54 DC VELOCITY JULY 2014 www.dcvelocity.com
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In order to ensure a steady supply of products to satisfy consumers throughout this diverse and challenging
market, Diageo segmented both its product lines and its
supply chain into three categories. The company tailored
its distribution and inventory practices to each product
segment and used local manufacturing or postponement
to minimize the impact of any supply chain disruption on
its Asian business.
But the impact of this business model extends far beyond
risk mitigation. The differentiated product/supply chain
strategy also enabled Diageo to reduce its inventory holdings for certain products while still meeting consumer
demand that is specific to national markets—a distinct
competitive advantage.
ASIA: TARGETED FOR GROWTH
Headquartered in London, Diageo plc is a multinational
beverage company. As the world’s largest producer of
spirits, it owns such well-known brands as Johnnie Walker
Scotch whisky, Captain Morgan rum, Smirnoff vodka, and
Tanqueray gin. It’s also a major producer of wine and beer,
owning the Guinness label, among others. The company
reported more than $17 billion in worldwide revenue in
fiscal year 2013 from sales in 180 countries.
Although North America and Western Europe account-
ed for 33 percent and 19 percent, respectively, of its net sales
in fiscal year 2013, Diageo is looking to emerging markets
for much of its future growth. The company is already well
established in those markets. In 2013, South America rep-
resented 13 percent of net sales; Africa, Eastern Europe, and
Turkey accounted for 20 percent; and Asia and Australia 15
percent. But Diageo wants 50 percent of its business growth
to come from emerging markets by 2017 and is aiming to
lift Asian sales to 25 percent of overall revenue by then,
says Joy Rice, Diageo’s Asia-Pacific supply chain support
director.
That may sound like a tough goal to meet, but the Asian
market offers Diageo a tremendous opportunity to increase
sales. For one thing, Rice says, Asians consume the highest
volume of spirits in the world in terms of gross sales. For
another, the Asia-Pacific region is home to one-third of the
world’s richest people, making it a target market for luxury
goods like high-end beverages. But Asia-Pacific can’t be
viewed through a single lens, Rice says, because it includes
discrete national markets with different social norms and
customs, and various levels of income.
EFFICIENT, RESPONSIVE, AND AGILE
To address those market intricacies, Diageo five years ago
segmented its Asian supply chain into three categories,
based on product complexity and predictability of demand.
On a volume basis, most of the company’s sales fall within
what it terms the “efficient” supply chain category. The
products in this category achieve high-volume sales, enjoy
predictable demand, and don’t require special packaging or
treatment. They’re generally made on dedicated production lines and can be shipped using the most cost-effective
form of distribution. Examples of products in this category
would be widely available, moderately priced brands like
Johnnie Walker Black Scotch whisky or Smirnoff vodka.
The second segment—dubbed the “responsive” supply
chain—includes lower-volume product with more volatile demand. To ensure supply in the face of fluctuating
demand, inventory is held close to the market where it is
consumed. Products in this category can also require customization, such as special packaging. An example would
be Johnnie Walker Blue Scotch whisky, a higher-priced,
premium blend sold in a silk-lined box with a certificate of
authenticity.
The final category—the “agile supply chain”—includes
product with highly unpredictable demand that must also
reach the market within a critical time period. To ensure
adequate supply for this product category, Diageo must
have both manufacturing and distribution agility, as serving
this specialty category can require production ramp-ups
and even sudden exits of a product from the market. An
example would be the new Johnnie Walker Explorer’s Club
Collection, specially packaged product that’s only available
in travel retail outlets and duty-free shops.
