A case study on downstream supply chain of

an Indian alcoholic beverage manufacturer:

Some insights for the global business
Article (PDF Available)inJournal of Indian Business Research 7(2):161-195 June 2015
with138 Reads
DOI: 10.1108/JIBR-11-2014-0074

1st Gopalakrishnan Narayanamurthy

5.95 Indian Institute of Management, Kozhikode

2nd Anand Gurumurthy

Abstract
Purpose This study aims to understand the structure of downstream network from a supply
chain (SC) perspective using a case of an Indian alcoholic beverage manufacturing company. In
the SC literature, many researchers and practitioners have studied the design of upstream
supplier network. Very few studies have documented the design of downstream network
comprising distributors, warehouses, retailers, etc. and current study attempts to contribute to this
limited literature. In addition, this study also tries to understand the influence of downstream SC,
if any, on top management strategies. Finally, it assesses the SC quality using the standard set of
factors and provides insights for its improvement. Design/methodology/approach Single case
study approach has been utilized to understand the configuration of downstream SC. A distillery
in southern part of India which distributes a variety of liquor products across the market has been
chosen for this study. Different data collection approaches have been adopted to understand the
distribution channels prevailing in the market. In addition to the internal documents, semistructured interviews were conducted with salesmen employed by the distillery for different
group of outlets, top management of the distillery, outlet owners and counter sales person.
Findings Different distribution channels constituting the downstream SC network of the
industry in the market studied have been identified to be retails and bars, institutions, clubs,
modern trade, maximum retail price and Mysore Sales International Limited. Each of the
distribution channels has clearly defined their boundaries for reaching different segment of
consumers. Significant influence of the existing distribution channels on strategic decisions such
as new product development and pricing were noticed. Interesting inferences were obtained on
the relationships existing between the distilleries and different distribution channels. Insights

were also gathered on the regulatory role played by the government between the manufacturers
and distributors. Few marketing and promotional strategies adopted by companies to strengthen
their downstream relationships with distribution channels and, in turn, with consumers have also
been discussed. The quality of alcoholic beverage SC has been assessed and was found to
perform on par with the set standards of quality in robustness factors and enabling factors.
Training factor needs to be further improved by providing salesmen with exposure to best
practices. Effort also needs to be taken to improve in the complicating factors, i.e. the testability
and time. Research limitations/implications This study is limited to the experience of a single
alcoholic beverage manufacturer in the Karnataka state in India. SC of alcoholic beverage
industry in India varies across states and depends on State Government regulations. Hence, the
obtained results and inferences cannot be generalized across the industries and geographies.
Future studies can be carried out in different locations across the country to understand the
structure and dynamics of downstream SC in this industry. Scope also exists to study how the
deficiencies identified in the SC can be improved and how alcoholic beverage firms entering
India adapt to the prevailing SC structure. Comparative study of downstream SC of different
industries can also be conducted. Practical implications Academicians and practitioners can
consider this paper as a source to understand the configuration of downstream SC of alcoholic
beverage industry. More than that, this study provides a counter-intuitive inference for
researchers and practitioners that choice of distribution channels have influence on the strategic
decisions such as pricing and product development. Therefore, it becomes necessary to factor in
the target distribution channel at the product design phase itself. This study may also help in
performing a comparative study of downstream SC especially the distribution network of
different industries and identify best practices that can be adopted across the industries.
Application of the standard set of factors from the food SC quality assessment literature have
been demonstrated in this study to assess the downstream SC of the alcoholic beverage industry
studied. In addition, this study provides several insights by detailing the structure of the SC for
other alcoholic beverage manufacturers who are planning to enter Indian market.
Originality/value According to authors knowledge, it is believed that this is the first study to
report the configuration of downstream SC of the alcoholic beverage industry specifically from
India apart from describing their influence on strategic decisions of the company.
A Study on Downstream Supply Chain of an Indian Alcoholic Beverage Manufacturer
Abstract
Purpose of this paper: In supply chain literature, many researchers and practitioners have
studied the design of upstream network comprising of suppliers. However, not many studies
that describe the design of downstream network comprising of distributors, warehouses,
retailers, etc. as, the design of downstream networks i.e. the distribution channels is
considered to be the responsibility of sales and marketing departments rather than a supply
chain (SC) design activity. Hence, in this study, an attempt has been made to understand the
structure of downstream network from a SC perspective using a case of an Indian alcoholic
beverage manufacturing company. In addition, this study tries to understand the influence of
downstream SC, if any, on top management strategies and also gather implications for global
business.
Design/methodology/approach: Single case study approach was utilized to understand the

configuration of downstream SC. A distillery in southern part of India which distributes

variety of liquor products across the market was chosen for the study. Different data
collection approaches were adopted to understand the distribution channels prevailing in the
market. In addition to the internal documents, semi structured interviews were done with
salesmen employed by the distillery for different group of outlets, top management of the
distillery, and outlet owners and counter sales person.
Findings: Based on the study carried out, it was inferred that different distribution channels
namely Retails & Bars, Institutions, Clubs, Modern Trade (MOT), Maximum Retail Price
(MRP) and Mysore Sales International Limited (MSIL) constitute the downstream SC
network of the industry in the market studied. It was observed that distribution channels have
clearly defined their boundaries for reaching different segment of consumers. Significant
influence of already existing distribution channels over strategic decisions on new product
development and pricing strategy were noticed. Interesting inferences were also obtained on
relationships existing between the distilleries and different distribution channels. Insights
were also gathered on the regulatory role played by the government between the
manufacturers and distributors. Few marketing and promotional strategies adopted by
companies to strengthen their downstream relationships with distribution channels and in turn
with consumers are also discussed.
Research limitations/implications: This study is limited to a single organization in the
Karnataka state in India. But operation of alcoholic beverage industry in India varies across
states based on state government regulations. Hence, the obtained results and inferences
cannot be generalized. Future studies can be carried out in different locations distributed
across the country to understand the structure and dynamics of downstream SC in different
markets for the industry.
Practical implications: Academicians and practitioners can consider this paper as a source to
understand the configuration of downstream SC in India with respect to alcoholic beverage
industry. More than that, this study provides a counter intuitive inference for researchers and
practitioners that choice of distribution channels have influence on the pricing strategy and
strategic decisions taken by the firms with respect to the product. Therefore it becomes
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necessary to factor in the target distribution channel at the product design phase itself to take
a systemic approach of the entire supply chain. This study may also help other researchers in
performing a comparative study of downstream SC especially the distribution network of
different industries and identify best practices that can be adopted across the industries.
Originality/Value: According to authors knowledge, it is believed that this is the first study
to be carried out to report on the configuration of downstream SC of the alcoholic beverage
industry specifically from India apart from describing their influence on strategic decisions of
the company.
Keywords: Downstream supply chain, distribution channels, alcoholic beverage industry,
alcoholic beverage supply chain, India, case study, 6T framework.
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A Study on Downstream Supply Chain of an Indian Alcoholic Beverage Manufacturer

