Brown-Forman Cooperage Case Problem for MGT 602 – Production & Operations Management
Consulting Client Overview
The Brown-Forman Cooperage (http://www.brown-forman.com/careers/locations/louisville.aspx) in
Louisville Kentucky (USA) supplies flame-charred white-oak barrels for the aging processes of various
bourbon and whiskey products produced under the Brown-Forman corporate umbrella
(http://www.brown-forman.com/ ). Some of these barrel-aged products include brands such as Jack
Daniel’s, Early Times, Old Forester, and Woodford Reserve.
Recently, legislation passed by the State of Tennessee has increased the importance of the activities at
the cooperage (barrel-making) facility:
“NASHVILLE, Tenn. (AP) – If it isn’t fermented in Tennessee from mash of at least 51 percent corn, aged
in new charred oak barrels, filtered through maple charcoal and bottled at a minimum of 80 proof, it
isn’t Tennessee whiskey. So says a year-old law that resembles almost to the letter the process used to
make Jack Daniel’s, the world’s best-known Tennessee whiskey.” [emphasis added]
http://www.aol.com/article/2014/03/17/jack-daniels-opposes-changing-tenn-whiskeylaw/20851352/?icid=maing-grid7|maing13|dl7|sec1_lnk3%26pLid%3D454551
Your team has been hired as external consultants to assist the Brown-Forman Corporation with making
some strategically-driven operations decisions about how best to utilize the Brown-Forman Cooperage
facilities to support several of its beverage brands.
You have been asked to evaluate the following set of information, (in addition to any other research that
you believe is appropriate) to help your team advise your client. If you find additional data that conflicts
with information provided in this dossier, please rely on the information provided here.
Your client has requested analysis and advice on the following:
1) What is the current production bottleneck of the Brown-Forman Cooperage production system for
“new charred oak barrels”? How many barrels per day can the process currently produce? Create a
visual flow-chart with key information and analysis about each process step. Identify the bottleneck.
2) Currently, the Brown-Forman Cooperage does not supply oak barrels to one of its facilities, the
Canadian Mist Distillery (Collingwood, Ontario, Canada); Canadian Mist currently utilizes an external
supplier for those barrels. Canadian Mist is not classified as a “Tennessee Whisky”. [Note that some
distillers’ brands now might not be able to promote themselves as “Tennessee Whisky”, and that BrownForman Cooperage might be able to sell barrels to competitors as an additional source of revenue in
Tennessee.] Perform a total supply-chain cost analysis on the following options:
a) Continue to supply Canadian Mist Distillery with its current external supplier;
b) Supply the Canadian Mist Distillery with barrels from the Brown-Forman Cooperage in Louisville, KY,
(possibly by expanding capacity at that location, if necessary).
c) Move the Brown-Forman Cooperage to a brand-new appropriately-sized location that could supply
both the Canadian Mist Distillery and its current existing internal customers (Jack Daniel’s, Early Times,
Old Forester, and Woodford Reserve), as well as provide capacity for growth to include new external
customers. (Details about these various capacity-related options and costs are described below.)
3) Using both qualitative information and quantitative data, and relevant analysis, recommend a
course of action for the Brown-Forman Corporation to provide barrels to Canadian Mist without
disrupting barrel supply to its other internal customers (Jack Daniel’s, Early Times, Old Forrester, and
Woodford Reserve). Supply-chain cost analysis should be consistent for the evaluation of all options, in
cost per day of operations. A high-level value-stream map with analysis, should be presented as part of
this solution.
4) For existing internal customers only: develop ideal low-cost transportation routes. Compare mileage
and transportation costs for “full-truckload” (TL) vs. “less than load” (LTL) deliveries to each internal
customer. Does a “full-truckload” (TL) shipping solution to each customer produce advantages, or should
more frequent “less than load” (LTL) routes be developed, which would require deliveries to multiple
locations from a single truck. Build scenarios with financial analysis, and value-stream maps for each
scenario. Consider trade-offs between transportation costs and delivery (order) batch sizes to each
customer. What is your recommendation to the client? Should each distillery (internal customer)
develop an EOQ-based inventory control system, or utilize some other inventory management policy for
barrels, and why? Provide a detailed explanation.
5) Investigate “cradle to grave” opportunities for used barrels. By definition (and now by law), used
barrels cannot be re-used to produce “Tennessee Whisky”. Generate at least three somewhat detailed
(on-page each) mini-proposals for economic disposal, recycling, or reuse of these used barrels. Provide
value-stream mapping for each alternative.
