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The Value of an ERP in Wine and Spirits Wholesale Distribution

The COVID-19 pandemic led to concurrent opportunities and challenges for the wine and spirit industry. While demand for alcohol increased, the pandemic limited resources and disrupted manufacturing systems. The goal of all wholesalers is to remain efficient, even during difficult times. The wholesale distribution industry was tested and areas in which wholesalers need more support were highlighted. To better prepare your wholesale distribution for the next unpredictable disruption, you may consider using an Enterprise Resource Planning (ERP) strategy.  

Trends Affecting Wine and Spirit Wholesalers 

To launch a successful ERP strategy that helps mitigate potential setbacks, you should first know about trends in your industry and how they will affect your company. Here are some common trends that have affected wine and spirit wholesalers: 

  • Supply chain disruptions: In the early stages of the pandemic, supply chain disruptions were plentiful. There were severe limitations on raw materials necessary for wine and spirits, specifically glass, aluminum cans and packaging materials. As a result, the ability to obtain and distribute product was severely constrained. Another challenge presented was the unreliability of traditional demand forecast and supply planning models which proved to be unable to support scenarios for such an uncertain time. On premise sales plummeted while off premise sales grew. The ability to model more extreme scenarios and leverage predictive analytics raised an awareness to the importance of strong ERP and analytics capabilities.   
  • Mergers and acquisitions: Beyond the pandemic, there is inherent complexity within wine and spirits distribution due to the relationships established between suppliers and distributors that determine brands’ path to market. Recent years have seen an ongoing consolidation in distribution with the big getting bigger in an attempt to establish regional and national supplier relationships which tend to crowd out competitors. Establishing a strong value proposition in distribution is important in maintaining and growing the relationship. 
  • Government regulations:  Since the ratification of the 21st Amendment to the U.S. Constitution, the laws regulating the wine and spirits industry have become a tangled web.  Navigating federal, state, and local laws while abiding to the 3-tier distribution requirement requires careful maneuvering.  As the direct to consumer (DTC) movement continues to take hold, wholesalers continue to lobby state governments to protect their place in the supply chain and the benefits afforded by a regulated separation of roles. This is especially true as online giants such as Uber and Amazon move into the wine and spirit industry. Recently, Uber acquired Drizly, an alcohol-delivery business that had a 350% increase in sales this past year. The forces driving regulatory change may never have been stronger. Wholesalers should keep careful watch of government regulatory reactions as the industry shifts from the traditional model.
  • Technology and digitization: Digitization has become critical across wholesale distribution as an industry to meet the challenges of both B2B and B2C operating models. In the past year alone, online alcohol sales increased by 234%. Even before COVID, the retail customer has increased demands for access to information including product education and product choice.     Wholesalers should make themselves accessible and easy to business with and avoid relying exclusively on outside sales to establish a market presence. Within wine and spirits the role of the wholesaler is also changing. Online wholesale companies continue to grow, bringing suppliers and retailers closer together. For example, Libdib is an online wholesaler that connects bars, restaurants, and retail with small craft makers. This enables product innovation and potentially significant changes to the traditional relationships between leading suppliers, wholesalers, and retail customers. Digitization should support capabilities such as direct store delivery, customer payment portals and convenient accounts receivable processes.

How Can an ERP in Wine and Spirits Help? 

A robust ERP foundation is advantageous for a wholesale distributor in an industry dominated by a handful of distributors.  With the uncertainties of demand and supply fluctuations, an ability to run scenarios and leverage strong analytics to assess market movements becomes critical.  

Navigating the regulatory influences on pricing, taxation, distribution, and trading partners is challenging on home grown systems.  Advanced functionality and configurable capabilities of an advanced ERP system provides the support required for a wholesaler stay on course.   

Integrated capabilities of an ERP in wine and spirits can seamlessly connect Order to Cash digitization with the back-office functionality.  ERP systems now support strong customer interfaces with real time pricing, availability checks, account maintenance, payment and order history and quick re-order capability. The ability to manage relationships and product from supplier procurement to customer delivery, assess profitability and perform predictive analytics is critical to survival in an industry dominated by very few. As digitization becomes more important, a robust ERP system behind the front-end GUI is beneficial to power a strong digital capability. 

ERP strategies are especially useful and worthwhile during uncertain times. Economic uncertainty actually contributes to the importance of supporting your wholesale business with strong technology.  ERP systems simplify and bring efficiencies and integration to processes; enables the sunsetting of multiple disparate systems, which are often costly to maintain, outdated and unscalable; increases productivity; and provides analytics capabilities with insights and swift informed decision-making capabilities.  Although the initial investment may appear daunting, the benefits realized with an appropriately implemented ERP in wine and spirits can be rewarding. 

Things to Look for in an ERP Partner 

Selecting an ERP and delivery partner that is right for you and your company is extremely important.  Remember that the upfront investment of time and money in the ERP selection process positions your wholesale company for longer term success.  It ensures selection of the best ERP that will meet your business requirements with as minimal customization and complex landscape as possible.  Here are the top three things you should keep in mind while searching:  

  1. Understand your key business value propositions and the ability for the ERP to deliver them.  ERP systems can all provide the basic functions to run your business but focus on those things which are differentiators to your brand. 
  2. Benchmark ERP systems within your industry relative to their ability to support industry specific needs, such as government regulatory constraints and unique wine and spirit industry challenges around pricing, returns processing, and product allocation. 
  3. Having a strong Systems Integration partner who not only understands and has experience deploying the ERP solution but deeply understands the industry and its challenges is critical.

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Tags: Consumer Products Trends, Strategy, SAP ERP
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