1. Introduction
Raw materials pass through multiple value adding transformation processes in the supply
chain (SC) before getting consumed by the end customer. SC is defined as the network of
organizations that are involved, through upstream and downstream linkages, in the different
processes and activities to produce value in the form of products and/or services which is
delivered to the end customer (Christopher, 2010). Supply Chain Management (SCM) takes a
systemic approach towards the SC as a whole to optimize its performance measures by
managing various characteristics of SC such as flow of goods, inventory level, number and
location of warehouses, push-pull boundary decision, etc.
Two features namely, the SC network and nature of the relationship between each stage in the
network have been of real interest for long time from an operational perspective (Erengu et
al. 1999). Erengu et al. (1999) identifies three distinctive stages that exist in every SC:
supplier stage (procurement stage), plant stage (production stage) and finally distribution
stage. Efficient operation at each stage depends on several factors such as nature of the
manufactured product, policies and culture followed in the industry, nature of dependency
between industries operating at different stages, etc. (Thomas & Griffin, 1996). However the
final distribution stage to end customers is least touched upon in both academic and
practitioner literature. One of the probable reasons could be that, the design and coordination
of downstream networks i.e. the distribution channels is considered to be the responsibility of
more than one business function. Sales and marketing departments, operations department,
and supply chain department end up in conflict while deciding on owning the distribution
process. Most of the documentations in past have discussed distribution process as a sales and
marketing department activity rather than a SC design or operations activity (Wathne and
Heide, 2004). Erengu et al. (1999) mentions that network design studies have lacked the
operational considerations and have been mostly organized around market segments and as a
function of the marketing strategy adopted by the company. They also felt the need to
consider network design issues by integrating marketing and operations issues. Hence, in this
study, authors have attempted to understand and provide clarity on the role and function of
distribution network of Indian alcoholic beverage industry from the perspective of SC. Chen
and Paulraj (2004) have noticed that understanding the true dynamics of SCM is far more
complex. Through their review, they convinced readers that the complex network of
interrelated activities in supply chains makes it challenging for managers to describe and
comprehend how those activities are related and how they influence each other. Therefore,
this study would also try to understand the interrelated activities in SC and documents its
influence over other processes in the organization such as pricing, product launch, etc.
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1.1. Relevance of geographic and industry context Soni & Kodali (2012) conducted a review of
empirical research methodology in SCM.
Among the sample of 619 papers, maximum number of articles was found to be from

manufacturing sector (nearly 40%). But less than ten papers from the complete sample had
conducted empirical research by collecting data from other industrial sectors such as Third
Party Logistics Providers (3PL), defense, jewelry and Small- and Medium-sized Enterprises
(SMEs). By analyzing within the manufacturing sector, automotive and electrical and
electronics segment dominated the list followed by textile and process segment. Other types
of manufacturing industries such as printing, toy, Fast Moving Consumer Goods (FMCG),
etc. were also present but in very few numbers. No empirical study has documented the SC of
a liquor manufacturing industry and in particular detailed the downstream SC of the said
industry. This claim is strongly reconfirmed by the literature review conducted by
Gurumurthy et al. (2013) on SCM literature from Indian perspective. Out of 70 papers
reviewed, no study has discussed the SC of liquor manufacturing industry in India. Hence this
study can be safely claimed to be first of its kind contributing to the literature on liquor
manufacturing industry and especially from the emerging Indian context.
Sections in the paper are organized in the following manner: Section 2 discusses the literature
review while section 3 reasons the case company choice and describes the case company
chosen for the study. Section 4 enumerates the methodology adopted to conduct the study.
Section 5 discusses the results gathered from the study and finally section 6 concludes the
study by stating the limitations and possible future work.
2. Literature Review
A cursory review of literature revealed that the issue of Supply Chain Design (SCD) in
general has got adequate attention among the researchers and practitioners. The domain of
SCD addresses a diverse spectrum of problems such as selection of suppliers (Wang et al.,
2004), impact of product (i.e., commonality) on the design of SC (Huang et al., 2005),
choosing the third party logistics (3PL) providers (Jharkaria and Shankar, 2007), etc. Lot of
papers are available that address the upstream issues of SC (Scannell et al. 2000; Giunipero
and Eltantawy, 2004; Tatikonda and Stock, 2003; Anderson et al. 2000; Boute et al. 2007;
etc.).
On the other hand, Table 1 shows the review of papers related to the downstream SC. A
closer look at Table 1 would reveal that works related to downstream design of SC exists for
different industrial sectors such as FMCG, meat processing, petroleum refining, etc. apart
from addressing the issue of service SC which is recently developing. However, no existing
study details the downstream SC of liquor industry especially from an emerging Indian
market.
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Table 1: Review of papers related to downstream supply chain
Author(s) & Year
Brief Review
Gilbert and Cvsa (2003)
Examined the trade-off faced when a firms channel partner has opportunities to invest in either
cost reduction or quality improvement, i.e. demand enhancement and on decision to commit to a

