Supply Chain Management: The Supply and Demand of Beer

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The basic tenet of a market economy is arguably the concept of supply and demand. The level at which a product or service is demanded by your customers will dictate the amount of a product or service delivered by you as the supplier.

In addition to this, supply and demand variables can be impacted according to the price a supplier expects to be paid, and at what price-point consumers are willing to buy. Put this in the context of the brewing industry and pricing can become quite complex.

In beer production, supply relies on many factors beyond demand. The fluctuating cost of raw ingredients, such as hops, grain or malt can cause beer prices to rise and has a bearing on what customers are prepared to pay.

For the art of craft

There’s no question the demand for beer has remained strong over time, having been around some 5,000 years. Fast forward to the twenty first century and preference for fresh artisan produce has seen a significant growth in the demand for authentic craft beer products. Craft brewing relies on high quality ingredients to produce a variety of unique tastes and flavours.

The growing popularity for craft beers has led to an unprecedented pressure on the global hop supply. This unpretentious herb plays a very important role in creating the many varieties of craft beer on the market.

Hops give bitterness to off-set the sweetness of malt and to provide an essential flavour balance. They also provide dynamic flavours which are distinctly different to the bitterness and add a level of complexity to the beer. Essential oils from the hops produce interesting aromas – and the beta acids in hops help prevent bacteria contamination and give the beer stability and shelf life.

Growth of Beer

With demand for hops quadrupling in the past decade and little sign of this growth slowing, hop growers are struggling with the challenge of cultivating enough to meet this demand.

Seventy years ago, the New Zealand Department of Scientific and Industrial Research set up a hop research station at Riwaka in the Tasman region of New Zealand’s South Island. This area continues to be the hop centre of New Zealand. This local area of hop production does not however, guarantee steady hop supply to local brewers.

Having developed a variety of hop that is resistant to rot and produces high yields, these locally produced hops have become extremely popular with overseas brewers. With high demand driving higher prices, exporting now produces better returns for local growers further reducing supply for local brewers.

Demand Solutions

So, what can craft beer producers do to overcome supply chain challenges and manage beer production? Factors influencing supply and demand are occasionally completely outside of your control but there are some things you can do to lessen the impact.

  • Implementing demand solution planning will help the business better plan and manage inventory positions. This involves viewing sales forecasts by item, account, customer segment, and also involves refining business forecasts over time. A great brewery software solution is a key tool here.
  • Collaborating with key suppliers to establish order plan projections, improved batch planning, production scheduling and ingredient forecasting.

That said, if hop demand eventually reaches a point where it far outweighs supply, there will always be a market for a few craftier ciders.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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