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Rich Bouwer - General Manager, California Glass

I sat down a couple weeks ago with Rich Bouwer, General Manager for California Glass, to talk about his take on the wine supply chain.  We covered topics ranging from the impact the economy is having on the wine business to collaborating with others in the wine supply chain.  It was great to catch up with Rich.  Rich hired me into the wine business, so, it’s fitting that he’s doing the first vinoEZ interview.  I had a good time with the interview and I hope you enjoy what we discussed.

A Little Bit about Rich and His Career

Rich’s professional career started in the spring of 1985 in Investment Banking at Morgan Stanley.  After just over three years at MS, he took a right turn into the wine industry and worked for Gallo for ten years.  When I asked why such a big swing in industries, Rich said,

Frankly I wanted a product I loved and enjoyed.  Investment banking is an intellectually challenging business, but it’s a bit ethereal.  I wanted a physical, tangible product that was meaningful to me.  So, I was looking at breweries, wineries and sporting goods.  [laughing] You know, being an immature 20-something year old…

As a Director at Gallo, Rich accomplished many things, including putting supply chain planning on the Gallo map.  Rich moved from Modesto to Napa to work for Beringer Blass (Foster’s).  From leading the supply chain group at Foster’s, Rich went to round out his wine business chops by taking on the role of VP, Winery Operations.  After 7 years at Foster’s, Rich took a slight turn and moved up the wine supply chain into the glass business where he is now the General Manager for California Glass.  Rich has been at California Glass for about 3 years.  He really seems to enjoy where he is at and continues to learn more and more about the ever evolving wine industry.

The Current Economy and it’s Impact on the Wine Supply Chain

At the beginning of the interview I took Rich through my vision with vinoEZ.  A company that is focused on providing supply chain processes and tools that are geared and specialized to the wine industry (e.g. small to large wine companies, suppliers, distributors, etc.).  Rich shared his perspective on my vinoEZ vision in the context of the current economy and the impact that this is having specifically on the wine industry.

I think you have to start with context of how bad the wine industry is.  If you look at Gomberg for total California wine for the first six months –  the total wine shipments are up 1%.  Gallo, Foster’s, Sutter Home, Bronco and the Wine Group. are each up a million cases or more.  If you take out those five wineries, everybody else in the industry is off 30%.

I asked if it had to do with the lower price point wines that the “big guys” have in their portfolio (along with the higher price point wines).

Well, that’s right.  Many consumers don’t have a job.  Their homes are worth a lot less and their not buying $40 wines.  Those consumers are buying good value wines.  So, if you’re not at the <$10 price points, if you’re at forty bucks, nobody’s buying.  Your volume might be 35%…40%.  Your sales are off, your bottling volume is off, and many wineries face enormous financial pressure.  You see in the papers the number of wineries that have actually filed for bankruptcy.  You see it if you’re a supplier and how many folks are struggling to pay their debts. So, the wineries are facing some really brutal decisions:  Do you just declare a loss? Do you have to let long term knowledgable employees  go? Do you have to cut your grape supply short?  Do you source less expensive grapes?  What can you do to run your operation more efficiently?  How can you reduce packaging cost?  To your point about supply chain [in the wine business]…this is the time where people that really didn’t really pay a lot of attention to operations…have to do so now.

Very interesting perspective and it was great to hear that what I’m building in vinoEZ is something that people can start to leverage today to help them with the current strains of a poor economy.  Don’t get me wrong though, you can’t just “turn on” proper supply chain processes and tools; you need to invest time, money and people.  In the “bad times”, proper supply chain planning helps to “ride it out” with operating lean and in the “good times” it helps to provide better margins and returns to the business.  Again, like making wine, it takes time and resources to get it right; you can’t just turn on a faucet.

Supply Chain Thinking in the Wine Industry

Is the concept of supply chain in the wine industry a new concept?: No.  In fact, the concept of supply chain in our daily lives isn’t a new concept either.  Think about the steps you took the last time you stocked your refrigerator.  You had an idea of what you needed over the next week or so (demand plan), looked what you already had in the fridge (current supply) and jotted down your grocery list (supply plan).  You went to the store, purchased the products (execution of supply plan) and drove back home and filled the fridge.  We don’t think of this in terms of “supply chain”.  Similarly, most wine companies don’t either.  You need to move goods from one place to another to satisfy some sort of demand.  That’s usually as far as it goes.

The typical issue within a wine company is that the supply chain function isn’t a specific role or department in the organization.  It’s not a focus.  Supply chain activities happen because they have to, but you lose out on a lot of operational efficiencies/savings (refer to “Why is Planning Important?” for more on the benefits of supply chain planning), if you don’t step back and properly organize yourself around this idea.

During our conversation, Rich shares his perspective on this matter.

When you look at most wineries [...] traditionally, you’ll start with one or two executives.  The founder is usually the winemaker or maybe a marketing/sales person.  The next person they hire is a finance person.  That’s usually the core of the executives.  So, you have a winemaking group.  That includes viticulture and operations…the financial group.  Then you have sales and marketing.  And that’s how wineries are usually organized – into functional hierarchies.  That’s been the tradition.  Other activities are afterthoughts.

As you know, there are PhD’s and graduate degrees in all sorts of things associated with supply chain.  Whether it’s forecasting or packaging.

There are a lot of different aspects in the supply chain area that traditionally have not been a focus for the wineries.  The bigger wineries, nowadays, have some sophisticated people in those areas.  They’re probably using current software for sales forecasting.  But for the smaller wineries, it’s still largely an afterthought.   The economic times, however, are forcing the small wineries to be more efficient.