price in order to encourage innovation, or should it remain flexible in order to respond to demand
uncertainty.
McLaughlin et al. (2003)
Used case study methodology to discuss how a manufacturing company implemented a
transportation planning and optimization system to enhance their downstream SC operations.
Rusnac et al. (2012)
Studied the SC configuration from social, environmental, and financial criteria and attempted to
identify the most important criteria and method to measure their impact for a pharmaceutical
downstream logistics.
Bidyarthi and Deshmukh
(2013)
Investigated the aspect of downstream petroleum inventory management on the basis of a survey
of intermediaries of PSUs, namely, Hindustan Petroleum Corporation Limited (HPCL) and
Bharat Petroleum Corporation Limited (BPCL) in the state of Maharashtra.
Li et al. (2010)
Developed a SC model consisting of a supplier and a manufacturer where the manufacturer faces
a stochastic and price-sensitive demand, orders a component from the supplier to manufacture
new products, and also remanufactures the product returns with a stochastic quantity. After
studying suppliers decision by numerical experiments, it was found that increase of the demand
variance benefits the supplier but return uncertainty harms the supplier. Norouzi (2013)
Proposed a performance measurement method applicable for petroleum downstream SCM and
developed a model for Iran petroleum downstream using the literature. Faure et al. (2010)
Attempted to show the impact of decisions and behaviours of downstream actors on the
management of farms, leeway of producers emerging from these interactions and finally
analytical approaches of farms and methodological support for farms. Vandaele and Gemmel
(2007)
Investigated the impact of external purchased services by a service provider on the satisfaction of
downstream SC members, i.e. end-users. Hu et al. (2012)
Studied the pig SC with two nodes: slaughter enterprise and pig breeding enterprise and found
that the revenue sharing contract can coordinate the downstream of pig SC with slaughter and
pig breeding enterprise. Cirtita and Glaser-Segura
Noted that downstream supply chain (DSC) performance metrics can help balance performance
tradeoffs
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Author(s) & Year
Brief Review (2012) among firms and after the study did not find convincing support for the
notion that external performance metrics are used to coordinate external, DSC inter-firm
activities.

Aman et al. (2010)

Studied the impact of the entry of international wholesalers upon existing FMCG channel
structures and the relationships between channel members in Pakistan. Inferred that entry and
growth of international wholesale has opened alternative channel structures by imposing threat
over some channel members and creates relationships that alter the distribution of power in the
channel. Aggarwal (2012)
Discussed the effectiveness of the innovative distribution channels along with traditional
distribution channels in present era of Indian life insurance Industry. Yin (2013)
Investigated the evolution and transformation of information technologies application in tourism
distribution channels (TDCs) in China and identified four eras namely the era of travel agencies,
the era of preliminary appliance, the era of integrated appliance, and the era of social network.
Arya & Mittendorf (2013)
Stated that boundaries between wholesale suppliers and retail competitors are blurring and same
has been attributed to the introduction of online channels for suppliers to provide products
directly to consumers. Hamzaoui-Essoussi et al. (2013)
Attempted to identify supply side factors that determine trust/mistrust in organic food products
and also determined the distribution channel strategies to increase trust in organic food products.
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In addition, most of the existing studies on SC especially those that explained the concepts
of SC are predominantly from the common industrial sectors such as Automobile/Automotive
(Sanchez and Perez, 2005; Scannell et al. 2000), FMCG (Battezzati and Magnani, 2000;
Krkkinen, 2003), Electronic industries (Chien and Shih, 2007; Berry et al. 1994), etc. Only
in recent times, the focus of research on SCM has turned towards other industrial such as agri
SC (Jacxsens et al. 2010; Hingley et al. 2006), perishable food SC (Blackburn and Scudder,
2009; Clements et al. 2008; Shukla and Jharkharia, 2011), humanitarian SC (John and
Ramesh, 2012; McLachlin and Larson, 2011; Blecken et al. 2009), etc. Keeping with the
current trend to study the SC of diverse products/industries, we focused on the SC of
alcoholic beverage industry.
Lastly, the critical review of existing works also lead us to the following research questions
(RQs), which are to be addressed:
RQ1: How is the configuration of SC network for alcoholic products in India structured? Is
this configuration different from other conventional SCs?
RQ 2: Is there any influence of downstream SC on various strategic decisions that are made
for the product, especially new product to be launched?
RQ3: What insights do the responses to RQ1 and RQ2 based on the experiences of Indian
organizations offer to the global business perspective? What are the international best
practices that the alcoholic beverage industry in India can engage in future to improve its
efficiency?

