Please read the following case study and answer the questions that follow:

This case study deals with key research into the field of supply chain management.

SAB revamping supply chain management system to reduce stock-outs

Founded in 1895, South African Breweries (SAB) is the South African subsidiary and historical birthplace of SABMiller plc, one of the worlds largest brewers by volume, with more than 200 brands and brewing interests and distribution agreements in 75 countries across six continents. SAB is South Africas premier brewer and leading distributor of beer and soft drinks. For over 115 years, SAB has been an integral part of the social fabric of our country and continues to play a crucial role in the national economy. The company operates seven breweries and 40 depots in South Africa, with an annual brewing capacity of 3.1 billion litres. Its portfolio of beer brands meets the needs of a wide range of consumers and includes five of the countrys top six most popular beer brands namely Carling Black Label, Hansa Pilsener, Castle Lager, Castle Lite and Castle Milk Stout. Its complete brand portfolio includes ten beers and five flavoured alcoholic beverages. SABs soft drinks division is Amalgamated Beverage Industries (ABI), one of the largest producers and distributors of Coca-Cola brands in the southern hemisphere. With five state-of-the-art manufacturing plants in South Africa, ABI accounts for approximately 60% of Coca-Colas sales in South Africa. As well as its beer and soft drink divisions, SAB also owns a hop production company, The South African Breweries Hop Farms (Pty) Ltd; a barley farming company, The South African Breweries Barley Farms (Pty) Ltd; a barley malting company, The South African Breweries Maltings (Pty) Ltd; and a 60% share of the metal crown manufacturer, Coleus Packaging (Pty) Ltd.

SAB decided to revamp the company's supply chain network when its customers ran out of stocks of popular SABMiller brands during peak periods in two consecutive years, 2007 and 2008. One of the first steps they took was to look at the entire supply chain system to see where it could be improved to avoid future stock-outs.

This study revealed that the ethnically and demographically diverse South African market is one of the world's most complex and fast-changing. Economic growth, more disposable income in new hands, changing and upgrading tastes, new product development and new routes to market are among the factors that influence demand for SABMiller's products.

South Africa was furthermore awarded the bid for significant sporting events, such as the 2010 World Cup, with the possibility of a few more to follow. Several national and international soccer, rugby, and cricket events are also occurring annually, to name a few. Add climate change, economic volatility, unemployment and labour unrest, and the picture becomes even more complex. In example: there is inherent volatility of demand in the soft drinks business because of seasonal and climate change, but less in the beer market.

SAB brands have similar characteristics as any other brand, especially those brands and products categorised as luxury. This means that customers with disposable income will substitute their brands and products for competitors brands and products. This holds high risks for SAB if they cannot deliver on time. SABMiller, the holding group, has an average stock availability target of 98% and for some premium brands, the target is 100%. That means it will live with excess stocks of some products, to ensure that a thirsty customer can get his or her favourite drink, every time.

As with any business, SABMiller also wants to maximise its profitability. To do all this, it must integrate information from many sources. These include sales forecasts for about 2,600 stock-keeping unit locations or depots for the brewing division and 3,100 for the soft drinks division, planned promotions data from the marketing and promotions division, and cost and production data, among others.

These data must then be converted into raw material purchases, manufacturing scheduling, distribution and stockholding plans for 12 factories (seven breweries and five soft drink plants) and three tiers of distributors, broken down into between 70 and 80 stock-keeping units for the brewing division and around 270 for soft drinks.

And all this must be optimised for profit.

Even so, improving the accuracy of demand forecasts and schedules and integrating them to boost profitability was too complex for SABMillers's demand forecast and supply system. The in-house system, developed over the years, had most of the usual problems associated with legacy systems: inflexible, complex, hard to communicate with, and hard to integrate with newer systems.

SABMiller settled on an advanced supply chain management system, particularly a demand forecasting system, to drive revamping. This system takes information from modules of SABMiller's SAP enterprise resource management system, integrates them with sales forecasts from the field, and feeds back to the manufacturing resource planning system and financial systems to generate production schedules, raw materials orders and volume and financial forecasts.

This will let SABMiller make any of its products in the most cost-effective location, given the local demand, manufacturing, transport and inventory costs.

It will also increase its flexibility in responding to changes in demand. Products will no longer be made only in a single plant to optimise production runs, but, based on more holistic data, in the plants that optimise overall profitability.

This flexibility also gives the company more excellent cover to handle factory downtime and meet rapid changes in demand. One of the aspects of the previous supply chain management system that still needs to be managed is the return and reuse of empty bottles. However, even this process and data were included in the new system to create production schedules down to tank, line and minute accuracy.

This attention to detail is part of the SABMiller ethos. Measurement and numbers are integral to the company culture. Every day businesses decide where to buy raw ingredients, equipment or services.

Businesses can benefit from buying products locally, particularly where they have access to the local workforce, regional specialities or good quality materials. Independent research showed that in 2009, while SAB employed around 9,390 people directly in South Africa, nearly 355,000 people depended on its value chains for their jobs 2.9% of employment in South Africa. Over the last 20 years, SAB have also invested in building up a chain of drivers who own their own small businesses. Through this owner-driver programme, SAB has helped to create more than 2200 independent businesses. Encouraging enterprise development is a key priority in our business strategy.

Source: Developed from: http://www.sab.co.za/sablimited/content/en/sab-overview, http://www.computerweekly.com/feature/Case-study-SABMiller-revamps-supply-chain-management and http://www.sab.co.za/sablimited/content/en/sustainable-development-listing?cat_id=111 [all accessed on 16 June 2023]

Questions:

1) Based on your knowledge of the prescribed text, explain why it is vital to manage supply chains [18]

2) In the above case study, what were the drivers behind the supply chain of SAB? [18]

3) Based on your knowledge of the prescribed text, explain how SAB applied the principles of demand and supply, and inventory in the supply chain SAB applied in designing a new supply chain network. Motivate your answer fully. [14]

TOTAL: 50 Marks