In his Addison office, Sheldon I. “Shelly” Stein, the CEO of Glazer’s Distributors, says his current company has to operate differently from those he’s been associated with in the past.
“Under the law there are three aspects of our business,” he says. “The people who make it, the people who distribute it, and the people who retail it. You can only be in one of the three tiers, and since we’re in distribution, we cannot own any manufacturing.”
He’s talking about alcoholic beverages. Glazer’s is one of the nation’s largest distributors of alcoholic beverages. The privately-held company has about 40 warehouses in 14 different states. Its annual sales are around $3.5 billion.
The Brooklyn-born Stein attended Brandeis University after being recruited to play basketball. Later, he went to Harvard Law. A law career that started in Beverly Hills took him to Dallas nearly 35 years ago, where he went to work for the firm that later became Hughes & Luce. From law he moved into investment banking – first at Bear Stearns, then at Merrill Lynch, where he was a vice-chairman. One of his clients was Glazer’s, and when Stein mentioned to them he was considering a move to a different investment banking firm, they persuaded him to run the liquor distributor. He’s been doing that for just under two years.
“I’ve had a very traditional career,” says Stein. “Law, investment banking, selling booze.”
Supply Chain Strategy
Being in a business as heavily regulated as liquor has its challenges. For example, Glazer’s has two warehouses in the Kansas City area – one on the Missouri side, and one on the Kansas side. Alcoholic products are not allowed to cross state lines. Even within a company, such as Wal-Mart, regulations differ. In some states, Wal-Mart stores are allowed to carry beer. In others, they aren’t.
“From a supply chain standpoint, we have to get the right product to the right place at the right time,” Stein said. “We have to manage our inventory because it’s very costly. You don’t want to walk into your favorite store and ask for a bottle of your favorite champagne and it’s not there – brands are things people are very attached to. When people want a specific brand of whisky, that’s what they want – not a substitute.”
Tastes in Texas might be different than tastes elsewhere. Spirits are underweighted here. “Texans prefer beer,” Stein said. “Every state is different in taste, consumption, volume and what they like – it’s a very unique business.”
Because of the complexity of laws and regulations, the high number of suppliers and products, plus local tastes, Glazer’s adopted a supply chain strategy they call: meeting local demand with centralized fulfillment.
The local nature of the liquor business poses challenges in the supply chain. Product must be moved to the right place at the right time. Having too much of one brand is just as bad as having too little. So Stein and his crew have to forecast demand. Forty percent of the nation’s liquor is sold in October, November and December. “We don’t want to be sitting in January with products that won’t move until the end of the year,” noted Stein.
One area constantly getting attention is where the process slows down – the bottlenecks in the system. Michael Adams, Glazer’s Senior VP for Information Technologies and Supply Chain, said forecast accuracy can be a major slowdown point. “If you don’t have the forecast right and accurate,” Adams said, “you buy bad inventory – too much of one thing, and not enough of another. If you get it right, you can effectively manage your inventory.”
In order to do that, Glazer’s takes a “holistic” view of its business. That’s a departure from the “old” way of doing things, when the company was focused on sales and marketing.
“We had no dialogue with our biggest supplier on our inventory,” said Stein. “They just shipped products. Now we have meetings where our whole team, both key sales and marketing people, and administrators, meet to manage inventory and delivery. Before, there was no dialogue and now we have a continual dialogue with our suppliers.”
As a result of collaborative planning, forecasting and replenishment with one key supplier, Glazer’s was able to reduce inventory levels by 21 percent compared to the previous year. That holistic approach and a willingness to ask, “Why do we do things this way?” contributed to new efficiencies in Glazer’s that saved the company tens of millions of dollars, says Adams.
The greatest area of risk in the supply chain is getting the forecasting right, agree Stein and Adams.
Glazer’s maintains between $350-$450 million of inventory on any given day, said Stein. So even a small miss can be very costly. Stein said the “bad inventory” – what does not sell well – is down to less than one percent of their stock. But that still amounts to about $3.5 million.
