A Change in Packaging Purchasing: Wine and Spirits

Publication Date01 Jan 1987
AuthorT.M. Cruden
subjectMatterEconomics,Information & knowledge management,Management science & operations
A Change in
Wine and Spirits*
by T.M. Cruden
Anthony Nevile International Ltd,
Business Development Consultancy,
Waltham Abbey, Essex
Over the last decade, there has been a rapid acceleration
in the introduction of new packaging concepts in the world
of wine and spirits. This has resulted in changes to existing
materials, more automation of packaging, which (hopefully)
have resulted in more consumer acceptability in presentation
and price of the final packaged brands and products.
This article describes one such wine and spirits company's
present practices and suggests improvements for the future.
Over the same period, while the production operation has
moved reasonably in step with progress, the purchasing
procedures for materials and machinery have remained in
a near static state, within the control and commercial
environment of traditional buyers. A study[1] was carried
out consisting of a total review of the company's present
procedures of purchasing packaging materials and
The word "purchasing" has been deliberately chosen as the
present buying activity description of these key functions,
and it is hoped to show that basic skills need to be upgraded
into a procurement discipline which will embrace setting
up an information system on established and potential
suppliers, material and machinery specifications, quality
reference and a purchasing management audit format.
There has been a Packaging Materials Purchasing (PMP)
department in the company for a considerable time (over
20 years). It has had to cope with the tremendous growth
of the purchasing power, which has arisen from the
company's development into the largest joint wine and
spirits manufacturer in the UK. The purchasing power of the
PMP department is demonstrated in the way the value of
purchases rose from £8.3 million in 1980 to £12.4 million
in 1984. By 1989, the projected purchasing power is
expected to exceed £21 million.
The PMP department is still relatively free from imposed
procedures, the only ones active at present are:
test reports for changes in specification;
six-month review of costing standards;
listing of quality facets and notification to suppliers,
measured actual costs against standard costs.
It is the last point that neatly typifies just how the
department has its priorities wrongly measured. Each year,
the department's performance has its variances measured
against projected expected price increases, which have been
predicted by the PMP department in conjunction with the
management accounts department.
The point to note is that currently there are no procedures
or audits to measure just how effective total purchases are
in terms of value for money. The variance procedure is purely
an accounting audit, measured against target forecasting
purchasing performance.
There has been a tremendous amount of liaison with
suppliers to achieve price reductions, due to changing or
reducing specifications through value engineering, but there
is no procedure to highlight or monitor just how successful
these changes have been. It is also important to have these
procedures linked to measuring personal and departmental
performances, to achieve better morale and motivation
among the staff.
In relative terms, a much forgotten aspect of packaging
materials costs is that in terms of the finished pack (i.e.
product filled and fully packaged), the cost of packaging
virtually equals the liquid costs before Customs and Excise
duty and VAT charges are added. The cost of a case of wine
increases over two-and-a-half times, while a case of spirits
increases over 11 times after Government taxes are added.
In spite of the enormous bill paid for packaging materials,
it is of course a vital part of the marketing presentation of
brands and products, a point often
understated in
appreciating the value of packaging materials. Millions of
pounds are spent on advertising a strong brand, and
sometimes the finished product does not quite do the
expensive image justice.
The days of reducing costs, usually with reducing standards
and specifications of quality, which was the only criterion
of a PMP department, is now a thing of the past. A penny
"This article originates from a project carried out as part of an in-company
MBA programme.

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