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Craft beer companies have brewed up some serious success.
Take Catawba Brewing Co. "We all seek growth, but growth isn't painless," said Billy L. Pyatt, co-owner -- along with his wife and brother -- of the brewery. Pyatt should know. He said Catawba has grown approximately 60% each of the last two years.
Managing the many business processes that turn ingredients like hops, wheat and barley into a product people must buy or even wait in line for is not easy. That's why many craft beer companies, including Pyatt's Catawba, turn to ERP as their brewery software.
Tapping into ERP as craft brewery software
The latest publicly available figures from the Brewers Association at the time of this writing reported that, while overall U.S. beer volume sales were flat in 2016, craft brewer sales continued to grow at 6.2% by volume, reaching 12.3% of the U.S. beer market by volume. The trade group for the craft beer industry also reported that retail dollar sales for this vertical increased by 10%, up to $23.5 billion. Indeed, craft beer now accounts for nearly 22% of the $107.6 billion U.S. beer market.
Unexpected or unmanaged growth spurts add complexity for craft beer brewers, and such growth is common for the craft breweries, even though the larger beer industry isn't faring as well. So, when is the time right to add ERP as your craft brewery software to help manage growth in a sustainable way? Opinions vary and depend on a number of factors.
Best time for craft brewery management software
Scott KerkmansDirector, Metropolitan State University of Denver Brewing Industry Operations program
"Ideally, breweries should begin to consider ERP solutions to track production, taxes and related issues from their inception," said former brewer Scott Kerkmans, who is now director of the Metropolitan State University of Denver Brewing Industry Operations program, where he is also a professor. "This clearly helps them plan for these costs and build them into their COGS [cost of goods sold] immediately, but just as importantly, it builds the use of tracking software into their standard operating procedures [SOPs]. Trying to retrofit an ERP solution into an unorganized workforce is painful at best. Better to start out with it."
If a brewer didn't start out using ERP, a best practice is to incorporate it for management purposes as quickly as possible.
"When it becomes fiscally sound to take the plunge is dependent on each brewery's cash flow and profit margins, but working towards cleaner and clearer tracking of your production should always be a goal," Kerkmans said.
"The need for ERP has less to do with revenue and size and more to do with complexity of the organization," according to Regional Account Manager Travis Johnstone at ERP provider IFS in North America. "When you talk about multisite production, for example, it's a pretty good indicator that you should be looking at an enterprise solution."
Catawba began evaluating ERP systems at about 5,000 barrels, which, Pyatt said, was probably just about the right time for his brewery. "By then, you're well over a million bucks in revenue, and you've got substantial inventory positions in raw materials and packaging components that need to be optimized for profitability and customer service."
However, he pointed out that other craft breweries may want to adopt an ERP system sooner, depending on their sophistication. "I've known very small brewers, less than 1,000 annual barrels, who successfully use ERP software. The principals of those companies have engineering or computer science backgrounds, so it's a natural fit," Pyatt said.
Because growth can quickly create problems for craft brewers, a best practice is to move to ERP from inception, recommended one former brewer, who now advises and teaches other brewers.
How ERP as brewery software manages growth
Overnight popularity -- or, more precisely, an unexpected, strong surge in demand for a craft beer -- is not uncommon. If and when it happens, things at the brewery can quickly get chaotic.
"Assuming you don't already have an ERP solution in place, the first step when exponential -- or unplanned -- growth occurs is to weather the immediate storm and make sure that you aren't releasing beer into the market that doesn't fit your quality profile," Kerkmans advised. "Clean up your SOPs -- and on day one, if possible -- and then, brew your tail off until you are caught up or at capacity."
The threat of a blow to quality is real, and it can kill a brewer's shot at fame, glory and bankable profits very quickly.
"God forbid the worst happens, and you have to recall a product and need to trace a product back to its source and raw materials. This is very difficult to do without an enterprise-class ERP system," Johnstone said.
"In order to assure a more predictable and commercially salable product, you need a consistent BoM [bill of materials] and consistent product structure over time," Johnstone said. "Some ERP products can include quality management capabilities that can help ensure consistent production quality and consistent taste," he said.
"But even if you are comfortable with differentiation between batches, you have to ensure it is not in one person's head," Johnstone said.
In the chaotic state of meeting exceptionally high demand on short notice, ERP may appear to be more trouble than it's worth.
"In the short time frame where unplanned growth might hit you, implementing a new ERP system is … going to cause you headaches," Kerkmans warned.
Why make time for craft brewery management software?
The effort of prioritizing the craft brewery software can pay off shortly afterwards and going forward.
ERP software "can help make sure we have the proper amount of the correct raw materials on hand and that we haven't wasted our money on the wrong raw material purchases," Pyatt said. He also pointed out that ERP can give insights into costs. "With a good ERP system, we know that our Beer1 costs $50 a barrel to produce and that, every time we make it, we lose 20% in scrap. And over time, our ERP system will tell us if our processes are getting better or worse [in terms of] scrap fluctuations and production elapsed times."
Internal efficiency and customer service also get a boost. "We know what beers we have in stock, which beers are being produced and when they'll be available, and we can plan for large market initiatives and beer releases," Pyatt said. "We'll be a more customer-focused company because of it."
"Your distributor, in particular, is going to be happy that you have taken the time to look at production planning with an eye towards the next week, month, year and beyond," Kerkmans said.
Indeed, the problems experienced during peak periods are not likely to go away, but rather to remain issues to be managed in day-to-day operations, making an ERP investment sensible for the long term.
"As complexity increases, you reach a breaking point with the number of third-party bolt-ons you have laid on top of a spreadsheet or entry-level ERP," Johnstone said. "You have your financials package, but then have layered on CRM, Fishbowl for inventory and then solutions for payroll and human resources. You will get to that point where you need a truly integrated, enterprise-class ERP product."
Moreover, managing manufacturing details can be difficult without a sophisticated ERP program.
"How extensive is the range? Is it two or three IPAs with maybe a porter, or is it more extensive -- in which case, planning may not be a single mash a day but multiple mashes in multiple vessels with multiple styles, requiring more complex planning and purchasing solutions," said Colin Elkins, process manufacturing industry director for IFS.
"Quality may vary from mash to mash. This is, in some way, the charm of craft brewing. However, when the brewer becomes larger, a more consistent approach is necessary, introducing more quality audits, recipe management, ingredient testing, material tracking, etc."
In other words, thriving as a craft brewing company requires a repeatable -- and scalable -- recipe for success.