Monday, September 1, 2014

Forecasting and The Whiskey Crisis

As we’ve read in this week’s reading, forecasting can be greatly influenced by qualitative factors like pop culture trends, environmental factors, and social issues. One particular industry that recently has been hit with variations in these domains is the alcohol industry. The global alcohol beverage market has reached an interesting phase. It is expected to have a moderate incline in growth and reach an estimated $1,369.5 billion in 2018.[1] Part of this increase of sales is being attributed to changing consumer habits. The average consumer is reported to have a higher disposable income than historical reports, and there is more inclination towards experiencing the culture of a drink rather than alcohol becoming a habit. Another influence that affects both forecasting and the supply chain of alcohol is change in the distribution outcomes. Online sales have become more popular, there are counters in liquor stores designed towards women that purport low calorie, and the tourism industry demands have required more forecasting as well.
The balance of supply and demand in the alcohol industry differs from Ikea’s model immensely. Ikea purposely ensures their stock is high in order to decrease their prices and remain competitive in their market. Alternatively, the alcohol industry has to strike a very critical balance. Overstocking can be detrimental to companies – while alcohol is not as perishable as produce, it still has a shelf life. Though an inventory that stays lean can also be problematic in the event demand shifts and one product suddenly becomes more popular.[2] Just as the fashion industry is highly vulnerable to trends and forecasting becomes more must difficult, the alcohol industry is highly susceptible to swift changes in customer demand.
America’s drinking culture is currently witnessing the start of a “Whiskey Crisis”, as it’s been coined. Premium whiskey and bourbon brands have witnessed a 20 percent growth in the past year alone.[3] Due to this increase in demand, the prices per bottle have increased exponentially, some even reaching a price tag of a whopping $1000/bottle.[4] Now while forecasting in the global alcohol beverage market is difficult and constantly needing revamping due to consumer habit changes, the whiskey industry is even harder. The mark of this spirit is its refined and lengthy production process. The quality and culture of whiskey is marked by the attention and detail to the distillation process. Therefore, it is very difficult to keep up with any changes in demand. While there is speculation as to whether or not the whiskey companies are in cahoots to see if they can raise the prices, it none the less lends to the question of how a forecasting model can be properly and efficiently used for a product when the very unique factor of the product is its refined production process. Mass production of whiskey to meet these demands can maybe take away the allure of the spirit. It is clear from history and the prohibition era that alcohol is here to stay, so the alcohol industry will always need to be in the search for a sustainable forecasting method. Would a whiskey company prefer to be like a high fashion brand like Chanel and only make a select number of high quality products, or would it prefer to be a brand like Ikea, with their products far and wide? Depending on outcome, the forecasting methods and analysis will surely change to support the supply chain.


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