Brew masters [Sleeman's supply chain strategy]

Like the beer it handcrafts, Sleeman's Canadian distribution network is greater than the sum of its parts. A fine mix of ingredients blended to achieve a desired end: a premium quality beer; an efficient distribution system that meets the needs of the small- to medium-size brewery experiencing unprecedented growth. Sleeman Breweries Ltd. engages small and large carriers, sales agents, and distributors across the land to represent its product and ensure efficient delivery of its premium beer to an expanding market base. In Ontario, it manages a private fleet of four tractor-trailers to serve its biggest market. Elsewhere in Canada, where Sleeman sales are increasing exponentially, that intricate web of agents and distributors is facilitating the expansion. The brunt of the growth has taken place in the last few years, making for long hours for the company's distribution team. Sleeman's aggressive pursuit of dominance in the Canadian premium beer marketplace has put unique demands on its distribution network. Rapid growth -- 20% in the fourth quarter of 1996 in Ontario, 150% over 1995 in Quebec -- has brought new challenges to its current logistics strategy across Canada. The biggest challenge in the last two years has been the series of changes in terms of the way the company is structured," says Joe McCarney, Sleeman's warehouse/distribution manager. "We're dealing with markets that we haven't dealt with before. The biggest challenge for me is to try to understand how all these markets work." Until now, Sleeman has operated in the mold of a small- or medium-size company. This helps it focus on quality and craftsmanship that distinguishes its product as a premium brand. Its distribution network runs with the same in mind, mainly contracting smaller carriers -- often family-owned -- who pride themselves on customer service. That commitment to quality is a tradition passed down through generations of the Sleeman family. The Sleeman Brewing Tradition Sleeman has quietly taken the Canadian beer industry by surprise. Reborn in 1988 -- after more than 50 years of non-production -- the "craft" brewery has been doubling its production capacity almost yearly to meet the demand for premium beer in the Canadian marketplace. The Sleeman family began brewing beer in 1834 in Guelph, Ontario. The brewery was shut down in 1933 when George Sleeman was caught smuggling beer into the United States. Authorities gave him an ultimatum: pay the beer taxes owing and sell the business or lose possession of the brewery. He paid the outstanding duties and sold the brewery. The family brewing tradition remained dormant until John Sleeman, the great-great grandson of the first Sleeman brewmaster, received a book of family recipes from his aunt. Inspired by the family legacy and a proven premium product, Sleeman re-incorporated The Sleeman Brewing & Malting Co. Ltd. in 1985. The first bottle of Sleeman Cream Ale -- brewed to the exacting standards of the 100-year-old recipe -- was available in Ontario in 1988. John Sleeman has instilled in his company the entrepreneurial spirit that has been part of his family roots since the early 1800s. Peter Amirault, general manager, Eastern Canada, says "John is a very entrepreneurial human being. He doesn't see hurdles or even when you show them to him, he doesn't perceive them as problems. People told him that small breweries would never work because the Canadian beer market is made up of strong and large competitors. Instead of launching a pale ale, he launched a product new to this market -- a cream ale. Every step along the way he was going in one direction when everybody else was going in the other." Sleeman also insisted on his family's historic clear bottle when the rest of the industry was going to a standardized bottle. That presents a distribution challenge because Sleeman is out of the loop when it comes to standard bottle returns. As a result, it must pick up its own bottles wherever they are returned. Another logistics challenge is brought on by the quality of Sleeman's beer itself. The company imposed a shelf-life of three months for its beer because of the emphasis on quality. That means keeping a close eye on inventory levels and storage times. Says Amirault: "If you ask John Sleeman if he wanted to be a big brewer, he'd say no. He wouldn't define success by size, rather by quality of his product." Indeed, that quality emphasis engenders a distinct marketing advantage. Sleeman knows that the fastest-growing segment of the Canadian domestic beer industry is "craft or specialty brewing". The big Canadian breweries, like the Americans, are suffering loss of share to microbrewers. Brewing in smaller batches and paying more attention to detail are the advantages the beer-drinking public perceives of microbreweries. As such, Sleeman positions itself as a craft brewer. Since 1988, Sleeman has become a familiar name in the minds and tastebuds of the demanding Canadian beer drinker. Originally only available in Ontario, Sleeman products are now available in most provinces, with the exceptions of Newfoundland and Prince Edward Island. Most of Sleeman's 3.5 million cases of beer sold in 1996 were crafted in its main production facility in Guelph. It has recently begun production in B.C.'s Okanagan Valley, the site of Okanagan Spring Brewery. Sleeman acquired Okanagan a year ago, giving it more than a 25% market share for craft beer in Canada. Supply Chain Challenges When asked what is the biggest day-to-day challenge with respect to Sleeman's supply chain, McCarney says it's information. "It's having beer in the right spots. It's inventory management. It's having the right amount of beer being produced at the right time." Sleeman is currently assessing its options for implementation of a Management Information System that will link its customers, suppliers, and supply chain partners more closely. Right now most communication is by phone and fax. McCarney says he is getting sales and inventory information downloaded from agents and distributors via modem three days after week's end. He says that's an improvement but still not as good as he would like. We've hired a production planner and forecaster to make sure we have enough beer in the right places to meet the demands of the consumer," says Amirault. "There are a whole lot of strategic questions that we have on an ongoing basis so we're trying to get the systems in place to have the facts to base our decisions on." In Ontario, Sleeman manages a private fleet of four tractor-trailer units to handle