Budweiser Tackles Supply-Chain Management

budweiser_4312                                                                                               three-tiered-system

One important thing to take away from Operations Management (OM) is how relevant it is in all branches of business. Developing an understanding for operations management can be the key to solving many problems in a business regardless of your field. This lesson became apparent to me when considering lectures from both my management and marketing course. Marketing concerns itself with the 4 P’s or price, product, promotion, and place. What I want to focus on in this blog is place, which coincidently supply-chain management is one of the OM strategic decisions and a major way companies can reduce cost. Anheuser-Busch’s Budweiser has implemented a supply chain that is worth taking a closer look at.

First, it is important to note that all alcohol producers must adhere to the Three-Tier System, which simply states the distribution of alcohol must include an independent intermediary between producers and retailers to eliminate unfair practices by producers. In other words, “the distributor is not allowed to purchase shelf space or exclusivity, furnish equipment like draft coolers, offer loans or create a feeling of obligation, or offer discriminatory promotional pricing” (Spiess).  What this means for alcohol producers that their supply-chain channel is already determined for them; they do not have the option of choosing between a direct or indirect channel structure. Budweiser must go through a wholesaler/distributor to reach the retailer.

Since Budweiser must have an indirect channel structure paying for distributors will impact their costs. Thus, finding ways to lower the cost becomes the next step. When dealing with the three-tier system, Budweiser must make strategic supply-chain management decisions that will benefit their business. Looking to OM becomes a crucial step. Thus, some brewers such as Anheuser-Busch and Miller have found ways to go around the requirement of an independent distributor without actually breaking the rule. Due to their wealth and success, Anheuser-Busch essentially has ownership of their distributors without actually owning the distribution channel. For example, “In 1977, Anheuser-Busch had their distributors sign an “exclusivity incentive program” which didn’t require the distributor carry only A-B products, but gave huge benefits if they did drop all competitors” (Spiess). Through incentive programs such as these, Budweiser is able to implement a vertical forward integration channel, in which they essentially control their wholesalers.

Of course problems struck when independent distributors found out that “Anheuser-Busch has more than 500 distributors across the country…nearly all of which are independent companies with an exclusive contract to sell A-B beer in a certain geographical area” (Logan) and started to push a bill through the state legislature to stop these practices. They are arguing that Anheuser-Busch is gaining profits by saving on what they normally would have had to pay the distributor (Logan).  Wholesalers believe these producers are exploiting the system meant to protect distributor rights. On the other hand, Anheuser-Busch argues as a smart supply-chain management decision, it makes good business sense to hire wholesalers who are loyal to the Budweiser brand rather than those who also carry their competition. Thus, Anheuser-Busch minimizes costs while distributors are guaranteed its business.

While this is a great way for Anheuser-Busch to minimize cost, is it fair to the wholesaler who will not sign the incentive agreement and is then losing this revenue?

Should alcohol manufacturers such as Budweiser be able to own their own distributors as part of their supply chain management?





10 OM Decisions: Rebuilding the Chicago Blackhawks

Chicago Blackhawks                                                       Win Stanley Cup

In 2004, “ESPN named the Blackhawks as the worst franchise in all of professional sports” (English).  So how did the Chicago Blackhawks go from one of the worst teams in the NHL to one of the best? While reading several articles, the answer became apparent to me: they made alterations in their operations management (OM). It suddenly became clear how easily operations management can be linked back to almost any topic. I became in engrossed in finding out exactly which OM decisions were made that resulted in this significant change.

In 2007, owner of the Blackhawks, Bill Wirtz, passed away leaving his son, Rocky Wirtz, in charge of this franchise. Rocky wanted to correct his father’s mistakes and was dedicated to make this change happen; “He wanted to get Chicago back on the Blackhawks’ side.” (English). First, he made job position changes by signing John McDonough (president) and Stan Bowman (Vice President). He began to build a new team of individuals all devoted to a resurgence of the Blackhawks. From there, changing the coaching and players came next.

Ultimately, he wanted to “re-brand” the Blackhawks experience for the fans who had lost faith in the franchise. To make this possible, he renovated the United Center; he added more entertainment outside of the arena so no matter where you were sitting, you would be having the same level of enjoyment. By partnering with the White Sox and WGN, he was able to bring back televised home games. Fans were getting excited about the team again. By adopting his method of “long term thinking”, he was able to create the change this franchise needed.

Why is this related to Operations Management? By looking at the 10 OM decisions one can pin point how Wirtz was able make this change happen.

The Strategic Decisions:

  1. Design of goods and services
  2. Managing quality
  3. Process and capacity design
  4. Location strategy
  5. Layout strategy
  6. Human resources and job design
  7. Supply-chain management
  8. Inventory management
  9. Scheduling
  10. Maintenance

These strategic decisions reflect the alterations made in the Blackhawks. Designing services is seen through the signing in new players and changing the coaching, while wanting to create the best experience for their fans is an example of managing quality. By adding services and a new design to the United Center, Wirtz was catering to the desires of their customers. His consideration of costs, logistics, technology, and “flow of materials, people, and information” is an example of their location and layout strategy. He demonstrated human resources and job design decisions by employing motivated individuals dedicated to his mission. These are just a few of the multiple operations management decisions that were implemented while rebuilding the Blackhawks.

I believe this is an excellent example of how operations management can be a great tool to improve a struggling organization. The definition of operations management is “the set of activities that create value in the form of goods and services by transforming inputs into outputs” (Heizer & Render). Wirtz was able to create value in the Blackhawks by changing the players, coaching, and the building. By altering these inputs, the output that resulted was this new Blackhawks team that is better than ever before. This turnaround of the Blackhawks has brought back to the fans the sense of pride and devotion to hockey.  Now it is almost impossible to walk down a street in Chicago without seeing a piece of Blackhawks merchandise. It is safe to say that Rocky Wirtz accomplished what he set out to do.

What do you think about employing these operation management decisions to “rebuild” a franchise? Can you think of any other organizations/companies that similarly had to change their business approach?



Heizer, Jay, and Barry Render. Principles of Operations Management. Upper Saddle River. 2013. Print.