Inventory managment and Naked Wines

inventory-management-9I’ve been researching crowdfunded companies for a while and I found one that is truly remarkable. Naked Wines. I really admire what they are doing but came to some conclusions upon investigating the company further. 

Here are my findings

Inventory management, proper forecasting and operation planning seems to be at the core of any type of supply chain. Hidden away from the naked eye the ongoing operations to keep track, forecast the future and manage capability in order to optimize are a tough but never the less a vital task. (Kraxenberger, 2081)

A common belief are that the management of the supply chain automatically leads to cost savings, mainly by reducing the inventory. Indeed, the cost of inventory has fallen by about 60% since 1982 and the transportation cost by about 20%. (Dooley, 2005). A direct cause of this and the financial crisis was by many companies slashing their inventor in a “slash and burn” tactic, but perhaps because it was a necessary evil at the times in order to survive and not the brilliant strategic move that strategic management points to today (Csco, 2011). Currently, much have been learnt from the crisis but I do question if firms have fully understand the whole nature of demand, inventory cost and capabilities?

Even if organizations use an inventory control or flow management it seems like many companies does not actively control stock on hand nor inventory. This especially in the food industry (Dooley, 2005). Naked wines does keep their stock on hand depending on the demand from its customers, but can’t in the same way handle the ongoing pressure to increase their “angels” or direct investors.

Uncertainty, insecurity, and poor forecasting in demand are three real and thought provoking issues that firms must face to properly manage inventory and therefore their supply chain. Naked Wines have a huge opportunity to properly restructure the fine wine market in Australia, proper yield management is one key element for them. I believe customers reached a stage and are ready to pay a premium price or even a small founding for the company to grow. We are again and again reminded by the successes of crowd funded project (IBM, 2012). Naked wine is already at a crowed founded stage, but perhaps this time the organization can take this to the next level?

vTgrDS18Upon investigating Naked Wines we quickly came to the conclusion that the demand to join the now exclusive club is enormous. Can Naked Wines benefit from this demand instead of seeing it as a problem?

Are consumers willing to pay $5 extra for wine for a period of time or even open up public shareholding in order to raise capital to grow?

I believe the forecasting and capacity planning have failed on a staggering level for Naked Wines. Undeniably, the success is great and the model works, but the firm unquestionably lack the tools how to manage their demand. No matter the strategy used in the beginning, the underestimation of the Australian wine market seems to have come as a surprise for the firm. Why else is there a waiting list to join a wine club, which by the day becomes more exclusive as the firm gaining more attention?

Looking further into the lifecycle of products it is clear that the nature of this framework is to quickly gain enough profit to make up for start-up cost and retain that profit for as long as possible before finally seeing a decline in demand. Does this apply in a service economy? Can we use the same framework that has been going on for so many decades and that did not take globalized ideas like crowdfunding, bitcoin and further interdependence of economies?

In the end firms like Naked Wines must understand that the cost of stock-out as well as correct levels of stock on hand correlates to effective inventory management and directly affect the high level of customer service that is now demanded from customers. I believe this can be achieved via Lag strategy for Naked wines, due to the fact of the vast demand from their customers as well as the constant inflow of new customers. It will also be an effective framework as the shelf life of quality wine is extensive. (Ohlager et al 2001) I propose that this must be evaluated more often than the traditional 3-5 year change in supply chain to as often as every financial year or perhaps even every quarter if there is any indications of change in the model. The adjustment strategy will always come too great use for those type of situations where demand fluctuates and might be a great model to have as a back-up plan.

I can also see the benefits of adding a further development into a competent ECR system. as The information flow between customers and suppliers are one of the backbones in Naked Wines model. An implementation of cross docking stations around the country in order to minimise waiting time and spread out more evenly throughout Australia is also recommended. If you combined these two with a real time synchronised production system where a cloud platform makes the supply and demand a minute based operation would open up new interesting solutions to Naked Wine. How about an auction system in real time much like eBay for angels? Actual stock on hand deals where customers can see how many bottles are left before ordering completely eliminating the cost of stock-out. (Kraxenberger, 2011) Can they develop drone like supply methods much like amazon plans to implement to make their delivers something extraordinary?

Naked Wine have the potential to become something extraordinary. The main question for me after this analyze is that if they have the drive, know-how and innovation to do it? Indeed, they run a model that is sustainable and truly remarkable but I question if that is enough for the next upcoming years?

 

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