Supply Chain Management Consulting Team

TELS 4341

Production and Service Operations

“Buffalo Bayou Logistics”

Raissa Popkova, Nishat Parasala, Nicole Gandy, Dominique Thou, Nathan Watts

Table of Contents

Introduction ...... 3 Company Background ...... 3 Sales ...... 4 Inventory ...... 6 Inventory Issues ...... 7 Forecasting ...... 8 Expansion and new facility plans ...... 10 Suggested Improvements ...... 12

Introduction

We decided to choose a small local business as an object for our project. One of the quickly developing businesses in Houston environment is microbreweries. We decided to go with the brewery that has made it brand a tribute to Texas history – Buffalo Bayou Brewing

Company. Moreover, we learned that the brewery is planning an expansion in near future and bigger scope will almost certainly require a different approach to service operations.

Company Background

Buffalo Bayou Brewing Company was founded in 2012 by Rassul Zarinfar. Rassul is a graduate of Rice University (Houston, TX), where he got his degree in English literature and poetry. Later he got his MBA degree in Harvard University and took a job with a distribution company Silver Eagle in order to learn more about the world of trade and commerce. Later he managed to combine his two passions together: beer brewing and English literature that found its application in creating unique and witty beer labels that are a signature feature of Buffalo Bayou

Brewing Company, located at 5301 Nolda St., Houston, TX.

Despite of being represented on local market for only 5 years Buffalo Bayou can boast 56 brews, noticeable recognition in the media and at multiple beer festivals, and steady growth. Its operations are carried out by 28 permanent employees. Out of the 56 brews “1836” and “More

Cowbell” are signature brews and make up 49% of overall brewery production. The brewery also produces seasonal beers, such as “Gingerbread Stout”, “Summer Wit”, “Cucumber Wit”,

“Lenin’s Revenge”. The creative approach the owner follows in beer creation, advertising, and design is also applies to the events the brewery hosts. They include anniversaries, Saturday tours with beer tasting, Friendsgiving (November), and Christmas in July (end of July).

Quality management

The brewery CEO/owner has been practicing total quality management ever since the brewery was founded. For example, before releasing a new brew he spends a significant amount time doing market research, brewing samples and testing them, even personally develops the name and design of the new bottle. There is barely a step of production and/or and design that occurs without his personal presence, participation, and approval. However, with upcoming expansion this approach will have to be altered due to larger production facilities located in different areas. Our group is working on suggesting an alternate approach to quality management that will still allow the owner to be aware of what is going on in his company every step of the way, yet it will not be so time consuming.

Sales

As of beginning of 2017 the brewery production is 9,000 barrels annually. 1 barrel I 31 gallons or 2 kegs. The brewery is represented in a variety of local bars and restaurants, as well as in grocery stores. (See geography of representation below):

Figure 1 Sales geography

As you can see the brewery manages self-distribution on most of the territory, but is part of the territory is handled by a distribution company named Faust. Buffalo Bayou started collaboration with this distribution company in the beginning of 2017. More than half of the production is purchased by local bars and restaurants, the rest is distributed among the grocery stores, liquor stores, and convenience stores. The company is currently represented in 69 Spec’s stores, 45 HEBs, 41 Krogers, 15 Whole Foods, 15 Total Wine & More, Sam’s Club, Timewise, and Valero’s. Self-distribution takes a lot of time and effort from Buffalo Bayou crew and the management will have to seek a new approach to it to cope with larger capacity and sales in the future. Inventory

The brewery’s storage facility is located in the same place as the brewing facility. They have shelves where they store grain and an industrial fridge for ready products, yeast, and hops.

Figure 2 Storage area of the fridge with hops and yeast

Figure 3 Storage area in the fridge for ready products (cans and kegs)

Figure 4 Storage area with shelves for grain

Inventory in the company is guided by their primary goals: maintaining independence of operations, meeting the variation in product demand, allow certain flexibility in production scheduling. The inventory is also somewhat dependent on the holiday seasons / seasonal brews production. Due to the nature of production the items in the inventory are an example of dependent demand (malt / hop / yeast, etc.) Opening of the new facility will not exactly influence the composition of the inventory, rather the amounts required to be in stock for uninterrupted production.