3. Other reasons for studying the SC of alcoholic beverage manufacturer Apart from the
motivations stated in Section 1 and the gaps identified from the literature review, there are few
other reasons for studying the SC of alcoholic beverage manufacturer.
Figure 1 shows the configuration of the same. It can be seen that the number of entities on the
upstream side is very less in comparison to the SC of other products. In this case, the supply
side would deal with the supply of agricultural products such as barley, grapes, bagasse,
fermenting agents, etc. apart from other components for packaging such as glass bottle, bottle
cover, label, cartons, etc. Naturally, the upstream side of the SC for alcoholic beverage
manufacturer is relatively simple as it involves only few players. On the other hand, the
downstream SC of the alcoholic beverage manufacturer is complex, as it would involve
different types of distribution channels. Moreover, as presented later, it is also dependent on
the significant role the government plays in policy making apart from monitoring and
controlling the output produced by such alcoholic beverage manufacturer. This situation
might be very specific to the states in Indian sub continent.
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Figure 1. Supply chain configuration of the alcoholic beverage manufacturer
3. An overview about the case company
As this study tries to answer how, what and why form of research questions on
downstream SC of alcoholic beverage industry by focusing on contemporary events without
controlling for the behavioral events around it, case study research methodology is used (Yin,
2014). In case study research, the case company is not randomly sampled, but rather chosen
based on how they contribute to the research questions being asked (Eisenhardt, 1989; Glaser
and Strauss, 1967; Siggelkow, 2007). Best-fit candidate for this study would possess the
following characteristics:
i. Organization belonging to alcoholic beverage industry
ii. Operating in an Indian market where the probability of getting influenced by
international practices is higher and the ease of data collection is simpler
iii. Organization launching new product in near future
iv. Organization operating in all downstream channels prevailing in the chosen market in
point (ii).
Case company chosen operates in the Indian market for more than two decades and has wide
portfolio of brands and market presence across different states in India. It has more than ten
manufacturing units and distribution networks spread across the country with dedicated team
of nearly 2000 employees. The company has established itself as the leading brand in the
economy segment of the Indian alcohol market. It produces nearly eight brands altogether of
which two brands are Brandy, three brands are Whisky and three brands are Wine. Few of the
liquor brands of the case organization sell more than 10 million cases annually. Company
exports products to more than five different countries and also acts as distributor in Indian
market for couple of international brands. To cater to different segments of the market,
company frequently introduces new brands. Recently too, the case company has launched
two new brands, one in Brandy and other in Whisky, for different segments of the market.
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Therefore, this organization with high frequency of launching new brands is considered
suitable for addressing the research questions posited above.
We conducted the study as events unfolded and viewed both the process and outcome in
phases. It helped us in avoiding retrospection bias and the influence exerted by the data
collector in the research context (Miles and Huberman, 1994). The research project timeline
is detailed in table 2. The first author was present for all the events and second author was
regularly consulted for any suggestions during the course of research. Structured case study
methodology discussed by Eisenhardt (1989) and Yin (2003) for data collection and data
analysis (as detailed in table 3) was followed in this study.
Table 2: Timeline of research study
Month & Year Event March 2013
Permission was sought from the case company to work with and understand the dynamics of
the industry.
Permission was given to visit the manufacturing plant, sales &distribution office, and
marketing office, all three located in the Bangalore city in Karnataka state.
o Choice of this location was also a conscious decision as this state was among one of the few
states which had maximum amount of sales through regulated market.
o In addition, Bangalore was the third largest city in India and had huge influence of
international best practices due to the operation of multinational companies in this market.
April 2013
Visits to the manufacturing plant, sales & distribution office, and marketing office for this
whole month.
Semi-structured interviews were conducted with HR manager, operations manager, marketing
manager, brand managers (especially of new product to be launched), employees of sales team
handling different channels, etc.
May 2013
Visits to selected outlets distributed over the entire state were carried out. Researcher was
accompanied by the salesmen of the company and was introduced to the counter sales person.
More than 100 outlets distributed over different channels were visited in this entire month.
A new product was launched by the case company in this month.
June September 2013
Telephonic interactions and follow up interactions were conducted with top management, sales
team, and counter sales person wherever the need for data was felt.
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Table 3: Detail on case study methodology adopted (structure from Eisenhardt, 1989)
S. No.
Step
Summary
1 Getting started
Framed the following RQs to be addressed:

 How is the configuration of SC network for alcoholic products in India structured?

Is this configuration different from other conventional SCs?
Is there any influence of downstream SC on various strategic decisions that are made for the
product, especially for new product to be launched?
2 Selecting cases
Best-fit candidate for this study was selected
Organization belonging to alcoholic beverage industry located in an Indian market where the
probability of getting influenced by international practices is higher. New product launches in
organization should be underway.
3 Crafting instruments and protocols
Developed semi-structured interview protocols that was conducted on downstream supply chain.
4 Entering the field After getting the consent, multiple visits were made to sales and
distribution office, marketing office, manufacturing plant, outlets, and depots.
5 Analyzing data
Data gathered through semi-structured interviews, participant
observation, and company documents were content analyzed to
construct the entire SC of alcoholic beverage industry in Karnataka
market with finer details of downstream SC. Also, data were analyzed
to answer the various research questions posited above.
6
Shaping
hypothesis
Data analysis was performed to examine the role of different players
in alcoholic industry SC, and how downstream supply chain can
influence new product development. Evidences can be used to build or
strengthen theory for downstream SC.
7
Enfolding
literature
Findings were compared and triangulated with downstream supply
chain literature and new product development literature.
8
Reaching
closure
Stopped iterative analysis when we reached theoretical saturation the
point at which new evidence did not appear (Strauss and Corbin,
1990).
4. Data Collection
Open ended interviews, direct observations, and company documents were considered to be
the sources of data and evidence for their targeted focus, contextual reality and stability
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advantages (Yin, 2014). These multiple sources of evidence helped in triangulating to
develop converging lines of inquiry which remains one of the primary evaluation criteria of
conducting case study research. Semi-structured interviews with HR manager, Chief
marketing officer, Chief operating officer, Brand manager, Distribution channel manager,

