The global supply chain stumble that had bourbon makers over a barrel
Without the right wood, no barrels. Without the right barrels, no bourbon.
The recipe for bourbon is simple: Make a mash of mostly corn, plus some rye, wheat or malted barley, yeast and water; ferment and distill the results into a barrel. Wait two to 25 years. Filter, dilute and serve.
If you want it to be good, of course, it’s a bit more complicated. Consult your local distiller for details.
Or just ask around, since bourbon has never been more popular with consumers worldwide. Fueled by the TV series Mad Men and the growing craft beer and artisanal food movements, demand has skyrocketed.
Global sales in 2016 rose nearly eight percent from the previous year, enabled by a series of international trade agreements and changes in advertising rules dating back to the mid-1990s. Analysts predict the market for American whiskey will continue to grow at a CAGR of 6 percent [1] from 2017 to 2021, as more consumers in Europe, China and Mexico develop a taste for the golden spirit.
But a bottle of bourbon is only as good as the barrel in which it’s aged. U.S. Federal law [2] requires it be aged only in “charred new oak containers.” Sugars in the wood, specifically American white oak, interact with the unaged “white dog” spirits over time to create the distinctive colors and tastes characteristic of bourbon.
Without the right wood, no barrels. Without the right barrels, no bourbon. One ripple, or catalyzing event, in the timber industry, can reverberate through global supply chains to drastically impact the bourbon market.
“Very little of the wood out there is fit to be used for bourbon barrels,” Jeff Stringer, a professor at the University of Kentucky who studies hardwood silviculture and forestry, told The Washington Post. [3] “Only a small fraction of stave logs are high enough quality.”
In 2013, in the middle of what is now more than a decade-long whiskey boom, the bourbon industry suddenly faced a serious shortage of the essential lumber. Rotten conditions — heavy rains and flooding, unusually warm winters — made mush of conditions on the ground in many of the areas in the Eastern U.S. where white-oak forests thrive. [4] Timber prices were high. Loggers were hard to find. Heavy forestry machinery, operating on sodden ground, couldn’t compensate for the missing labor.
Conditions have since stabilized and the boom rolls on, but the barrel supply remains a vulnerable link in the process to this day, said Bill Creason, a former VP and product innovator at Brown-Forman, now beverage consultant based in Louisville. [5]
“There are a limited number of cooperages,” he said. “And if the really big companies pay a good price for a guaranteed volume of their annual output, they’re going to snap up most of that supply.”
Over the roughly three years it took for U.S. cooperages to catch up, some estimate that American whiskey sales outpaced production by at least two to one. [6] That’s a significant lost opportunity, when you consider that sales rose for a seventh consecutive year, reaching $3.1 billion in 2016. [7]
Could the industry have sidestepped the barrel gap? We’ll never know for sure, but AI is part of a supply chain strategy that combines company information with accurate, real-time data from other sources, which helps them more quickly anticipate and seamlessly manage unexpected disruptions and shortages.
Drawing on a range of data streams, new tools offer time-sensitive reports on climate, hydrology, lumber stocks, crop yields, production capacities and changing consumer tastes — virtually anything that might affect operations. These advances not only help supply chain managers better predict potential problems, they offer end-to-end visibility that can provide alternate solutions and opportunistic recommendations.
In short, new tools can give supply chain managers the confidence that the forces of nature and commerce won’t upend their business. And that’s a reason to raise a glass.
Learn more about IBM’s supply chain solutions and see how the ripple effect impacts your business.
[2] https://www.law.cornell.edu/cfr/text/27/5.22
[4] https://www.fs.fed.us/nrs/atlas/tree/802
[5] http://www.risingtbc.com/meet-the-team
[7] http://www.discus.org/2016AnnualEconomicBriefing/
All images courtesy of Quercus Cooperage
