3. Recommended Course of action to supply Canadian Mist with barrels
The options available for Brown-Forman cooperage include: establishing a new facility to supply the barrel demand for all the consumers, expanding the capacity of the current Brown- Forman Cooperage facility location in Louisville, KY to accommodate barrel demands for the Canadian Mist distillery, and continuing to supply the Canadian Mist Distillery with the existing barrel suppliers. In order to establish a cost effective operation there is need to carry out qualitative and quantitative analysis of the current situation as well as critical evaluation of the options available.
Qualitative Considerations
Currently, the Brown-Forman Cooperage supplies barrels to Jack Daniel’s (in Lynchburg Tennessee), Early Times Distillery and Old Forester Distillery (both “across town” in Shively, Kentucky) and Woodford Reserve Distillery (Versailles, Kentucky). Furthermore, Brown-Forman cooperage has another member of distiller called Canadian Mist located in Collingwood, Ontario, Canada. However, Canadian Mist Distillery purchases its barrels from an external supplier other than Brown-Forman Cooperage. The following are considerations to make in order to come up with a well-informed course of action.
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Labor – to establish a new location of Brown-Forman cooperage, labor factors should be considered. In this regard, new technical specialists will be employed to facilitate barrel production that will meet the demand of the five distillers. Therefore new location should be sited at a place with a population of at least 400,000 to facilitate labor availability. This will ensure that, production cost due to labor intensity does not exceed production output.
Location – Barrels have a short lifespan, therefore location of the Brown-Forman Cooperage should not be far from the distillery plants. In a case where the location is far from distillery unit, maintaining costs (holding costs) will have to be included in the budget. Critical evaluation should be carried out to ensure reasonable production costs.
Transport – the Cooperage should be situated at a place where accessibility to distillery units is fast and cheap. Long distance transport will attract additional costs such as additional labor cost, additional holding costs for barrels during long distance transportation to avoid spoilage, and fuel costs for transportation trucks.
Location nears the trees for wood harvesting – the cooperage facility should be located near the trees that are harvested for barrel manufacturing. Distant location will attract other charges such as transport charges and time wastage.
Value-stream Analysis
In this section I’m going to analyze the available options for supplying barrels to the Canadian Mist Distillery.
Supply barrels Canadian Mist Distillery by expansion of the existing Cooperage
One of the ways of supplying barrels to Canadian Mist is through expanding the capacity of Brown-Forman Cooperage at Louisville, Kentucky to produce quantities that will meet demands of the five distilleries.in this regard the most probable expansion will include adding a 3rd shift at the Louisville cooperage (additional 7.5 hrs. per workday). This will keep the current internal COG constant at $ 185.00 for each barrel; therefore, this is likely not going to affect the four distilleries that the Brown-Forman Cooperage is providing barrels currently. Similarly, the Cooperage can increase the taskforce by purchasing additional equipment and hiring additional employees for the two shifts that are currently in operation. It is an effective way that will increase the Cost of Goods Sold (COGS) per barrel to $ 210.75. As a result the cost increase is likely to affect Brown-Forman Cooperage’s finest brands namely: Jack Daniel’s, Early Times, Old Forester, and Woodford Reserve.
Establish a new facility in a new location which can accommodate barrel demand.
Another option that Brown-Forman Cooperage can consider to improve barrel production is to build a new facility in a new location which can be able to produce barrels in satisfactory quantity for the five distilleries. The facility should be located in a favorable site. However, this would increase the COGS to $ 190.50 per barrel. Additionally, the fixed assets cost for structure establishment and transport costs are among the primary factors that need attention in this proposal. The cost of operation for existing brands will also need critical revision to align with new sets of production and assembly of barrels.
Maintaining the Status Quo
Finally, the Brown-Forman Cooperage can retain the existing mode of supply. Alternatively, the Canadian Mist Distillery will continue obtaining their barrels from external suppliers. The cooperage can however supply barrels to the competing distilleries as a source of revenue.
4. Ideal Low Cost Transportation Routes
Currently, Brown-Forman Cooperage produces about 3,000 Charred-Oak barrels per day. Out of these, 2000 barrels are supplied to Jack Daniels Distillery which has the largest customers using trucks. In this regard, 8 trucks are used to per day to transfer 2000 barrels per day to Jack Daniels Distillery based in Lynchburg, Tennessee. Similarly, 200 barrels are shipped to Woodford Reserve Distillery per day using one track, while 500 barrels are shipped to Early Times Distillery using 2 trucks. Lastly, 300 barrels are shipped to Old Forester Distillery in Shively, KY using two trucks. In total the Cooperage uses 13 trucks to transport barrels to the four customers. There are two primary models of truck shipping that the cooperage can consider in transporting the barrels at a low cost namely Full Truckload (FTL) and Less-than-Truckload (LTL).
LTL vs. FTL
Full truck load are, mostly used when the demand of the goods by the consumer meets the truck load capacity. However, when the demand of goods by the consumer is less, the need to ship the goods will also be lower. As a result, companies may need to ship goods half the truck load due to less demand. In this scenario, Less-than-truckload mode of shipping will be economically suitable for the companies. With this regard, different customers of Brown-Forman cooperage have different barrel demand; therefore, different modes of barrel shipping may be cost effective for the Cooperage.
Cost effective choices of LTL and FTL for different customers
Jack Daniel’s (in Lynchburg Tennessee) – this distillery requires a total of 2000 barrels per day. Therefore this is equivalent to 8 full trucks. Therefore, the most appropriate mode of shipping is TL mode.
