Challenging Logistics AND OFFER Chain Management Business Essay

The supply string can be defined as being a band of associates who collectively convert a basic item into a completed product that is of value to the end user. Inside the resource chain each spouse must perform a task which provides value to the ultimate product/service (Harrison, Truck Hoek, 2008).

The supply string can be regarded as a single entity rather than a series of fragmented elements such as procurement, manufacturing and syndication.

Logistics management could be seen to include the long-term decisions and programs necessary for reform, whereas the resource chain includes the greater operational elements.

In a supply chain, every partner ought to add value to the done product\service through some process or process (Harrison and Truck Hoek, 2008).

Elements of Logistics Management:

Storage, warehousing, material handling.

Packaging and usage.



Information and control.

Source: Lecture Glide 1, Logistics strategy M32 SOR.


Research the tactical position of Diageo Plc from a logistics framework in order to develop a suitable logistics strategy.


Research & analyse a UK structured brewery's current tactical position from a logistics perspective.

Evaluate the key strategic approaches to logistics management that may be used by a UK established brewery.

Identify the management issues induced by implementing a new logistics strategy with thought for available capital, complex and individual resources

Outline the tactical significance of new technology developments and business trends on future logistic approaches for a shop.

Prepare and send the report

Diageo Plc- Background

Diageo Plc is the leading ale, spirits, and wine company in the world. The business has a well diversified stock portfolio of alcoholic beverages and stock brands such as Jos Cuervo, Smirnoff, Captain Morgan, Johnnie Walker, Baileys, J&B, Tanqueray, Bushmills Irish, Beaulieu Vineyard, Sterling Vineyards wines and Guinness (www. diageo. com).

Diageo is outlined both on the London Stock Exchange (DGE) as well as the brand new York stock market (DEO). Diageo has a wide brand portfolio. The business strives to keep its authority position and provide value to the customer. Diageo has production plants multiply across countries and continents including United Kingdom, Spain, Italy, India, Africa, Caribbean, United States of America and Australia. The business experienced worldwide sales worthy of 8. 09 billion in the entire year 2008. It manages in 180 market segments in five continents across the globe (www. diageo. com).

Diageo Plc was created when two of the most established breweries- Guiness Plc and Grand Metropolitan Plc- merged to form the present company in 1997. The company was then reorganised in 2004 into three unique proper business divisions, namely, Diageo European countries, Diageo North America and Diageo International. In 2005, Diageo attained the oldest distillery in Ireland called Bushmills Distillery. In 2006, the business widened into Russia and received many stake in Smirnov vodka business (www. diageo. com).

Logistics strategy:

A logistics proper framework is targeted at aligning the several partners of the supply string in a way in order to meet and match the customer's evolving demands. The aims of such a logistics strategic framework are:

Capital lowering: It signifies increasing the earnings on investments manufactured in logistics resources.

Cost reduction: It is to minimise\optimise the costs associated with storage and activity of goods and items.

Improvement operating: it consists of processes in order to achieve client satisfaction.

Competitive Structure and Competitors

The international drinks and drinks market has players, such as Pernod Ricard, Bacardi, Brown Forman Co-operation, Moet-Hennessey (LVMH), and Lot of money Brands (Beam Global). Pernod Ricard is a Paris-based multinational company which in 2008, purchased a Swedish company, V & S Group, the makers of Absolut vodka. Brown-Forman Co-operation is one of the largest USA-based manufacturers of alcoholic beverages. In 2007, it attained a Mexican company, Tequila Herradura, to include tequila drinks to its portfolio (Business Insights, 2009)

Bacardi, headquartered in Hamilton, Bermuda established fact for its make of rums. It really is a family-owned multinational company operating in over 100 countries. Moet-Hennessey is maker of spirits under the Paris-based parent company, LVMH (the most significant store of luxury goods in the world). Lot of money Brands are America-based manufacturers of wines and spirits and purchased many brands from UK-based Allied Domecq in 2005 (Business Insights, 2009).

Diageo: Strategic Positioning

An understanding of Diageo's overall proper setting can help us in planning a logistics management strategy. Evaluation of the entire strategy is a precursor to build up a concurrent logistics strategy aligned with the company's long term vision.