Company salesmen, Depot/warehouse officials, Shop floor employees, and Counter

salesperson of the case company were performed to gather individual insights. Details
regarding the interview questions for each category of employees can be obtained on request
from the Authors. One of the authors in the process of collecting data travelled with sales
representatives to different outlets to understand the real picture of downstream SC. Process
of field visits and semi-structured interviews were performed for nearly two months with
different sales representatives responsible for different outlets to thoroughly understand the
market and operation of downstream SC of the industry. More than 100 outlets were visited
and gained opportunity to interview nearly 38 counter salesmen. Everyday report was
maintained to organize the collected data. Iteration between fieldwork and data analysis was
followed regularly as prescribed in case study research process (Eisenhardt, 1989; Eisenhardt
and Graebner, 2007). The recursive cycling between these two tasks allowed us to
empirically ground the observations.
5. Results and Discussion
After content analyzing the data collected, it was noticed that distribution channels of the
case company and in general of the alcoholic beverage industry was highly segmented.
Interesting insights about various practices such as risk pooling, seasonality demand, reverse
logistics etc. were observed apart from some unique events related to the downstream SC.
Before going into the details, structure of overall SC of alcoholic beverage industry is
presented in the next section.
5.1. Structure of alcoholic beverage industry supply chain
Figure 1 as shown earlier represents the structure of the SC of the case company. The
procurement of raw materials is brand specific and they have dedicated suppliers to cater to
specific products raw material requirements. For example, raw materials for premium
products were procured from suppliers from different states whereas those for non-premium
products were procured from local suppliers within the state. Agricultural raw materials such
as barley, grapes, etc. are procured directly from farmers through contract farming from a city
in western India.
The production is carried out in the shop floor comprising of semi-automated production
setup for the products of 375 ml and 180 ml. Human intervention existed in several stages of
production process such as quality check, bottle positioning, packing etc. However,
completely automated machinery dedicated only for production of tetra packs were also
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available in the shop floor, which was imported from one of the European country. Case
company had employed precisely the requisite number of shop floor employees based on its
past experience. The shop floor operated only one shift (8 hours) as they were able to meet
the demand through the production within this shift. Dedicated chemical laboratory was also
available to perform specification check related to chemical composition of the liquor to be
packed through random sampling at different time slots. Case company manufactured each
brand at different volume pack sizes which were predominantly 180 ml, 375 ml and 750 ml.
Among the different products supplied, the empty bottles of 375 ml products alone were
brought back through reverse logistics as they were widely consumed. Details regarding the
same are presented later. A huge warehouse was used to store both end products and products
in process such as fermentation tanks, etc. End products from the storage place are
transported to distribution warehouses through the company-owned or contractors vehicles.

These distribution warehouses are owned by government in particular the state government
and this node in SC act as a regulatory body in controlling and authorizing the inflow and
outflow of alcoholic products from producer to seller.
Production manager manufactured the products based on the requirements provided by
individual brand managers. These brand managers arrive at the requirements by evaluating
the past sales data across different outlets in the market. Sales representative has to ensure the
placement of stocks in those set of outlets under his control and regularly follow the status of
the companys product stocks in those outlets. Sales representative had combination of fixed
and variable component in the pay to incentivize them to catch more orders and achieve
higher placements. Case company studied operated through supply to stock strategy as
alcoholic beverage industry had consistent demand.
5.2. Structure of downstream supply chain of alcoholic beverage industry
Alcohol policy making rights in India were provided to individual states to formulate their
own regulations and to levy their own taxes (Benegal, 2005). Karnataka market in India
where the case company was located had total universe of 8800 outlets out of which 2800
outlets were located in Bangalore, the capital city of Karnataka (details of complete lists of
outlets and the outlets visited for this study are available with the authors). Six different
distribution channels were used by the case organisation to reach the product to consumers
namely, Clubs, Institutions, Modern Trade (MOT), Maximum Retail Price (MRP), Mysore
Sales International Limited (MSIL) and Retails & Bars ( as shown in figure 2). MSIL, MOT
and MRP outlets only sell the alcoholic products bottles in sealed forms and do not provide
provision to drink in the outlet whereas institutions, retails & bars and clubs provide with
provision and facilities to drink at their environment itself. Table 4 depicts the difference
between MOT and MRP outlets.
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Figure 2. Distribution channels available in the market
Table 4: Difference between MOT and MRP outlets
MOT
MRP
Each SKU need to be registered by the
company with the MOT outlets
No requirement of registration
Exists within malls and supermarkets.
Exists as separate individual outlets as
well as group outlets.
MSIL differ from MOT and MRP in terms of ownership as it is owned by government and
sells the product at a price lesser than that of MRP and MOT. MRP outlets are further
categorized into group outlets, government shops and other miscellaneous outlets. Sales team
in the company function by having individual sales executives and targets for different
channels. Hence, channel wise sales distribution is prepared by exhibiting number of outlets
to be focused in each channel by each brand manager and sent to sales team.
5.3. Role of Government in downstream SC
All the outlets belongs to one of the six distribution channels identified and different types of
outlet licenses framed by government existed in the market which ultimately clustered the
outlets into the channels identified. Each license type has its own regulations and fees

established by the State Government for the conduct of the outlets. Table 5 lists the major
types of outlet licenses that prevailed in the market. Thus it can be seen that Government
play a significant role in establishing the distribution channel. Recently, the Government of
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Kerala have brought in a policy to make the Kerala state liquor free gradually. In the process,
they have revoked the licenses of many hotels (excluding the 5-star, 4-star and heritage
hotels) and bars. This resulted in reduction in the distribution channels. Thus, it is very clear
that Government also has key role in the design of downstream SC of the alcoholic beverage
manufacturer.
Table 5: Major types of outlet licenses
MAJOR LICENSES
OUTLET TYPES
CL2
MRP and MOT
CL4
Clubs and Institutions
CL7
Resort, Boarding and Lodging
CL9
Bars & Restaurants
Secondly, the produced products from the distilleries were moved to Karnataka State
Beverage Corporation Limited (KSBCL) depots (government warehouses) after packaging.
The output stay in these depots till the outlets from different channels placed their order and
lifted the stock. KSBCL depots act as regulatory body in this SC which monitors the amount
of incoming and outgoing of the products produced by different manufacturers on daily basis
and thereby makes the placement and sales data available for all manufacturers and channel
outlet owners through online interface. KSBCL depots supplies to outlets of different
channels with 0.5% margin which were in turn sold to consumers with 10% margin. Figure 3
provides the details of the margin charged on the price of the products at different nodes of
the supply chain.
Figure 3: Details of the margin charged on the price of the product at different nodes of SC
Transportation of end products through company owned or contractors trucks from the
distillery to KSBCL depots and in turn from there to different outlets is taken care by the
distillery and KSBCL depots respectively. Outlets placed orders for different brands based on
their demand and transported the same from KSBCL depots. Distilleries moved their stocks
to depots based on the inventory of their stocks already existing in the depots as they attract
penalty of Rs. 60 per case per month (one case = 12 bottles of 750 ml) when they stayed in
depots without liquidation for more than three months.
Another unique aspect of the SC of alcoholic beverage manufacturer is that these depots were
directly monitored by government. Government regulations play a significant role in
downstream SC of the industry as it helped in creating a distinct demarcation of the
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distribution channels in the market through licensing. Government excise department
regulated the flow of goods from plants to distribution channels through KSBCL depots to