Inventory Issues

The inventory at the brewery is challenging despite the small scope. The workers have to perform weekly manual count of beer boxes and kegs, weigh hops and grain on the scale and input the acquired data into a spreadsheet on the computer. The spices used for beer flavoring undergo inventory on monthly basis due to the nature of low consumption. The manual approach to inventory deems inefficient and not very reliable: it requires a lot of time and effort from the employees, yet it still results in mistakes and causes the brewery losing the track of 2 to 5 boxes of beer weekly. That means that the company will have to rework the inventory process for the new facility to provide smooth operation of larger scale.

Forecasting

It is a combination of tactical and strategic forecast. Tactical forecasts is for making day- to-day decisions and is usually based on demand for certain brews in certain locations. The demand statistics is updated on weekly basis and allows planning and adjusting brewing plan.

Strategic forecasts allow to outline plan for the brewery for longer terms (month, quarter, year, etc.) and takes into account holidays schedule, seasonal brews, etc.

Time series analysis is also used quite often since it allows to predict future consumption based on consumers preferences in the past.

The brewery bases its forecasting mainly on sales information and the requests from their customers. As of now bigger portion of their beer is sold to pubs and restaurants (about 52%), however the biggest clients are the grocery stores. They also take into consideration the production capacity from other breweries.

Below you can see the market share graphs of Buffalo Bayou and other Breweries. It shows steady increase in market share for Buffalo Bayou, therefore, they are expecting further growth.

Figure 5 Market shares of local breweries

Figure 6 Market share of local breweries, annually

Just as it has been mentioned before, the forecasting is based on sales as well. Below you can see a graph showing the sales in 2016, and the two signature beers (1836 and More

Cowbell make 49% of all sales, the other half of production capacity is for a variety of beers to experiment with). As well, you can see the breakdown in types of packaging: cans are almost half of the production, basically the other half is draught beer, and a small percent is bombers.

Figure 7 Beers sold by brand

Expansion and new facility plans

Buffalo Bayou Brewing Company is currently planning to expand. Below you can see the project of a new facility. Based on the research and forecast the company carried out they are planning to increase their capacity more than twice. The final production goal for the new facility is 20000 barrels a year compared to current production of 9000 barrels a year. Barrel equals 31 gallons or 2 kegs.

Figure 8 New facility potential design

Existing capacity vs Expected

20000

18000 Overall 16000 Capacity/year 14000 12000 1836 10000 8000 More Cowbell 6000 4000 2000 0 Current New Facility Facility

Suggested Improvements

With the expected expansion the scope of inventory of the company is going to drastically increase. To resolve potential issues they need to rework the following aspects of their production process:

a) Inventory

b) Distribution and delivery

In case with inventory there are several options to consider in order to make it more efficient and avoid potential inventory loss.

One is to consider the use of an RFID scanning which allows such features as sending the receipt of goods to warehouse management system automatically, RFID enabled conveyor belts or readers can verify the contents of shipment without opening the box and automatically updates inventory on hand. RFID enabled software provides automatic inventory management and cycle counts in the warehouse, and enables faster pick/pack/ship orders.

Overall it allows better control and higher accuracy for many aspects of inventory as you can see from the figure below.

Figure 9 RFID-enabled equipment characteristics

Another option to look into is hiring a software development company to design and implement custom software that fits the business needs. However this option usually involves higher price, therefore an alternate approach would be to look into existing inventory software, such as:

a) Orchestrated Beer – a software developed specifically for brewery management. It allows

to eliminate manual tracking and multiple spreadsheets. It helps to automate brewery

accounting, anticipate purchasing needs and produces over 100 brewery-specific reports.

b) Ekos – brewmaster. It allows to automatically updated inventory information and provide

it to the sales department, creates sales orders, tracks leads, and even forecasts needs for

materials based on brew recipes that are going to be used. c) Unleashed - uses the average landed cost method to calculate the cost of your products in

real-time, resulting in a more accurate cost of goods sold account.

Costs are calculated from purchases and manufacturing, reflecting all the expenses of your inventory, providing you with an accurate view on product margins and profit. Unleashed allows you to query the availability as well as the full transaction history of any product. Stock counts and report filters can be created for suppliers, product groups, warehouses, bin locations and more.

Figure 10 Suggested software options and pricing

Since the capacity of the brewery is expected to double and to cover larger geography of sales it deems inefficient to carry out the distribution using the company resources. Instead, the company should look into hiring distributors which will make the distribution and sales process smoother and will let the staff focus on their primary responsibilities.

Buffalo Bayou Brewing Company started collaborating with a Houston based distributing company this year, called Faust. It allowed them to be represented at Sam’s club and Valero.

When the new facility starts operating the brewery definitely needs to looks into fully entrusting specialized companies with their product distribution.