Early Times Distillery – this brand in Shively, KY 10 miles away from Brown-Forman Cooperage. It requires a daily supply of 500 barrels which is equivalent to 2 full tracks. Therefore the cost effective mode of shipping is TL mode.
Old Forester Distillery – this is also located in Shively, KY with a daily demand of 300 barrels per day. This implies that this plant requires about one and a half trucks of barrels for production. Therefore, the most cost effective mode of barrel shipping is the use of LTL mode.
Woodford Reserve Distillery (Versailles, Kentucky) – the distillery is located 65 miles away from Brown-Forman Cooperage. It has the least barrel demand of 200 barrels. The total number of barrels is less than the full truck hence the most cost effective mode of barrel shipping is the use of LTL mode.
Value Stream Map of scenarios and impact Inventories
According to the explanation provided above, two customers; Old Forester Distillery and Woodford Reserve Distillery are both located in Kentucky. Old Forester requires one truck load of barrels and less-than-truckload to supply 100 more barrels. However, Woodford Reserve requires Less-than-truckload to supply 200 barrels. Therefore, one truck can be used to ship 100 barrels to Old Forester Distillery and 50 barrels to Woodford Reserve distillery. This will cut the cost of transport and labor cost required for distinct trucks.
The Flow Chart below illustrates distinct value stream map for the Brown-Forman Cooperage LTL Shipping system to the two of its customers.
LTL Truck Shipping
Brown-Forman Cooperage
(Milling, Raising, Toasting, Charring, Testing)
Old Forester Distillery (500 barrels)
Woodford Reserve Distillery (200 barrels)
Trade-offs between transportation costs and orders (batch) sizes
According to the quantitative evaluation above, the total cost of barrel transport to Old Forester Distillery is about $ 15.80. Using LTL mode of shipping to Old Forester and Woodford Reserves will save the cooperage an average of $15.80 daily. Therefore the, the Brown-Forman Cooperage will have to forego the least profits associated with batch size order costs to benefit in transportation cost reduction by $ 15.80 daily.
Question about internal EOQ-based inventory system.
The EOQ model provides for a trade-off between inventory costs and order costs. In my opinion, each distillery should have an internal EOQ-based inventory system for barrels. This is because flame-charred oak barrels are perishable; therefore, when kept for long the staves will dry-out and loosen leading to leaking. Due to this perishable nature, the holding capacity for each barrel is $0.35 per day. Therefore large amount ordering is likely to be more costly. In this regard, an EOQ model is the most effective tool to determine the most cost effective method with regard to inventory holding costs and order charges.
6. Proposal Projects at BFC
Establishment of cooperage plant in Canada
Canadian Mist is a distillery facility that belongs to Brown-Forman Cooperage; the brand is located in Collingwood, Ontario, Canada. The Canadian Mist Distillery utilizes about 1000 barrels per day which is supplied by an external supplier located in Canada. One of the main reasons why Brown-Forman Cooperage is unable to supply barrels to Canadian Mist is because the cooperage produces only 3000 barrels per day which can only meet the demand of its four facilities located in the United States. Another reason that has inhibited the cooperage from supplying barrels to its Canadian facility is the long distance. Canadian Mist Distillery is located 635 miles away from Brown-Forman Cooperage. Therefore, transporting barrels to the facility will take at least two days. It implies that supplying barrels to the Canadian distillery will attract high transport cost. Similarly, the holding cost will be high since barrels are highly perishable.
Therefore, to address this problem, Brown-Forman Cooperage can consider establishing a cooperage plant in Ontario, Canada. The plant should be located at a well sited place in terms of labor availability, nearness to appropriate trees for wood production as well as closeness to the Canadian Mist Distillery. This cooperage plant should be able to supply 1000 barrels per day to meet the demand of the Canadian Mist Distillery. The implementation of the project will reduce transport costs and holding costs associated with long distance transport. As a result, the cooperage will be able to reclaim its “Tennessee Whisky” brand in Canadian Mist Distillery.
Supplying flame charred oak barrels to other distillers outside Tennessee Whisky brand .
Currently, the Brown-Forman Distillery produces a maximum of 3000 charred oak barrels. The production capacity is limited to the four Tennessee whisky distilleries located in the United States. However, there are other cooperages such as Bouchard Cooperages based in Napa, CA with sales in the United States and in foreign countries such as Australia, Mexico, New Zealand, Portugal, and Italy among others. Similarly there is Kelvin Cooperage located in Louisville, Kentucky which supplies barrels to the American distilleries and Canada.
Therefore, my proposal on the above stipulated account is for the Brown-Forman Cooperage to improve its production capacity, such that it can be able to supply charred Oak barrels to its five distilleries, as well as other distilleries which do not share the Tennessee whisky brand. This can be done through expansion of the current cooperage plant in Louisville, Kentucky (USA) to a capacity of more than 6000 barrels per day. The program will increase the revenue generation for the Brown-Forman Cooperage significantly. Similarly, the cooperage will be able to use its facility and legacy to explore international market for whisky production. This is possible through establishment of Cooperage plants in foreign countries with Distilleries bearing Tennessee Whisky Brand.
APPENDIX
Quantitative Analysis
The following spreadsheet summarizes the qualitative analysis of the Brown-Forman Cooperage, in relation to transportation of barrels to four of its customers. The table also illustrates the potential costs that the Cooperage may encounter in supplying barrels to its Canadian brand, Canadian Mist Distillery.