ensure zero black marketing operations in the market. In the case of other SCs from other
industrial sectors, the role of government is not direct. The SCs might be affected by the
policy of governments or with the intervention of customs department during inter-state
movements, Import/Export.
5.4. Role of IT in downstream SC
KSBCL maintains an online interface where all distilleries and outlets have access to
regularly monitor and track the status of their stocks and orders at KSBCL depots. This
particular feature provides adequate information such as brand wise purchase and selling,
volume of sales and date of purchase. Sales and marketing department of different distilleries
identify the demand for their brands through this information system and design marketing
and promotion strategies accordingly. Excise department too, which have access to this
information cross check the purchased, sold and available quantity at any outlet. Each outlet
has to submit their sales report to KSBCL auditors at regular intervals and they also need to
maintain a log book noting quantity of sales and purchases happening at their outlets. Excise
department also checks regularly the quantity of beverage under storage, production and
finished inventory in each distillery and the amount dispatched to KSBCL to ensure the
authorized supply of goods from suppliers end. Table 6 depicts the content of the register
maintained by the distillery for KSBCL auditors (excise authorities). Registers are checked
and validated by KSBCL auditors at any time in a day and hence needs to be constantly
updated by the distillery. Table 7 shows the snapshot of the register maintained in the outlets
which are also regularly reviewed by the KSBCL auditors.
Table 6: Content of the register maintained at distillery for KSBCL auditors
S.
No.
Date & Time
Brand
Pack
Size
No. of
Cases
Produced
Opening
Inventory
No. of Cases
Moved to
KSBCL Depots
Closing
Inventory
1
19 Nov 13;
11:00 AM
AAA
750
ml
40
80

50
70
Table 7: Content of the register maintained at the outlets for KSBCL auditors
S. No.
Date & Time
Brand
Pack Size
Number of packs sold
Inventory remaining
1
19 Nov 13;
11:00 AM
AAA
750 ml
40
80
Thus, utilising the IT resources helped not only the case organization, but also the other
alcoholic beverage manufacturer in the state in reducing the impact of bull whip effect
which arises due to improper flow of information from especially from the different
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downstream stages of SC. Thus, it can be seen that IT interface plays a key role in the SC by
providing sufficient information to the government to monitor and control the manufacturer
and the network of organizations on the downstream SC.
5.5. Supplier-Distributor Relationship
Sales team in the company was noticed to function by having individual sales executives and
respective targets for set of outlets belonging to a channel. Individual channel heads is also
responsible for taking care of achieving targets in their channels notified by individual brand
managers. Salesmen act as the interface between the company and outlet and hence are key
personnel having the knowledge of entire downstream SC. Interviews and outlet visits with
salesmen helped in understanding different supplier-distributor relationship existing in the
market. Relationship was also observed to help in faster liquidation of the products from the
shelf in outlets and hence is given huge importance by the companies to sustain these
relationships efficiently.
Revenue sharing system have been adopted by suppliers i.e. the distilleries through which
certain percentage of net sales revenue are shared to outlets in charge thereby motivating and
incentivizing them to push their company products to consumers. However, it was found that
revenue sharing percentages were noticed to differ across the companies and brands.
Nevertheless this mechanism also helped distilleries to liquidate their products from KSBCL
as and when cases stayed without liquidation beyond three months. Outlet salesmen were
motivated to frequently place order of those company brands which shared maximum
percentage of revenues. Most of the revenue sharing contracts with outlets have fixed lookup
table developed by individual distilleries stating the amount to be shared per case (primarily
depends on the maximum retail price of the product variance) for a particular brand. Sales
executives using these lookup tables calculate the revenue to be shared with each outlet and
the same are shared at the beginning of every month through account payable cheques.

5.6. Role of promotions

Study also inferred two types of promotional schemes prevailing in the market namely outlet
specific and brand specific. Table 8 lists the examples of these two offers obtained during
market visits. Outlet specific offers were provided by companies for their brands to only
specific outlets which have large footfalls thereby helping to liquidate their products faster.
Brand specific offers were those offers provided exclusively by the company for that brand
across all the outlets in the market. Both the offer types helped in gaining visibility for the
brand from consumers which played a major role in successful liquidation, tertiary movement
of the brand and ultimately enhanced consumer attention and engagement towards the brand.
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Table 8: Example list of offers that were noted during market visits
Brand Specific Offers
Outlet Specific Offers
2 liter offer for different
brands
Price offer
One glass free for 750 ml
Combo pack (Soft drink
(lime) + Soda)
Price offer
Belt, sports bag, travel bag, gift voucher, tickets for IPL
matches and concerts, etc.
For INR 10,000 worth purchase dinner set of 3000 is free
Club channels provide offers on the quantity of liquor to
be sold. For example, brand A 1+1 (buy one, get one),
brand B - 2+1 (buy 2, get 1), etc.
Packaging and positioning in outlet shelves played a major role in driving visibility and
liquidation of the brand among consumers. Company having strong relationship with outlets
were able to place their products at strategic locations in the outlet that would attract visibility
of the entering consumers. Free samplings, on pack offers, merchandises, hoardings, standees
and event sponsorships are some of the promotional strategies identified to be adopted by
most of the manufacturers in the market to incentivise counter salesmen to liquidate their
company brands at a faster rate.
5.7. Risk Pooling and Seasonality
Risk pooling activity was noticed to be efficiently implemented by the industry because of
the very nature of the existing downstream SC. As KSBCL depots act as companys
centralized warehouse for set of outlets in that region, distribution systems by itself average
the demand across the outlets there by risk pooling the demand of the market and hence
reducing the variations in the demand received at the distillery level. Channel wise sales
target prepared for sales team by individual brand managers after averaging the demand of
group of outlets falling under a depot in each channel ultimately performed risk pooling of
the demand of the entire market. Figure 4 represents the risk pooling performed through the
distribution channels.
Figure 4. Risk pooling activity

