is another problem for product warehousing and storing. 4. informati on from one state cannot be shared with other states which create barrier to create proper forecast and inventory management. 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. ports and airports.4 million kilometers of paved roads and more thanmillion a kilometers of unpaved roadway pose threat to reliability for modern transportation system. also has the same problem and the infrastructure is old not to the mark.Supply Chain Management in Wine and Alcoholic Drinks Industry in India 2. taxes and duty fees asked by different state governments becomes more difficult to achieve economy of scale. 3. 5.

Garcia. Kozhikode 22 . Import and export handling 3. Fernanda A. High level of security and integrity of wine storage and transporters e.Supply Chain Management in Wine and Alcoholic Drinks Industry in India Source: Modeling and Measuring Logistics Performance in Wine Supply Chain. Custom temperature controlled conditions for storage of different kinds of wines c. Ing. some of the ex-cellars sell directly to final consumers by buying different kinds of wines from several wineries in small quantities. Domestic distribution facility. International freight forwarding services 2. Fernanda A. Proper packaging and transporatation in temperature controlled vehicles. Shelving system for wine cellaring 4. In order to get closer to a customer. The supply chain gets consolidated as follows: Source: Modeling and Measuring Logistics Performance in Wine Supply Chain. Delivery of wine/alcoholic products in any market with a certainty of services Section B | Group 5 Indian Institute of Management. the retail logistics providers have to provide a certain set of services and facilities. Stable and optimal storage conditions d. They are: 1. In any of the situations. Optimal cellarage conditions including: a. Standard warehouse equipped with temperature and humidity control facilities b. b. which includes: a. Garcia. Ing.

when grapes have not reached optimal maturity can impact the deterioration of grapes. This cause s an impact on supply chain visibility and results in higher cycle times. Kozhikode 23 . This will condition 2. Imposition of excess taxes can result in loss of accuracy in financial planning result in delay in bottling and labelling activities. Grapes are prone to oxidat rendering them unsuitable for winemaking. there is an absence of planning and Section B | Group 5 Indian Institute of Management. In some circumstances. etc. Non-integrated supply chain network due to absence of IT or inoperability between supplier and customer infrastructure. being an agri -supply chain is highly dependent on the optimal climatic ion. 5. Ing. Legal constraints on alcoholic drinks can cause delays in delivery. In India. environmental pollution. B2B based platforms for booking of orders from bulk order providers. 4. Out of time harvest. safety stocks. Garcia. Fernanda A. etc. the deliveries may be in inappropriate Quality Fig: Quality Issues in Supply Chain of Wine Industry Source: Modeling and Measuring Logistics Performance in Wine Supply Chain. Bottle suppliers may have long delays due to shortage in stock. like overseas operations can cause risk of bullwhip effect and reduce the accuracy of forecasts. with a downstream impact on quality of wine. costs of carrying. though this can be resolved by training. 3. conditions like humidity. resulting in broken grapes. weather. Inventory management technique Potential problems faced by End to End Logistic Service Providers 1. Another area resulting in poor quality grapes is due to poor training of workers.Supply Chain Management in Wine and Alcoholic Drinks Industry in India c. Wine supply chain. 5. Production and consumption in geographically different markets.

Garcia. product specifications. It involves lots Section B | Group 5 Indian Institute of Management. and hence a potential source of problems. a constantly cooled environment is preferred. Quality testing is a critical process during the entire chain because it ensures that the quality of wine is good. Poor delivery of final product can affect the relation with customer and market loss. The requirement oflabels varies with the design of bottle suppliers. etc. It can sometime turn into a bottle neck due to the time consumed by tests. High temperatures and humidity have an adverse impact. Timeliness es. specific delivery time. Bottles. If supplier causes delay in delivery of these items. Ing. Supplies form a bulk of inputs. etc can affect the packaging and conservation of wine. and could elongate the long lead time due to sequential nature of the problem.Supply Chain Management in Wine and Alcoholic Drinks Industry in India scheduling techniques for harvesting of vineyards since they are generally under the control of owners. Low real estate of vineries and poor transportation infrastructure means that trucks generally block entranc resulting in deterioration of quality during transportation. Poor quality corks can cause wine to come in contact with air and deteriorate rapidly. etc. Kozhikode 24 . Fig: Problems relating to Time in Supply Chain of Wine Industry Source: Modeling and Measuring Logistics Performance in Wine Supply Chain. When using MTO strategy.e. Bottles and labels have strict procurement requirements. The tr ansportation vehicles are generally temperature controlled by using refrigerated chambers. subsoil caves. corks. labels and cartons are generally sourced from suppliers and any improper packaging. it can lead to long lead time in delivery of the overall order. suppliers may not be able to fulfil requirements during the preparation of orde rs. i. incomplete our n ondelivery of items. Any variation or fluctuation in temperature impacts quality and hence. The conditio n to which wines are exposed during transporation also plays an important impact on quality. Fernanda A.