Generic Strategies for Diageo using Ansoff Analysis

C:\Users\user\Desktop\rohit gulati\brewery\ansoff. jpg

As is obvious from the Ansoff matrix, Diageo gets the following strategies:

Consolidation of its position and market penetration in older marketplaces such as USA and European countries where it is more developed. It is doing this both by organic and natural as well as inorganic expansion strategies.

It is looking at newer territories and growing market segments such as Africa and Asia for market development of its existing products.

It is developing products in older markets in order to increase the share of wallet of the buyer. A good example is RTD or ready-to-drink beverages, such as Smirnoff Ready-to-Drink drink.

Porter's Five Pushes Model

Michael Porter developed his Five Forces model in 1979 to help businesses understand competition in a more complete manner. Diagrammatically, it could be represented the following:

Source: Johnson & Scholes 6th ed, display 3. 4

The model, when applied to Diageo Plc, helps understand the business environment and competition as follows:

Bargaining Electricity of Suppliers: this is low as Diageo is an founded company with a large market share and strong brand. To gain edge over its suppliers, it enters into long-term contracts.

Bargaining Electric power of Customers: this is low as Diageo now positions itself as a company of premium and super-premium spirits and other alcoholic beverages. The market talk about of prime and super-premium brands of Diageo increased by 4. 5% and 11% respectively.

Threat of Opponents: it is high as it has a few international competitors by means of Pernod Ricard, Brown-Forman and Bacardi. Major mergers and acquisitions have happened in the alcoholic beverage industry resulting in fewer players with expanded brand portfolios and cross-border functions.

Threat of Substitutes: This is low as alcoholic beverages are a socially satisfactory form of intoxication that is not acceptable with every other substance.

Threat of New Entrants: it is low as access barriers are saturated in the form of increased regulation, increasing need of marketing by drink companies to see customers and increasing competitive characteristics of the industry.

Please make reference to Appendix A for even more reading on competitiveness.

Development of Existing Logistics Capabilities

The environment under which Diageo functions is active and changing quickly. The characteristics that define its environment that a person needs to understand to develop the logistics strategy are as follows:

Expectations of service levels are increasing

Consumers have become more advanced.

Government regulations have become more stringent

Commodity price pressures and intense competition cause complete opposite effects on price, affecting margins.

Logistics can be of tremendous value to a corporation if contacted in a correct and definitive manner. Its importance for various businesses has increased from only a cost incurring but necessary function to:

An activity to generate significant cost savings.

An activity with the to increase sales and customer satisfaction.

A marketing tool to get sustainable competitive edge.

The costs incurred by Diageo can be broadly grasped as follows:

C:\Users\user\Desktop\rohit gulati\brewery\cogs. jpg

Source: Gosnell, Trader Relations Meeting, 2005

The global resource and logistics strategy also includes people and processes which Diageo classifies as 'Companions for expansion' (Gosnell, Investro Relations Meeting, 2005). These can be classified the following:

Key Enablers: These are associated with people, procedures and attitudes such as cooperation, teamwork, responsiveness and capability development.

Qualifiers: These include guarding brand as well as Diageo reputation through keeping brand quality, brand integrity, commercial citizenship and other such means. It may also include the deal with of the company to provide competitive service to the client at the right value.

Winners: these include processes to lessen end-to-end supply chain costs, overall costs, driving a car technology and research and potential to execute the strategy needlessly to say.

The various features of this strategy executed by Diageo in inbound as well as outbound logistics and value creation are the following:

Reducing the overall cost of goods sold: Diageo has arranged a aim for of 2% real cost lowering each year. The philosophy here is that savings will come from all the different parts of the supply string such as procurement, logistics, developing and brand value, each that will be subsequently looked into. The large size procedures of Diageo provide it with an edge in every these areas.

Procurement: Glass and energy are two most significant the different parts of Diageo's cost of goods. To regulate energy costs, it uses forward purchasing; spot purchasing as well as short-term tactical purchasing. For glass supply guarantee and price control, it came into a strategic romantic relationship with Owens-Illinois and provided it the most well-liked supplier status. At the same time, it developed different supplier relationships as well such much like Altajir, based in Europe, with which it got into a three to five 5 year offer.

Also, Diageo also leveraged newer supply resources from Asia and Eastern European countries as these appearing economies are reliable on quality, prices, service and advancement. For example, this has resulted in 40%-50% cost saving on cartons, 20% on crowns and 15%-20% on casings.

