Diageo Overhauls Supply Chain

Beer and alcohol manufacturer Diageo is overhauling its supply-chain operations within its Guinness business unit in the United States to share real-time sales and replenishment data with distributors. The global company, which also makes brands such as Johnnie Walker and Jose Cuervo, is implementing Manugistics Group Inc.'s supply-chain planning software to support its collaborative planning, forecasting, and replenishment processes. The project, which is set to be complete by the end of next year, coincides with an SAP implementation in North America.

The Manugistics software will help Diageo combine weekly data from sales, on-hand inventory, and distributors' receipts with promotional information to generate detailed forecasts that will be sent automatically to 120 distributors (which represent 80% of Guinness' business) via a Web application. "They'll see our numbers and compare them with their numbers," says Steve Costallos, director of supply-chain capabilities at Diageo. Then the collaboration process happens.

For example, preset policies will guide both Diageo and the distributor to resolve differences in forecasts. Once both agree on the forecast, the numbers are loaded into a replenishment system that establishes inventory levels and sales. Diageo hopes the distributors ultimately will become more comfortable with its forecasts. "There's an element of trust that has to be developed," Costallos says. "What we want them to do in the future is focus on value-added activities and to tell us what we don't know."

Diageo expects to save up to $1.1 million in inventory reduction during the next few years and reap some $600,000 in logistics benefits. It also expects to boost sales by 1%, or nearly $3.3 million. "Our salespeople currently spend as much as 20% of their time looking at inventory and generating orders," Costallos says. "We will eliminate the need to do that so they can focus on generating volume."

With more accurate forecasts, distributors will be able to cut their inventory levels. "We can share in the benefits," Costallos says. "With less money tied up in inventory, the distributors can take that money and remarket it in our brand in terms of promotions and other things."