Wednesday, June 17, 2009

Keeping Track of Kegs, Pt 1

Today is the first of a two-part series meant to look at two initiatives in the brewing industry to address the costs associated with draught beer - in particular, the costs associated with transporting draught beer. Today we will look at how breweries are implementing RFID systems to track kegs as they move around the country. On Friday we'll look at disposable kegs that would eliminate half of the movement a keg makes in the supply chain.

Both issues address keg loss. A keg is considered lost when it is stolen and turned in for scrap metal or when, for one reason or another (e.g., never-ending frat parties, like the one pictured to the left there), it doesn't make it back to the brewery. A big round of state legislation helped to address theft. In late 2007 and 2008 states passed laws requiring proof of identification and proof of ownership when turning in kegs for scrap metal. Here in Wisconsin, these laws are codified in 895.09 and 134.405.

In 2007 Sierra Nevada estimated that it loses 3% of its keg inventory each year. Moreover, because craft brewers in particular do not order in sufficient quantities, waitlists for new kegs can be months long. When a brewery, like say MillerCoors, has as many as 800,000 kegs in circulation, 3% represents a loss of 24,000 kegs. Some industry analysts estimate that total kegs lost in a given year number almost 400,000. At 30 pounds worth of scrap-metal per keg and somewhere near $.80-$1 per pound for scrap stainless steel those 24,000 kegs represent about $720,000. Not to mention the hassle of losing the keg and having to replace it.

Some groups have suggested that one way to address the problem of kegs walking away is to raise the price of the keg deposit. Of course, as the Brewers Association suggests, using internet forums (or, indeed, any forum) to get together and decide on a price to raise deposits is a bad idea. Moreover, as the music and film industries have found out, it doesn't pay to treat your customers like criminals, even if they are. Another option is to track the kegs as they leave the brewery, go to the distributor, to retail, back to the distributor, then back to the brewery.

New Belgium has chosen the latter course and is implementing RFID devices in their kegs to track them through the supply chain. The RFID system will allow New Belgium to not only track the kegs, but will also provide some key customer metrics such as fill-to-fill cycle times, keg turn rates by distributor, how long the keg sits with the distributor, and keg location and status. Thus, New Belgium can know that Specialty Beverage has 10 empty kegs sitting on a dock outside of Milwaukee waiting to be returned. Knowing this information will not only reduce keg loss, but can reduce keg inventory because of increased efficiency in use.

Of course, this information can be tracked with any number of tracking solutions. Not only does RFID work, but so would more simple, less expensive (at least for initial technology costs) bar-codes. The devil, of course, is in the details. And in this case, it requires attaching an RFID tag to each and every keg and populating databases with information such as what's in the keg, batch information, where it's headed, and tracking numbers, but it also requires RFID scanners not only at the distributor but at retailers such as bars and liquor stores as well. Although, one advantage of RFID over say bar-codes is a simple RFID interrogator can be installed at the distributor's docks without anyone taking extra steps, like scanning the keg or pallet. Also, once installed the RFID, unlike bar codes, can be combined with GPS systems to provide real-time monitoring solutions.

On the other hand, these RFID systems could be difficult to install internationally. Standardizing on an industry-wide RFID system would make adoption by smaller breweries, those most hurt by keg loss, an easier and less expensive option.

RFID systems are also not cheap. In addition to the obvious technology costs like RFID tags, scanners (called "interrogators"), GPS systems, and high-end computers and databases, there are also IT costs such as development and customization efforts, database development and non-IT costs like training a keg-filler how to put the information into the system and convincing your distributors and retailers to let you install hardware and/or software and, possibly, train their people how to use your systems.

So, it's great to see a brewery like New Belgium, a leader in brewing industry innovation, using RFID to control its processes and make its business more efficient. Ultimately, if not immediately, they will see returns on the bottom-line through lower incidence of keg loss and lower inventory carrying costs. Not to mention the better sales information that can be gained through the data-mining and application of the data to get the right beer to the right people.

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