How Jack Daniel's Eases BottlenecksBy Edward Cone | Posted 2003-04-17 Email Print
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Jack Daniel's bourbon touts an old-fashioned style, but deft marketing and distribution keep the company off the rocks.
The Jack Daniel's distillery in Lynchburg, Tennessee, is a theme park wrapped around a production plant. The studiously rustic visitors center houses a small museum of whiskey-making artifacts, from antique bottles to black-and-white photos of fierce-eyed old Jack Daniel himself. A sly tour guide sounds like Forrest Gump's smarter brother as he dispenses jokes along with lore about the enormous vats of bubbling mash and towering charcoal-filtration tanks.
The Jack Daniel's brand is sold on the mystique of timeless quality, so very little of the modern world is allowed to intrude on this carefully constructed tableau. "We market in a way that harkens back to the old days. We don't emphasize the technology," says Phil Lynch, a spokesman for Brown-Forman, the Louisville, Ky., company with $2.2 billion in annual sales that has owned the Jack Daniel's brand since 1956.
Yet there in the visitors center, and again outside the whiskey shop at the end of the tour, are several thin, black IBM monitors. Here visitors can send electronic postcards and browse a version of the Jack Daniel's Web site, thereby entering their names into a customer database. Information about its customers is important enough to Jack Daniel's for the company to break character to get it.
That's because brand development is a strategic priority for Brown-Forman. Last September, Chief Executive Owsley Brown II announced that after a decade of international expansion and growth via acquisition, Brown-Forman would henceforth "dedicate ourselves to improving and increasing our brand-building programs directed to consumers."
Brown-Forman currently runs a pilot version of a data warehouse that will allow it to better analyze the information it gets from visitors to the Jack Daniel's distillery and Web site, as well as information from other business lines and computer systems. The data warehouse project, along with a concurrent pilot of a reporting system that would give executives at-a-glance information about the whole company, are the latest extensions of a major implementation of enterprise resource planning (ERP) software from SAP.
Behind the folksy distillery that dates back to 1866 is a streamlined business that bottles, stores, ships and sells its products by the most modern means possible.
Jack Daniel's is still made according to its timeless recipe, albeit with the help of computerized monitoring and process- control systems to ensure consistency and increase the whiskey-maker's efficiency. Few products depend more on brand image than a premium whiskey like Jack Daniel's. "The brand image is 90% of what the distiller has to sell," wrote legendary ad man David Ogilvy in his book Ogilvy on Advertising (Crown, 1983). Hence, the potential for tension exists between Lynchburg, where they make whiskey the old-fashioned way, and Louisville, where Brown-Forman is held to the same earnings standards as any public company.
The image works for Jack Daniel's, which sells more than 6.5 million cases worldwide per year and is the seventh most-popular spirits brand in the world. The brand has managed to increase its sales volume even as the global market for straight whiskeys has been virtually flat, going from 13 million cases in 1997 to 13.1 million cases in 2001. Overall whiskey sales have declined in that period, going from 39.3 million cases in 1997 to 38.2 million cases in 2001.
Jack Daniel's accounts for about half of Brown-Forman's profits, according to analyst estimates, with the rest coming from other liquor brands such as Southern Comfort and Canadian Mist, Fetzer Wines, and the Hartmann luggage and Lenox china lines. Brown-Forman reported a profit of $228 million in 2002, up 2.1% on sales growth of just 1.3%.
The ERP system began in 1997, quickly expanded to include a human-resources component, and now is in use across Brown-Forman's operating divisions. The plan was to bring financial information from different business lines, along with data on sales, distribution, manufacturing and human resources, into a single system. "The goal was to save money from a productivity standpoint with the common view of the enterprise, with a better idea of the customers, inventory and so on," says Steve Shambach, a regional vice president for SAP.
Brown-Forman's longtime chief information officer, F. Richard Lennon, now CIO at Nordstrom, started the SAP project and also established information technology as a service for which corporate users have to budget. CEO Brown last year cited "improved technology" in the distribution system as an enabler for reducing distribution jobs and adding brand and marketing jobs.
The company has continued to expand on the SAP system under current CIO Paul Gross, adding supply-chain tools such as constraint-based planning. An advanced planning module lets managers plan distribution and inventory to meet eventualities like spikes in demand caused by promotions or special events. "They are one of our more sophisticated customers in terms of advance planning in the supply chain," says Shambach. "In terms of inventory optimization, they have come leaps and bounds forward."
While aging, Jack Daniel's is stored in barrels at some 70 warehouses in Lynchburg; many of the warehouses are built in time-tested fashion in hollows to protect them against the possibility of a spreading fire. The Louisville distribution center uses newer technology, including wireless hardware from Intermec and Release 4.6 of SAP's warehouse-management software.
Catalyst Consulting Services of Langhorne, Pa., helped Brown-Forman make the warehouse system less dependent on users entering data into mobile devices and more open to scanning and bar-code validation. "We customized the pick-and-pack process," says Catalyst President Michael Godshall. Using the new system, Brown-Forman can pre-assemble mixed pallets made up of cases of different brands of liquor, then pull that pallet and load it on a truck as soon as the truck arrives at the warehouse. The system allowed for more efficient use of space in the distribution center, says Godshall. Brown-Forman went with SAP to replace a homegrown system that had aged out. Software costs were less than $500,000, while Catalyst had two to three people on the job for about three-and-a-half months.
In 2000, Brown-Forman decided to use the software-based marketplace Digital Freight to handle bids on its distribution business. At that time, working with 145 different trucking companies cost Brown-Forman $28 million per year in transportation costs, according to a report in Traffic World. A year later, Brown-Forman was using 33 companies and had lowered its outbound transportation costs by $3 million. On-time delivery improved to 80% from about 50%.