etc. treatment of grapes during transportation. more so if integrated IT systems are not installed to track the process. stock outs. Customer satisfaction index: Overall indicator of customer’s satisfaction. Timeliness of the logistics can be measured as: a. Another factor which is not under the control of the exporter is bad co -ordination among c ontainer transport freights. Supplier performance: Measured as the extent to which winery’s specifications are met my activities of suppliers and the quality of delivery. Kozhikode 25 . labels. Production performance index: It is the percentage of units which are produced in the winery to specification. Right quality of grapes percentage: Factors like bad weather conditions. inspection and certifications and slow movement of transport vehicle due to poor infrastructure. 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. inventory accuracy. This can be a measure of claims made by the winery regarding the unacceptable quality of supplies like bottles. However. An overall summary of the quality. 3. problems during harvesting. received 7. which is the average time required by supplier to respond to new orders. production and capacity of the overall logistics in supply chain of wine industry can be summaried in the following table: 1. New demand response time. corks. It is broken down into the following sub-levels: a. expose to extreme weather and temperature or poor storage condition on arrival at winery. Perfectly delivered f. 5. 4. This can lead to delay in the distribution cycle and is not measurable or controllable by the company.Supply Chain Management in Wine and Alcoholic Drinks Industry in India of set up of machines and excess of setup can waste time during bottling process. Inventory performance index: It is measured as forecast accuracy. Section B | Group 5 Indian Institute of Management. Perfectly fillable d. Warehouse performance: It includes activities like picking accuracy and shipping accuracy of finished goods. etc and is benchmarked against industry standards. 2. Perfectly purchased supplies b. Perfectly picked and packed e. product obsolescence. Product unit perfectly bottled c. measured as percentage of orders that meet customer’s specifications against the claims received by the company. 6. timeliness.

Kozhikode 26 . which is the average time required for performing elaboration and aging of product. Bottling time iv. Warehouse processing time v. Return time vii. which is the average time required for freight. Delivery cycle time. Purchase cycle time iii. quality testing followed by bottling. Total production cycle time/production lead time. It includes: i. c. Delivery time vi. Backorder duration Section B | Group 5 Indian Institute of Management.Supply Chain Management in Wine and Alcoholic Drinks Industry in India b. d. Total logistics time: it is the average time elapsed between customer order placement and time when it is actually delivered to the customer. Order processing ii.

Wine glass makers in India.revenue.ie/en/tax/excise/excise-licensing/retailers-licences.com/innovation/edible-innovations/winemaking. e grape harvesting Section B | Group 5 Indian Institute of Management.html http://zenithresearch. spirit and beverages industry Trade directory.com/news/research-markets-china-grape-wine-123900646. 2012.html JBC International. Glass Packaging in India. A Robust Optimization Approach to win scheduling Modeling and Measuring Logistics Performance in Wine Supply Chain.au/documents/India_Wine_Report_January_2012.yahoo.org. Category Briefing Euromonitor. Kozhikode 27 .wa. Spirits and Beverages industry Brief. Wine in India. http://dir.dsd. May 2012.com/Comprehensive_Study_IWM_Reference_Section. May 2012. March.pdf http://finance. 2008.howstuffworks. Maturana.in/images/stories/pdf/2012/Feb/ZIJBEMR/15_ZIJBEMR_VOL2_ISSUE2_F EB2012. Category Briefing Euromonitor.html Euromonitor.indiamart.pdf http://www.pdf http://www. Sergio. Indian Wine Market Report.indianwineacademy.apitco. Aug.pdf http://www. ‘Comprehensive Survey of the Indian Wine Market’ IBS. 2008. Paper based packaging in India. Garcia. Fernanda A.com/impcat/glass-wine-bottle. Wine.pdf http://science. Carlos.indianwineacademy.org/Profiles/Wine%20project. Category Briefing Bohle.htm http://www. Ing.com/Comprehensive_Study_IWM.gov. Winning su pply chain strategies for the wine.Supply Chain Management in Wine and Alcoholic Drinks Industry in India References: http://www.