Seasonality in sales of different beverages namely brandy, whisky, rum, etc. were clearly
identified through market visits and they were also noticed to be influenced by geographic
location and demographics of population living around a particular outlet.
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5.8. Reverse Logistics
Reverse logistics has been employed by the case company by designing a reverse SC from
consumers to manufacturers through the distribution channels to collect back used empty
bottles of certain brands and size. Some of the high volume fast moving liquor bottles
(375ml) were collected back to the plant for reuse. Reverse logistics process resulted in
reduction of cost of raw materials and better orientation towards environmental sensitivity of
the company. Reverse logistics process in the case company is as depicted in figure 5. Bottles
are collected through trucks from the outlets and are reached to distilleries to reuse them after
subjecting the same to cleansing process. Bottles that are returned in poor quality are directly
discarded and remaining bottles are cleaned to remove the stickers, bottle neck cap ring, and
internal remnant liquor of the bottle.
Figure 5: Reverse logistics adopted by the case company for procuring used bottles
5.9. Influence of distribution channels on new product development
Case company has planned to launch two new products to cater to the premium segment of
the market and appropriate strategies at different levels of the organization have been adopted
to reach the product to the market and achieve the sales targets successfully. Study revealed
interesting and counter-intuitive insights about the influence of existing distribution channels
in the market over the strategic decisions of new product development and pricing of new
product developed. This phenomenon was observed in the new product launching experience
of the case company for premium segment customers. Existing distribution channels were
seen to influence individual operations, sales & marketing, HR and finance functions. As the
product to be launched was for premium segment, competitor premium products were
identified and their presence across different distribution channels was studied. It was
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20
identified that distribution and sales for the premium products offered by the competitor were
skewed through few premium outlets which were distributed across different channels and
these were identified to be potential channels for the product to be newly launched by the
case organisation.
5.9.1. Influence on operations activities
The identified channels influenced the nature of processes to be adopted by operations
department for the new product. Raw materials procurement, quality characteristic, bottling
and packaging performed were found to be influenced by the close competitors operating in
the identified potential distribution channels. For example, bottle design and quality of
premium products were found to act as order winner amongst the competitors in that specific
distribution channel and hence new product to be launched in the segment attempts to imbibe
these order winner dimensions. Quality of the competitors products in terms of appearance
and raw materials used determines the raw material supplier to be chosen by the company for
its new product that is to be launched in that segment. Therefore, leading competitors in
different channels highly influence the nature of procurement supply chain i.e. upstream
supply chain for its new product to be launched. Close competitors were identified based on

the ex-distillery price (EDP) and not based on their selling price to the customer. EDP can be
defined as the price per case at which the distillery delivers its products to depots. EDP plays
a key role on deciding its potential consumer segment and thereby the competitors for the
product to be launched.
5.9.2. Influence on sales and marketing activities
Sales and marketing function designed their strategies completely based on the distribution
channels through which the new product is expected to flow to consumer. As the product to
be launched was catering to premium segment, distribution channels such as bars, clubs and
institutions were of prime importance along with few premium outlets in MOT and MRP
channels. Geographic location and economic activities in the surrounding location played a
significant role in deciding whether the outlet had potential for the premium brand. Outlets
selling good volumes of close competitors were seen to contain huge potential for placing the
cases of newly introduced product. These identified distribution channels in turn affected the
sales team target and market share target fixed for the new product to be launched. Revenue
sharing contracts were also adopted according to the distribution channels for the new
product to be launched.
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21
5.9.3. Influence on human resource department activities
Human resource department were also affected based on the distribution channel primarily
targeted for the new product as number of salesmen to be employed differed across the
channels. Required competencies of the employee also differed between the channels. For
instance, salesmen employed for bars and clubs would be more experienced than the ones
employed for MRP and MOT. Trainings were also provided for employees based on their
competencies to cater to the job requirements of their respective channels. Based on the types
of channels utilized, modifications in reporting structure were also effected as employees of
those channels have to be made to report to respective channel heads and brand managers.
5.9.4. Influence on pricing
Study also provided evidence for the influence of distribution channels utilized over the
pricing of the new product to be distributed through those channels. Price of the product
developed are decided based on the EDP of the close competitors brand operating in the
distribution channels at which the new product was to be launched. In this industry, taxes
were charged based on tax bracket that the EDP of the product belonged to. It was observed
that companies mostly attempted to move their EDP towards the upper end within the tax
bracket to leverage the tax benefits. For example, if the cost of the product to be launched
falls in the tax bracket between 700-1000, the EDP of the product would be moved close to
1000 to attain maximum tax benefits as the tax is fixed within a bracket i.e. in this case
amount of tax paid when EDP is either 700 or 1000 remains the same. Hence choice of the
distribution channel was noticed to affect the sample of competitors for the new product and
thereby its EDP which was subjected to the pricing of the product based on the tax brackets.
Further details regarding the pricing are not shared to comply with the confidentiality
requirements of the case company.
Proposition 1: Distribution channel targeted for the new product influences the new product
development process and characteristics of the final new product developed.
Proposition 2: Type of distribution channel acts as a surrogate for inferring about the
attributes of the product sold within them.