Manufacturing: Diageo will try to increase the great things about economies of range. It has greater but fewer developing facilities, thus having high set costs but low varying costs. It includes sold or shut 11 facilities in Europe, 5 in THE UNITED STATES and 3 in Asia/Africa. In the rest of the manufacturing plants, they have tried to totally optimise the benefits of the Diageo size; e. g. : Shieldhall, Scotland is the major volume spirits presentation plant but still has only 7 lines.

Logistics: Diageo uses the 'pilot rules' relating a central hub warehouse that can supply to the surrounding market segments. These warehouses are strategically located and use cross-border shipments to meet demand. This model also minimises costs by maximising throughput. It has led to 20% reduction in manpower requirements, 25% reduction in stock and increased service performance. A good example of the 'pilot guidelines' model in Europe for Diageo is really as follows:

C:\Users\user\Desktop\rohit gulati\dIAGEO_brewery_3250\warehouse. jpg

Source: Gosnell, Investor Relations Convention, 2005

Brand Value and Value Anatomist: An example of value engineering is the Guinness can size that was reduced by 7%, weight reduced by 1% without lack of volume placed. JW bottles' glass weight was reduced by 22% as another example. This has led to reduction in product packaging, hauling and shipping costs.

Also, Diageo intends to generate value because of its customers while conserving its brand image. It intends to do so through

Improving existing quality standards

Implementing environmental management systems

Crisis management simulations for business resilience

Optimise supply flexibility

Strategic Methods to Logistics Management

There are two motivations advised for making a logistics strategy (Whittington 1993). These included the goals of setting up the logistics strategy and exactly how deliberate the processes were of setting up the logistics strategy. A matrix was hence developed and helped businesses measure the logistics strategy.


Diageo can utilise benchmarking to judge its logistics performance compared to its rivals or companies from different sectors altogether. Benchmarking can be explained as a process of continuously calculating and contrasting one's business performance against similar techniques in leading organizations to acquire information that will help the organization identify and implement advancements (Benson 1998). Benchmarking may also be understood as an activity for recognition of 'best' tactics by comparing key performance indicators for a particular activity across organisations and using these performance levels as inputs for corporate and business goal setting techniques (Gourdin, 2001) Diageo can utilise this to compare its procedures with respect to other companies, establishments or market segments. Benchmarking can be used in a variety of logistic operations such as warehouse operations, function and carrier selection, order handling, forecasting and product packaging. However, certain steps have to be ensured before getting into benchmarking (Gourdin, 2001). These are the following:

Defining today's performance level of the benchmarked activity.

Determining the amount of performance desired in this activity to be benchmarked.

Determining what advancements can be made and also to be made

Determining how to make the desired advancements to accomplish desired performance levels.

Estimate and set a time frame for the conclusion of the process.


Collaboration is the most advanced form of electric integration. If digital integration occurs at all levels, namely strategic, tactical and functional, it is called as collaboration. It can help the supply string members to get together in order to better forecast future demand also to design plans and implement those to meet these requirements. The customers can collaborate on new product planning, demand forecasting and replenishment planning. Collaboration allows information to be speedily exchanged and therefore, all members of the cooperation have access to updated and latest information. Additionally, it may help to keep your charges down and the data fed into the system can be used for monitoring and responses activities. The co-operative way simply identifies the degree of exterior and internal collaboration among the supply chain people.


Companies now understand the concept of strategic permanent marriage with suppliers. The underlying reason behind this realisation is the necessity to improve customer support or add value to the finished product. An alliance is reported to be strategic when it is strategic in focus and also directly facilitates one of the partner's distinctive main competencies (Give et al, 2006). Partnerships not only help the associates in posting information, knowledge and experience but also aid in lowering the risks for any one player.

Diageo, as motioned previously, has a permanent relationship with Owen-Illinois, a USA-based goblet manufacturing company. It's been accorded special company position and given a agreement for three years. It has also increased the range of Owen-Illinois. Diageo can forge similar partnerships with many other customers of its source chain.