The other area of risk comes with the new products suppliers hope will be big winners. The risk is in figuring out which new and innovative products will click. Right now, flavored vodkas are big. Stein says independent manufacturers who are not existing suppliers are continually bringing out new products. Every two weeks there is a room at Glazer’s filled with new products, and for every vodka Glazer’s takes on, they turn down dozens.
Suppliers push Glazer’s to stock those products, but Stein says the company expects the supplier to spend some money on marketing. Otherwise, there’s a good risk the consumer won’t know about the product.
“They will walk into the store and think, ‘I’ve never heard of that brand,’” Stein said. “If the supplier doesn’t work with us and do the right product advertising, there is a problem. That’s not necessarily a supply chain problem, but it’s a discussion about doing a good job. Sometimes we have to educate them on what doing a good job means.”
On the flip side, sometimes Glazer’s can’t get its hands on hot products. “It’s rarely a case where we haven’t ordered enough, but rather the demand outstrips the supply,” Stein said. “In that case there’s not much we can do.”
Procurement and Sourcing
One mark Stein has made on Glazer’s since coming aboard is to hold his sales team responsible for inventory management.
“For each of our major suppliers,” he says, “we have one person who is responsible for that relationship across all of states. If there’s a problem, good or bad, one person is responsible.”
“The replenishment team has always had a one-to-one relationship with a supplier,” said Adams. “When Shelly came on board, he aligned one point of contact from the sales and marketing standpoint to that organization, as well. That’s absolutely critical – supply chain to supply chain works very well, but only when it’s at the highest level.”
That relationship with suppliers can help temper unrealistic expectations, said Adams. If the supplier and the distributor don’t see demand for a product the same way, there will be an inventory miss. For example, a supplier might expect to sell 1,000 cases. If Glazer’s thinks 50 is a more realistic target, it could lead to a bad inventory miss.
“It’s very easy to buy a lot of stuff nobody wants,” Stein said. “If it’s spirits it will sit there. It doesn’t go bad, but nobody wants it. We have to be careful with our buying and truly understand demand.”
Sometimes, Glazer’s can get caught in a supply-and-demand squeeze over which it has little control. Stein cited China’s growing influence in the champagne business.
“There is so much demand in China and Asia for ultra-high champagnes,” he said, “we’re now on allocation for products we want because so much is going to Asia. We can sell more than we can get our hands on. If you’re a supplier and you can get a much higher price in China, you’re going to send it to China. That’s where relationships come in, if we didn’t have a close relationship, we would not get product at all. We get a pretty good allocation because of our long-term history.”
Sales, Operations, Logistics
Today, Glazer’s is in the middle of a $60-million conversion to an SAP software system. The goal is to get real-time data so the company can respond instantly.
“I’ve determined we need real-time inventory – we did not have the ability to do that – and most people in this industry do not,” Stein said. “If you have a product and a restaurant stops ordering it, I want to know it that day, not three months later. If they change from this wine to that wine, once the menu is printed, we’re out of luck. We have to have real time information about what’s happening all across the system.
“For performance criteria and responsibility, we’re smoothing things out instead of having fire drills at the end of the quarter when we’re trying to move 20,000 cases in three days and putting pressure on retailers. It was a crazy system and most of the suppliers love the fact that we’re trying to have a smoother cycle than what we’ve had before. Then they can better forecast, too.”
Having good warehouse managers is key to distribution, Stein said. For one brand of whisky, a single warehouse shipped 55,000 cases in one day. “At 12 bottles per case, that’s 600,000 bottles in one day,” he added. “Think of the logistics of that. Not only do we deliver cases, but we even pick bottles for a delivery. In some instances, restaurants don’t have the storage space, so they want four bottles of this and six bottles of that.” In their Dallas warehouse facility Glazer’s can move 10,000 cases an hour and have them packed and into the truck.
Glazer’s has its eyes on further expansion, especially overseas. They’re looking at Brazil, Argentina, and China. The international expansion is because all of Glazer’s suppliers are international companies. But Stein says he’s not in a rush. “We have to figure it out, and you just don’t do it in a day,” he said. “We’ll get there, but not until I’m comfortable.”
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