Resources > APICS Magazine > May 2004 > Spotlight on Food and Beverage > Serious Upgrade

Serious Upgrade

Distilled spirits maker gets big benefits from new ERP tools

Bardstown, Kentucky-based Heaven Hill Distilleries has found a better way to make a profit: bringing its information technology (IT) systems into the 21st century.

The Shapira family started the company in 1935 as a producer of bourbon and premium American whiskeys. It began right after Prohibition ended, with no brands, no stock, and during the height of the Great Depression.

Times have changed. The Shapira family still runs Heaven Hill, now the largest independent, family-owned producer and marketer of distilled spirits in the country. The company now boasts such well known names as Christian Brothers brandy, Evan Williams bourbon, Dubonnet aperitifs, Whalers rum, and Burnett's gin and vodka. Heaven Hill's newest brand is Hpnotiq, a drink that combines vodka, cognac, and fruit juices.

After an evaluation of its processes in October 2002, Heaven Hill determined it needed a better system. "Our company had outgrown our old system—it was so customized that it could only be supported by one guy, our IT manager," recalls Allan Latts, director of corporate planning. "We believed with the growth the company has had, that we needed a new platform to support both our current operations and, most importantly, our future growth plans."

As they examined the existing system, Latts and the evaluation team recognized it was very weak in material requirements planning (MRP); production, planning, and scheduling; and materials management. "We did not have a standard costing system in place, nor did we have a system where we automatically tracked raw materials. That was all done manually," Latts says. "The system primarily operated from order entry and accounting through finished-goods inventory management. We wanted to take advantage of the new tools that are available in a state-of-the-art enterprise resources planning (ERP) system, both to make our processes more efficient and to automate some of our manual processes."

Heaven Hill operates a bourbon distillery, bottling plant, and distribution center in Bardstown. It also imports a number of brands, including Hpnotiq, from foreign suppliers. The company uses an outsource manufacturer on the West Coast for much of its regional bottling needs.

Spirit production is, at first glance, a combination of process (distilling) and discrete (bottling) manufacturing. But unlike refining, the process side is more batch-oriented than continuous. In evaluating an ERP system, Latts discovered many vendors didn't see that differentiation clearly.

"As we were considering the different companies, everybody talked about us being process and needing to have a solution that was designed for a process industry," Latts says. "But when we really dug into it, we found that we were using more structures, routing, and shop orders, instead of recipes and process-related functions."

To perform its ERP vendor selection, Heaven Hill created a questionnaire that highlighted their requirements and sent it to several software providers. In addition, Deloitte and Touche consultants assisted in evaluating systems. From the vendors' responses, Heaven Hill selected companies to come in and present demos.

Heaven Hill selected Chicago, Illinois-based IFS for several reasons. "One of the areas that was attractive to us was the broad range of functionality that IFS provided," Latts says. "IFS had MRP, standard costing, inventory management, and accounting—everything that we were looking to implement. We liked that we could buy just the modules that we needed, and at a later time, when we're ready, we can buy additional modules. We also were very impressed with the user interface and the level of technology that IFS used."

From the decision in October 2002 to implementation in May 2003, the teams at IFS, Deloitte and Touche, and Heaven Hill cooperated to get the system up and running. Latts credits the successful implementation to key people at Heaven Hill spending a lot of time focusing on the project. Through the implementation of the IFS system, the company discovered how it needed to change and modify its processes so it could achieve the kind of gains and efficiencies it wanted.

But as Latts admits, the project isn't over yet. "They say with ERP implementations, when you flip the switch, you are just getting started. That's been true for us. We are operating on a much higher level, but there are still many areas we need to fine-tune and new functionality that we plan to implement."

After a year of experience, Latts can point to some benefits Heaven Hill has achieved. The company has realized a significant reduction—as much as 20 percent—in finished goods inventory. MRP is helping decision makers anticipate what to run and when to run it.

"In the United States, we only sell to distributors, not to retail stores or bars. We provide a broad mix of stockkeeping (SKU) offerings to these customers and have reduced the order lead time we require from them. We had required four to five weeks lead time on our customer orders, but because of the better planning and operational capabilities that we have with IFS, we have been able to officially reduce this time to three weeks."

Heaven Hill is the second largest holder of Kentucky bourbon in the world with more than 650,000 barrels aging at any given time. Consider all its other spirits, and Heaven Hill produces hundreds of brands and thousands of SKUs in all.

"Our problem is a matter of making time on the line—balancing inventory, changeovers, and the capacity that our lines have so we get everything done on time," Latts says.

Using the capabilities of its IFS system, Heaven Hill has been able to fine-tune scheduling. The software helps the company optimize what it needs to run and in what sequence. Heaven Hill juggles several different bottle shapes, all types of spirits, and hundreds of different labels. The company can now develop reports that use several different variables to schedule shop orders
in the optimum sequence so that changeovers are minimized. Moreover, the reports allow Heaven Hill to more easily meet customer service and inventory targets.

Over time, Heaven Hill users have found some functionality they didn't expect. "When we were doing training for the go live, we just focused on the plain vanilla aspects of the system," Latts says. "Once you dig into it more, you learn more about what is available."

For example, the company recently started to use IFS's available-to-promise capability. With this function, inventory or planned production information is available immediately after entering an order. This enables Heaven Hill to notify the customer on the front end if it will have a problem shipping the order on time.

"With our strong customer service focus, this is a big win for us," Latts says.

Of 450 employees, about 70 work with the IFS system. Latts says that as the users become more experienced, Heaven Hill will see even more value. "We are just beginning to realize all the benefits that come from having a state-of-the-art ERP system. As we grow as a business and become even more sophisticated, we are glad to know IFS has the capabilities to grow with us, helping make our company more efficient."