Just with time (JIT)

A JIT-based program is aimed at making certain the right amounts are produced at the right time and reach the buyer at the right moment in time of need so that there surely is no waste. Waste products has been defined in JIT programs as whatever does not add value to the end product. One unit more or less than needed is recognized as throw away. Total Quality Management is a concept whose concept is concurrent with those of JIT and both might need to be implemented all together in order to add value to company's businesses. A successful and useful JIT program, however, needs the following to be performed by the company:

Steady production

Flexible resources

No machine breakdowns

Reliable suppliers

High quality product/service

Rapid machine set-ups

Discipline to keep up every of the above mentioned functions running on the continuum

Implementation of JIT

For JIT to be successful in Diageo, version of the JIT principles in its environmental set up is essential. The primary concepts of reducing waste materials, quick changeovers, overall flexibility in resources and partnering with suppliers need to be realised and has been described as a two-stage process (Gourdin, 2001).

Establish foundations (this refers to quality, low priced, minimum lead times, overall flexibility: these may be accomplished through Total Quality Management, versatile and trained workforce, reduction in installation time and focus on design).

Core Techniques (take scheduling, multi-functional workforce, JIT purchasing).

JIT is a quantity and demand driven program. It needs a certain degree of stable demand for this to reach your goals. It can't be implemented in an enterprise that has unique purchases or low amounts of operation. Additionally, companies should make an effort to improve JIT systems as technology developments.

Lean Management

First launched by Toyota Creation Systems, slim management is a concept of reducing misuse and non-value adding activities from the worthiness chain. The main elements of lean management are small batch size creation, 'draw' creation and reduction in variability. It says a 'yank' is created when a customer demands a product and only that should lead to development, thus lowering stock wastes and large inventories or batch sizes. Two very important ideas associated with slim management are kaizen (continuous improvement) and kaikaku (radical improvement). This promotes improvement in the functions on incremental as well as radical levels. Slim management helps in reducing lead times and reduce variability in demand, supply and production by standardisation of types of procedures.

Value Chain Research:

Source: Johnson et al, 2008

The concept of a value chain was developed by Michael Porter. He suggested that the functions within an company can be split into primary activities worried about creation and delivery of product and service and supporting activities (Johnson et al, 2008).

The value chain analysis helps the company identify its various components of the value string and what exactly are the activities at which value added can be increased. A fundamental value chain for Diageo can appear to be this:

C:\Users\user\Desktop\rohit gulati\brewery\valuechain. jpg

Issues highly relevant to the introduction of strategies

Integration of logistics strategy with commercial and business level strategies is vital for success of most these tactical outlooks. Diageo has integrated logistics strategy with the overall corporate strategy to streamline procurement, creation and delivery businesses (Gosnell, 2005). They have helped Diageo become the greatest player in the international alcohol drink market. However, opportunity for even more improvement always exists. A Step Model can be used by Diageo to build up and examine its logistics strategy and identify its talents and loopholes.

What Diageo must appreciate is that there are certain factors in the resource string that are beyond the control of the company. Trying to control such factors by the management can result in waste creation and loss of value. These can include increased competitive costs and product pressures, unanticipated actions by competition that can dent Diageo's market talk about or size, legal and regulatory changes and many more.

Management Issues Caused by Implementing Newer Strategies

New strategy implementation can directly have an effect on the capital, specialized and human resources of a company. Good command during change as well as effective communication can help put into practice the change in an reliable manner. During implementation and modification of logistics strategy, credited importance should get to HR management and other organisational issues. Ignorance of HR issues is the most frequent, yet often ignored cause of failure to use changes in strategy, even though they denote improvement over earlier techniques. These issues such as recruitment, training and appraisal, autonomy, overall flexibility and prize systems are important factors to be taken under consideration to enable smoother transitions. Specific to logistics, the management should review the existing staffing and skills, allocation and training of personnel, as well as current recruitment requirements and procedures. It will also consider the impact of market move and technological force on the strategy design and plan. Furthermore, operational issues have to be supervised and requirements in conditions of individuals, capital and equipment resources need to be met. These are essential for any new tactically significant businesses the company plans to attempt.

Force field analysis can even be used to help stakeholders allow the change and understand certain requirements, implications and resistances to the change in strategy. The model also shows that there are two causes primarily available field, namely, traveling force and level of resistance make. The management should strive to increase the power of the ex - and reduce that of the last mentioned while putting into action change.

Collaboration can play a significant role in the implementation of change. That is so because the company's suppliers and customers are also stakeholders in the company and can withstand change. Internal collaboration, intercompany cooperation and electronic collaboration should be applied while keeping in mind the ECR (efficient consumer response).