See “Consulting Notes” section toward the bottom of this document for detailed client expectations.
Background
As an internal supplier for the Jack Daniel’s Distillery for over 65 years, (http://www.jackdaniels.com/ ),
the Brown-Forman Cooperage contributes significantly to the success of the Jack Daniel’s brand; the
charred white-oak barrels supplied to Jack Daniel’s contributes about 40-50% of the flavor profile to the
finished products, and 100% of the color of the finished products produced by the Jack Daniel’s
Distillery.
The Brown-Forman Cooperage is located about 250 miles north of Lynchburg TN, in Louisville, KY. It
employs about 250 workers who produce charred white-oak barrels for Jack Daniel’s and other distillers
owned by Brown-Forman Inc.
The barrel manufacturing process
Barrels made at the Brown-Forman Cooperage are hand-crafted, and made without glue or screws.
The facility produces about 2000 finely hand-crafted barrels per day for Jack Daniel’s.
Waste/scrap wood and sawdust from the production facility are re-used to help power the facility.
First, white oak planks are purchased and stored on-site at the Brown-Forman Cooperage. Green wood
is aged outdoors until the moisture content of the wood is reduced from about 50% down to
approximately 25%, which takes between four to six months. At any one time, approximately 1700 tons
of white oak is in inventory as work-in-process (WIP) in the wood yard; this is enough to produce
250,000 barrels, (if all of the wood was ready for production at the same time).
Flow-time for the wood from entering the wood yard until moving into the production area is about six
months. From the wood yard, planks are moved to the milling area, where some of the planks are joined
together to become tops and bottom lids for the barrels, and some of the planks become staves, which
are pieces for the sides of the barrels.
All planks are planed and sanded:
Planks are processed into staves for the barrels sides by going through several wood milling
(cutting/shaping) steps, including:
1) Planing/sanding removes the outer layer of wood on the longer and flatter surfaces of each plank.
This step processes approximately 60 planks per minute at each of two parallel workstations; two
workstations work in parallel (performing the same exact tasks) and are dedicated to this process step.
Completed planks are used to produce both staves for the barrel sides, as well as for the barrel tops and
bottoms.
Raw wood
planks
Planing &
sanding
Planing &
sanding
WIP
Then, some planed and sanded planks become staves for the barrel body:
2) Cutting the planks to the proper lengths and widths: when operating at full capacity, this process
handles about 45 planks per minute at each workstation; three parallel workstations are dedicated to
this process step.
3) Grinding shapes the planks (staves) so that they will fit together properly without gaps that would
cause leaks in a completed barrel; about 60 planks per minute are processed at each workstation. Two
parallel workstations are dedicated to this process step.
4) The stave fitting machine removes material from each piece such that the staves will be wider in the
middle when compared to the ends; this is done so that the barrels will have a rounded shape rather
than a cylindrical shape when they are assembled (see diagram below). This process step takes about
seven seconds per stave at each workstation. Ten parallel workstations are dedicated to this part of the
process.
The finished staves are moved from the Milling area to the “Raising” area, where they are used to make
the bodies of the barrels. Approximately 24 to 26 staves (finished planks) are hand-fitted together by a
cooper (barrel-making craftsperson) for each barrel that is produced. See details below.
Barrel tops and bottoms (lids)
Some planed/sanded planks (back from the first process step) are used to form the lids (tops and
bottoms) for the barrels. Each barrel needs two lids: one top and one bottom. The tops and bottoms for
the barrels are fabricated by:
1) First, 7 – 9 wooden planks (depending on their widths) are temporarily joined together with foodgrade paraffin wax to form a flat rectangular sub-assembly. This requires about 20 seconds per subassembly at each workstation; four parallel workstations are dedicated to this process step.
2) Next, a worker lifts the sub-assembly onto a rotating cutting/forming machine (called the “Rounder”
machine). This cutting machine transforms the sub-assembly from a rectangular set of planks into a
basic wooden disk/lid. This takes about 10 seconds per lid at each Rounder machine; two Rounder
workstations work in parallel and are dedicated to this process step.
3) Last, a robotic arm (with vacuum suction) lifts each lid (bottom or top) and spins the lid, rotating the
edges of the formed lids into more paraffin wax to seal the edges. At the end of this same step, the
robot stacks the lids. From start to finish, this step only takes about 15 seconds per lid for each
workstation (robot); two parallel workstations (robots) are dedicated to this process step.