most deliveries to Brewer's Retail Inc., the network of 447 retail stores and warehouses that handles distribution of beer products in the province. Sleeman's four vehicles handled close to 80% of the total volume of 1.2 million cases delivered to 227 Brewer's Retail outlets last year. The rest was contracted to local carriers and handled by Brewer's Retail's own transportation network. In the summer peak season, Sleeman uses a fifth unit to complement its private fleet. Four full-time drivers -- one per truck -- are employed by Sleeman. Since 1988, only two drivers have turned over. McCarney says that's because each driver is asked to be more than just an operator of a vehicle. Each is responsible for the presentation of his vehicle and acts as a Sleeman customer service representative on the road. In addition, they are encouraged to add input when any decision is being made within the department. Sleeman has a full-maintenance lease for three of its units from a local supplier, Lease Wright Equipment, an Ideal Lease affiliate. The other is leased from Ryder. McCarney says the advantages of leasing are two-fold: it prevents any cash flow concerns and provides the maintenance expertise required to run an effective fleet. That's especially a concern in Ontario where safety problems plague the trucking industry. We are not in the business of maintaining trucks," says McCarney. A full trailer load of beer amounts to more than 70,000 lbs., requiring at least tri-axle trailers. Sleeman runs tri-axle heated units that maintain a temperature of 43 degrees Fahrenheit to prevent spoilage. Heat is something that we are extremely careful of," says McCarney. "We run heated units form the first of October to about mid-April, particularly on loads that are going overnight." Most shipments can be made to Brewer's Retail during the day, however, since Guelph is ideally located in the Golden Horseshoe. Brewer's Retail coordinates distribution to the Liquor Control Board of Ontario's (LCBO) approximately 15,000 licencees which are restaurants and bars. Growth in Quebec In Quebec, it's a whole different story. There is no provincially sanctioned distributor like Ontario's Brewer's Retail in Quebec, rather 25,000 possible distribution points made up of retail and licensed establishments. Currently, Sleeman reaches a fraction of those. We are after two years of operation in Quebec where we thought we would be after five years," says Jeff Dahl, Sleeman's business development manager for Quebec. Sleeman has captured close to 1% market share in Quebec through four agents and distributors managed by Dahl. Beer distributors in Quebec cannot operate on a buy-sell basis, so Sleeman pays commission on sales and the beer is sold on a Sleeman invoice. That also means Sleeman remains liable for the goods while they are in the agents' hands. We had the opportunity under the terms of our distribution permit to do our own distribution but we chose to go through agents and pay them commission," says Dahl. The main reason for that approach is the wealth of experience in the Quebec beer marketplace that these agents and distributors bring to the table. By law, in Quebec brewers must do direct distribution, preventing them from making warehouse drops to a third party for further distribution. That means all Sleeman beer coming into the province of Quebec must go through its 10,500 square foot leased warehouse in Laval. Agents then pick up the product they need from the warehouse. The size of the warehouse limits inventory levels. Dahl says during the summer peak season, they keep a two-week inventory which amounts to about 20 loads. He expects that the number of loads to increase to about 17 a week this summer. ID Foods is Sleeman's agent for the greater Montreal area, accounting for about 70% of the total sales in Quebec. Its warehouse is located back-to-back with the Sleeman warehouse in Laval, but the law prevents the more practical direct delivery to the ID warehouse. The possibility of a shared warehouse is being studied -- ID is moving into a new warehouse within a few months and Sleeman's lease on the current facility expires in September. Dahl says distribution "is the name of the game" in Quebec. The agent relationships allow them to control price points, a big concern when selling a premium product. If the price became comparable with the big boys, the craft brewing advantage would be lost. In Western Canada, the challenge is not the number of distribution points, but the distance between them. In each province a sales and distribution agent has been chosen by Sleeman to represent the product. We've gone for the best solution in each of the markets," says McCarney. In Alberta, Beverage Concepts Inc. handles sales activity for Sleeman products, while Connect Logistics Services, a member company of Tibbett & Britten, is responsible for distribution within the province. WETT Sales and Distribution Inc. is the agent in Manitoba which has a total of 1,900 distribution points. In B.C., Sleeman taps into Okanagan's existing distribution network. Ninety-eight percent of Sleeman's product heading west goes intermodally, the exception being LTL shipments to WETT Sales in Winnipeg. Railcars are used for inbound bulk raw materials like wheat and barley from the west. Canadian Pacific Railway was able to provide Sleeman with the equipment it needed -- 53-foot heated intermodal containers -- for the trip west. The trailers are loaded at Sleeman's production plant in Guelph and shipped by CPR to its Vaughan intermodal terminal just north of Toronto. There it is diverted to the rails for the trip west. Damage-free transportation is a big feature with the nature of their business," says Dave Clement, the account representative at CPR who manages the Sleeman relationship. "We had our damage-prevention people go in and look at some different loading methods for them. We came up with a successful loading pattern that is damage-free and gives them full load capacity." Clement says Sleeman is especially conscious of the quality and appearance of its packaging, yet another example of Sleeman's attention to detail. Amirault says one of the keys to Sleeman's forward thinking is the relative youth of its management team. Only one employee is older than John Sleeman, who is 43. The average age of the Sleeman employee is early- to mid-thirties. Doan Bellman, plant manager for Sleeman, was with the brewery before the first bottle of cream ale rolled off the production line. "The only thing we have known is change," he says. "We've never had one year the same as the last."