New Technology Execution and Future Fads in Logistics Strategy

Diageo, because of its international and cross border supply string should now focus on localised resource chains and circulation systems. This assists reduce haulage and shipping costs. Job of low priced marketing communications and cost computing technologies can aid in this endeavour and also help in increasing capacity to prolong product variety. Diageo has to be agile and adaptable to incorporate these and such positive technological innovations. This may lead to increased pressure on cost-efficient, strategically beneficial logistics management credited to increasing competition. As a result, increased stresses may be experienced on supply chain systems viz. replenishment purchasing, continuous ordering and supply flows, cross docking and stockless warehousing with product tracking (Harrison, Vehicle Hoek, 2008).

Scenario planning is a simulation attempt to generate sensible and plausible situations of the industry. Diageo can use it to simulate various market conditions, future situations and competition capabilities. Such an uncertainty-based situation matrix is highle effective in evaluation-based planning within the medium and permanent.


Radio frequency Recognition can be used by Diageo wherever plausible. However, Diageo should try to apply the technology in all markets for better product traffic monitoring, demand tracking and offer chain flexibility. It also helps in rapidly collecting data about demand levels and use patterns in a variety of markets.

RFID is a radio technology that uses radio signalling for digital identification and object labelling (Harrison, Von Hoek, 2008). This technique works in positioning to the organisation's information systems. This helps in enhancing business procedures such as supply string management while relaying significant market data.

RFID systems primarily contain three components:

Transponders: These are also called as contactless data carriers or 'Tags'. They can take information data feeded into them and identify objects to that they are fastened.

Readers: These devices communicate with the RFID tags and browse the information stored in them.

Software Applications: They are the applications that give food to and retrieve the info from a tag via the readers.

RFID vs. Barcodes

RFID are a technological improvement over barcode. The RFID tags can store as much information as a barcode can and sometimes more. Information taken by barcodes can't be edited. In case there is RFID tags information can be edited or modified. Furthermore, this function can be consistently performed with no loss of data or harm to tag's storage. The security systems inbuilt in the RFID systems are also better as it uses tags uses authentication and encrypted data copy methods.


Baheshti, 2006 described an ERP system as a assortment of business applications, which links back to you various business units of an organisation such as financial, accounting, making, sales and marketing and recruiting into a tightly integrated one system with a typical system for streamlined circulation of information across the entire business.

Reengineering of companies is facilitated through ERP systems so that they are in an improved position to enable employees, satisfy needs and needs of the clients and create better business value (Willis and Willis-Brown, 2002)

ERP systems helps create reenergized companies that are able to better help customers, empower employees, and drive better business value (Willis and Willis-Brown, 2002).

Since Diageo has three individual business units catering to different physical regions, the duty of collecting and analysing data is a overwhelming one at Diageo. ERP system can combine these data moves across all the business enterprise models and their various divisions so as to better understand the industry situations and design and/or adjust strategy accordingly. It could thus act as a competitive advantage to the company over time by better understanding of the international market and various needs and requirements of the consumers across borders. This may thus help in driving a vehicle Diageo's overall functional efficiency and practical effectiveness.


Presentation by David Gosnell, Controlling Director, Diageo Global Supply, Investor Relations Meeting, November 2005

Business Insights, 'The Top 10 Spirits Companies: Industry Trends and Development Strategies of Leading Players', Apr 2009

Presentation by Stuart Fletcher, Chief executive, Diageo International, April 2009

Baheshti, H. M. (2006) What Professionals OUGHT TO KNOW About ERP/ERPII: Management Research News. Vol. 29(4) [online] available from

Fenn, D. (2005) 10 edn. Key Be aware. Hampton: Key Notice Ltd

Gourdin, k. (2001) Global Logistics Management. Oxford: Blackwell

Grant, D. , Lambert, D. , Stock, J. , Ellram, L. (2006) Basic principles of logistics Management. Berkshire: McGraw Hill Education

Harrison, A. , Van Hoek, A. (2008) 3 edn. Logistics Management and Strategy. Essex: Pearson Education

Johnson, G. , Scholes, K. and Whittington, R. (2008) 8th edn. Discovering Corporate Strategy. England: Pearson Education

Rushton, A. , Croucher, P. , Baker, P. (2006) 3 edn. The Handbook of Logistics and Circulation Management. London: Kogan

Willis, H. & Willis-Brown, H. A. (2002) Increasing the value of ERP: Journal of Industrial Management & Data Systems, [online] Available from

www. diageo. com.

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