The business of craft beer

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“New Zealanders still love beer, there’s no doubt, but they don’t want to drink those classic big brands by the crate-load anymore”

– Ralph Bungard, President of the NZ Brewers Guild

Craft beer is big business. In the U.S., the craft brewery industry has carved itself out an 11% share of the overall beer market. That equates to 19.6 billion dollars of a 101.5-billion-dollar total market share. According to the Brewers Association of America, craft breweries now produce 1 in 10 of every bottle of beer sold in the US.

In New Zealand the picture is even rosier. According to the ANZ 2014 Craft Beer Industry report, growth for craft beers stands at 25% annually. This makes craft beer the fastest growing segment of the brewing industry.

What this all brews down to for those in the beer business is that there is more potential market share up for grabs – and this time it is the ‘little guys’ and not the big brewery behemoths that stand to gain most.

On the flip side of course, this means competition is heating up. In fact, according to the U.S. Brewers Association, there were a total of 46 breweries closing but another 615 new breweries opening their doors last year.

Locally brewed – globally consumed

Small to mid-sized breweries are now also finding a foothold in exciting emerging beer markets like China and South Korea – both of which boast vibrant beer drinking markets with an increasing penchant for imported and craft beers. This opens up a large opportunity for breweries seeking to expand beyond their local markets and operate supply chains across international borders, servicing a potentially huge and definitely very welcoming customer base in East Asia.

Every silver lining has a cloud

The future for independent breweries continues to look bright, but every silver lining has a cloud – which, for craft breweries, is often the burden of inventory control. The beer brewing business is one that is heavily reliant on the sourcing, storage and production of key ingredients to produce batches of the perfect beer – time and time again and in a manner that allows the business to continuously bottle a consistent product and scale successfully. To a small brewery looking to grow, this means managing the flow of inventory through its supply chain with accuracy, efficiency and expediency.

Inventory management software is an essential investment not an avoidable expense

Many craft breweries, especially the small ones or start-ups, tend to undervalue the importance of inventory control. The trend for small businesses, breweries included, is to focus on the short-term when starting out in an effort to operate as cost effectively as possible. This, they mistakenly feel, allows them to capitalize on short-term cost savings without having to invest working capital needlessly.

One of the first areas to get disregarded in a bid to keep cash available is to opt for a cheap, simple and ‘reliable’ spreadsheet-based inventory control system in lieu of a proper cloud-based brewery software solution that handles inventory management. This is a decision that drives many well-intentioned, highly skilled breweries out of business. Not through bottling a bad beer, but through inefficient and costly mistakes in how they manage their inventory from the grain all the way through to the glass.

Many moving parts – one powerful solution

Implementing and successfully managing an efficient supply chain in the brewery business is a complex enterprise that requires the seamless integration of many moving parts. For breweries, it is practically impossible to attain accurate and up-to-date integration of all the nodes in the supply chain by controlling inventory through the use of spreadsheets. It leads to a number of problems that drive down productivity and profitability and ramp up operating costs and business losses.

The two biggest causes of financial hangovers – understocked and overstocked inventory

When a brewery, or any business for that matter, cannot rely on accurate, real-time data that reflects the situation on the ground, it can soon find itself stepping into a minefield of potential disasters. One of the biggest disasters is being understocked.

Understock, underperform – It’s that simple

Understocking results when process managers fail to order crucial inventory in time for production due to a flawed assessment of both current inventory levels and forecast demand. With no way of knowing exactly how much inventory is on order, on stock and on demand for future fulfillment, any purchasing decision an inventory manager makes will be off.

If the commitment to fulfill pending customer orders cannot be met due to ineffectively managed inventory, then the instances of lost sales as well as lost customers will increase. As mentioned earlier, the craft beer business is a fiercely competitive one and being unable to fulfill orders from customers due to inaccurate inventory levels can be enough to drive a small brewery out of business quickly.

Overstock – A recipe for disaster

Likewise, if there is no reliable and accurate way to know how much beer can be produced with the inventory on hand, then financial planning, sales forecasting and handling new orders or unexpected surges in demand becomes impossible. This can lead to holding on to more inventory than is actually necessary.

In an operation that utilizes perishable goods, this raises the risk of raw materials being left in storage and going bad. Added to the cost of obsolescence are the raised operating costs associated with storage, labor and cash flow being tied up in unused and unusable inventory. Being overstocked, if left unchecked, is an insidious destroyer of a business’ bottom line.

What you don’t know can hurt your brewery – particularly when it comes to inventory management software costs

A surprising number of brewery owners operate under the impression that a powerful, integrated inventory management software system will be inordinately expensive. While this may have been true a number of years ago, it is simply no longer the case.

Quick advancement in Software-as-a-Service (SaaS) cloud-based inventory software solutions means that rapid deployment of an integrated, real-time inventory management software systems is now possible at a very affordable price. The time of businesses having to layout huge sums of operating capital to acquire a sophisticated, high performance inventory control system has come to an end.

The benefits of an inventory management software solution like Unleashed to a beer brewing business are many. Every decision that influences or is driven by inventory is guaranteed to be based off data that is accurate, accessible in real-time and automated throughout every node in the supply chain. This leads to proactive trend and demand forecasting, purchase orders that align with the exact needs of the business and the automation of critical supply chain functions.

The result is a brewery that is able to exercise total control over its inventory flow. They are also able to drive down costs, maximize profitability and direct its most important resources, skilled labor and working capital towards bottling the best craft beers available on the market. In the meantime, they also get to satisfy the thirst of customers looking to enjoy a new, unique and delicious cold one.

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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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