Proposition 3: Price of the new product depends on the distribution channel targeted.
5.10. Global alcoholic beverage industry benchmarking
To assess the alcoholic beverage industrys supply chain quality with respect to the
international standard, we use six Ts food supply chain quality framework proposed by
Roth et al. (2008) after analysing the quality problems associated with foods and ingredients
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22
imported from China. Six main factors in the framework were (1) traceability (ability to track
a product's flow throughout the SC), (2) transparency (lack of secrecy), (3) testability (ability
to detect an attribute of a product), (4) time (duration of specific processes), (5) trust
(expectation that parties will make a good-faith effort to behave in accordance with any
commitments), and (6) training (systematic process of developing knowledge, skills and
attitudes regarding international standards of quality, food safety and best practices) (Roth et
al. 2008). Table 9 documents the status of alcoholic beverage industry in India over these
factors.
Table 9: Status of supply chain quality factor in alcoholic beverage industry
Factor type
Factor
Status of alcoholic beverage industry in India
Enablers
Trust
Due to highly robust regulatory mechanism in the market
and absence of opportunistic behaviour at self-interest,
trust is automatically established between the players in
the supply chain.
Salesmen at the downstream supply chain establish long
term relationships with the outlets owners and earn their
trust. Revenue sharing contracts also establishes trust.
Excise officials regularly visit the plants and outlets to
assess the practices followed. A plant or outlet with zero
complaints or issues from excise bodies automatically
gains trust from rest of the players in the supply chain.
Certifying agencies can be implemented for rating the
manufacturing plants and outlets in different channels.
Training
Training that includes technical assistance for
transferring best practices within and across industries
through formal and informal means is necessary
Knowledge sharing across industries would make the
supply chain efficient
Robustness
Factors
Traceability
Efficient government regulation
Entire path of products from factories to store shelves is

traced using markers and software

Transparency
Information technology and captured knowledge enables
physical transparency of documents, information, and
products and thereby removes deception and
opportunistic behaviours
Complicating
Factors
Testability
Government as a regulatory board plays a key role in
implementing this factor
No solution so far for detecting problems in the products
that have aroused after passing inspection at the factory.
It is normally discovered after a critical number of end
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23
Factor type
Factor
Status of alcoholic beverage industry in India
users experience problems.
Time
Time in transit Not much applicable as the shelf life is
much higher in comparison to perishable goods
Time between the discovery and reporting of problems:
Efficiency here can be improved by developing systems
that involve the present excise members and regulatory
bodies with an online interface displaying the status of
cases being processed.
Alcoholic beverage supply chain performs in par with the set standards of quality in
robustness factors and enabling factors. Downstream SC of alcoholic beverage industry
satisfies the requirements of trust factor by implementing several practices as listed in table 9.
Training factor can be further improved by providing salesmen with world class exposure of
best practices. Roth et al. (2008) inferred that traceability and transparency in food supply
chains are affected by three major forces namely globalization, consolidation, and
commoditization. As the market chosen for study was high on all these three factors,
traceability and transparency have been well achieved in alcoholic industry SC. Effort needs
to be taken to improve the present status of alcoholic beverage industrys supply chain for the
complicating factors i.e. the testability and time.
6. Conclusion
Priem and Swink (2012) stated that existing supply chain management literature offered very
few examples of the downstream supply chain perspective keeping it an unfulfilled
opportunity and finally called researchers to study the same to provide new insights and a
more complete understanding of SCM. Building onto this research gap, current study started
with a claim that not many works were available about the downstream design of SC apart
from highlighting that no studies are available that describe the SC of alcoholic beverage
industries in India. A literature review carried out too supported these statements apart from

identifying various research gaps. These gaps are addressed in this study by using a case
study approach. Current study revealed various interesting aspects by answering the research
questions raised. First research question is answered by documenting the configuration of SC
of alcoholic products and in detail the structure of downstream SC. Highly segmented
distribution channels, role of government in monitoring and ensuring authorized sales
through its depots, government controlled open information availability about supply chain
transactions to both distilleries and outlets, revenue sharing contracts, risk pooling and
reverse logistics were some of the interesting insights that were inferred from this study.
Though the overall configuration was found to be similar with other conventional SC, it had
significant differences in terms of the role played by the government to regulate the market,
risk pooling, revenue sharing contracts, and the extent of IT technology used to ensure
efficient exchange of information. Another unique observation was that the downstream
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distribution channels influenced strategic decisions of a firm on its new product development
including the pricing of the product that is to be launched which thereby answers the second
research question. Study revealed an interesting counter intuitive inference that the
distribution channels utilized for reaching the product to customers and the competitors using
those same channels play a major role in determining the strategic decisions of the firms
across different functions and on the pricing strategy to be adopted for the product. Type of
distribution channels were used as a proxy to understand the needs of the consumer addressed
through that channel, thereby by influencing the new product that is to be primarily targeted
for a particular distribution channel. Based on this case study, propositions are developed for
future testing. Alcoholic beverage industrys supply chain quality was assessed using six
Ts food supply chain quality framework proposed by Roth et al. (2008). International best
practices that the alcoholic beverage industry in India can engage in future to improve its
efficiency were also discussed. Thus, this study is also expected to add to the existing
minimal literature on downstream supply chain from Indian context with special reference to
alcoholic beverage industry. In addition, it also provides theoretical insights to practitioners
about the SC model existing in alcoholic beverage industry in emerging economy from India.
6.1. Limitations and Future Scope
Premises considered and methodology adopted for the current study presents few limitations
which in turn attracts the need for further study in future. A single case study method was
utilised for observing the phenomenon predicted and hence it cannot be generalized. To
generalize the same, the findings have to be validated across different companies. We also
dont claim that the supply chain structure presented in this study is what is existing in all
other states of the country but we definitely feel that many best practices can be transferred
from this state to others. Extension of this study across different demographics can be carried
out to understand how external influence of stakeholders such as government regulations
affects the configuration of distribution channels in other states of India or abroad.
Note: An initial version of the paper was presented in the International Conference on
Supply Chain & Logistics Management (ICSCLM 2013) on the theme Global Supply
Chains and Emerging Markets, 5-7 December, 2013, organised by Birla Institute of
Management and Technology (BIMTECH), New Delhi, India.
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