The distributors are reducing their inventory, the retailers are leaning out their inventory.  And that’s going to bite both ways; it hurts the winery sales now, but it will also force them to have to respond faster.  Because when sales turn around, the retailers and distributors will run out of inventory right away.  Wineries will need to replace the channel inventory or they will need to make up for that by being smarter.  But, you have to invest in the capability and the information to be able to react smarter.  We don’t see a lot of wineries that have made that investment in the information infrastructure.

Where is California Glass in the Wine Supply Chain?

California Glass serves as a distributor of glass.  They provide a voice for the smaller volume wineries back to the large glass producers and they provide a consolidated demand from many wineries to the larger glass producers.  They understand both sides very well and can help bridge the gap and let the glass producers focus on what they do best and let the wineries focus on what they do best.

Rich describes where California Glass fits into the wine supply chain:

Most wineries might have a purchasing person or they might ask their enologist or their lab manager to handle the buying of the packaging goods.  A company like California Glass is really there to [help these wineries].  We have technical experts who inspect glass and look at bottle dimensions and ensure fit for purpose.  We have the scale to purchase economically and make sure the winery is getting a fair price.  Most of the major glass factories like Saint-Gobain or Owens are hesitant to take on too many small customers.  A winery might use a distributor to avoid having to call on 8,000 stores and restaurants.  They’re not going to try to take on the delivery challenges and the billing and collecting challenges of calling all those restaurants and retailers.  Well, that’s what the glass plants are using us for as well.  Because, in addition to providing expertise to our customers and being the distribution, wholesale middle-man, they’re looking for us to take on the A/R risk.

We give them (winery) the scale, we give them the ability to buy pricing and make sure they’re getting quality stuff.  If they have an issue, we can get the manufacturer’s attention.

Beyond the PO – Providing Visibility Across the Supply Chain

I asked Rich if there were any customers that California Glass works with that provides a plan or an outlook of their demand beyond the purchase order (PO).  There are some out there that do, but a majority do not.

Rich talked a bit about a particular customer that is very sophisticated with this type of sharing.

They plan well out into next year.  They give us detailed schedules and visibility into their own inventory.  We are pretty integrated [with them]…and we’re transparent back to the glass company.  So, for someone like that (winery) it works really well.  And they leverage that sharing of information into having virtually no supply surprises.

Let’s pause here for a second.  This is important.  Planning your supply chain with other links in the wine supply chain is highly desirable.  Just as planning internally gives you insight into what may happen and affords you the ability to be proactive to take action, this extension of planning extends your visibility.  Just as Rich is saying “…no supply surprises.”  If you can minimize the disruption in your supply chain, the less hedging has to be done and less investment in inventory of either materials or finished goods.

Although this kind of sharing provides significant business benefit, you need to make sure your house is in order first.  In other words, you need to first focus internally with supply chain planning processes and tools.  Implementing these processes and tools takes time to get it right along with the output.

California Glass has worked on their internal supply chain planning and they use “tried and true” technologies to share supply chain data to their suppliers.

We’re doing forecasts and PO’s.  We’re highly integrated back and forth from our ERP system through to the supplier’s scheduling and planning environment.  Everyday there’s EDI transactions going back and forth on forecast, PO’s, plant production dates, inventory levels.  We have full visibility to our system about what the inventory is at our warehouse but also what the inventory is at the glass houses and what the glass manufacturing schedules are.  So we can do inventory projections that include both warehouse, the supplier’s warehouse, and planned production.

Rich shared a specific example around how collaboration eliminated the waste of glass for one of their customers.

We had a call from a top ten customer the other day basically saying, “We’re going to cut our bottling of chardonnay off and sell off 20% of our vintage as bulk wine.”  That was a tough decision due to the general economic time.  We needed to make sure that they weren’t going to get bitten with a delivery of glass that was no longer needed.

Their willingness to share that information made sure we didn’t end up with a problem when ‘we executed to your PO.’  If they kept their bulk wine plans close the chest, they would have had a lot more glass than they needed.

Planning/Forecasting in the Wine Business: it’s about Precision

We spoke some on the “boom and bust” of the wine business – the cycle that occurs every seven years or so.  While discussing the how the wine industry reacts to the peaks and troughs of this cycle, we discussed that in the wine industry, supply does not turn on a dime.  How you navigate in this cycle and the decisions you make to take advantage of the “highs” and mitigate the risks during the “lows” is the interesting challenge of being in the wine business.  It was a great discussion and one of the items Rich touched on resonated with me… and still does:

I used to sit down with supply chain software vendors, with the people who ran the same software for high-tech companies.  The high-tech people used to talk enviously about the long time horizons at wineries where you have months to react to what you are going to do with your merlot supply, what are you going to do with your sauvignon blanc supply.  The high tech people have to make snap decisions every week about chips, memory and hard disks.  But the precision required is the killer in the wine industry.  High tech does not need a great degree of precision.  If they’re off by 15%, well they’re going to move through that technology cycle and sell all those chips off anyway and in two months they will be on to the next generation anyway.  They quickly leave their mistakes behind.  In wine, you are talking about planning grape supply 7 years out with the planting and the pruning and wine aging.  You must be within a couple percent.  Because if you’re short, you got nothing to sell and you can’t take advantage of the expansion opportunities the market offers.  If you’re long, your inventory is backed up and your delaying your release dates and your selling off your bulk wine and losing money.

When planning in the wine supply chain, it’s about precision.  This is a great point.

I had a blast talking supply chain with Rich.  I love this stuff and it’s good to have this discussion with people that are passionate about supply chain.  Seems that Rich is successfully applying his knowledge and experience in the wine supply chain at California Glass.  I’ll be keeping in touch to see how things progress.

I hope you liked the article.  Let me know your thoughts in the comments section.  Also, if you have any requests for others that you’d like me to interview, send me an email (click here).

Let’s make wine a little EZ’er!

shawn@vinoEZ.com