The finished lids (identical tops and bottoms) then are moved to the start of the Testing area, where
they will be joined together with the barrel bodies after they are completed (immediately prior to
testing).
Barrel bodies:
The finished staves (processed wood planks from above) are moved to the “raising” process, where they
are used to make the bodies of the barrels. On average, approximately 25 staves (finished planks) are
hand-fitted together by a cooper (barrel-making craftsperson) for each barrel that is produced.
The barrel raising process requires approximately 25 staves (finished planks), which are hand-selected
by barrel coopers (the employees who are specially trained to form the barrels by hand). The initial
barrel is formed with the hand-selected staves (planks), a temporary bottom barrel ring, and a metal
cable that serves as a temporary upper ring for the barrel. At this initial assembly step, each barrel takes
about three minutes to assemble at each workstation. Ten workstations are dedicated to this initial
barrel-raising step.
From here, the barrel sub-assembly moves to a steaming process (25 minutes at 150 degrees F), where
the wooden staves are softened with hot steam to allow them to be bent into the final rounded barrel
shape. At each steaming workstation, 16 barrels are processed in batches every 30 minutes (including
five minutes for loading and unloading the barrels into the steaming process, and 25 minutes of
steaming). Seven steaming workstations are in-use so that a total of 112 barrels are processed every 30
minutes.
At the next workstation, immediately after steaming, the temporary metal cable is removed from the
barrel sub-assembly, and a temporary upper barrel ring is attached. This takes about 30 seconds per
barrel at each workstation, and two workstations are dedicated to this task. At this point, the barrel
generally has its final shape, but without the top and bottom lids.
Next, the barrel assembly is moved to a “toasting” process, (in a special room, a closely guarded secret),
where the barrels are carefully heated to bring out sugar and caramel flavors from the wood; these
flavors will eventually become part of the flavor profile of the final beverage products at the Jack
Daniel’s Distillery, and other distilleries owned by the Brown-Forman Corporation. Barrels enter and exit
the toasting process at about six barrels per minute, or one every 10 seconds.
A quick quality check (image below) occurs after toasting, to ensure even and proper coloration of the
interior of the wooden barrels: about 7 seconds per barrel.
Next (below), the “buffalo machine” is used to: a) compress the barrel, b) install two more temporary
hoops onto the middle of the barrel , and c) to “pressure-tighten” the fit of the staves; this is all to
ensure a tight fit and limit the possibility of leaks once the barrel is complete. This process takes about
40 seconds per barrel at each workstation, and 3 workstations in parallel are dedicated to this process
step. At this point, the barrel is made of nothing but the wooden staves, and four temporary metal
hoops.
Next, the charring process
“Charring” occurs in batches of four barrels each. Each batch requires about 25 seconds for charring,
followed by a short water-spray process (10 seconds) that quenches flames from the burning interior of
the barrel, plus about 60 seconds total to load and unload each batch of barrels into and out-of the
charring process area. Overall, this process produces charred barrels at a rate of about 150 barrels per
hour. 3600 seconds / 150 barrels -7 3600 seconds/38 batches -7 about 95 seconds per batch. ( 25
seconds for charring, 10 seconds for quenching, 60 seconds for loading/unloading the batches). Two
large charring workstations (work areas) are dedicated to this process.
After charring the barrels, the lids finally join with the barrel bodies. On a special piece of equipment,
the barrels now receive their tops and bottoms, and two permanent steel hoops replace the two
temporary metal hoops at the top and bottom of each barrel. This takes about 25 seconds per barrel at
each workstation; two parallel workstations are dedicated to this process step.
At the next workstation, on a second specialized piece of equipment, four more permanent steel bands
are installed to replace the two remaining temporary rings in the middle of the completed barrel. This
takes approximately 45 additional seconds per barrel at each workstation; three workstations are
dedicated to this process step. Each barrel now is nearly complete, with a top, bottom, and six
permanent steel rings holding the wooden staves together.
At the next work station, a worker uses a laser-guided sighting system to line-up and drill a “bung hole”
into the strongest part of the middle of each barrel. This takes about 15 seconds per barrel. The bung
hole is used for filling and emptying each barrel.
At this same workstation, the worker hammers a rubber bung/plug into the hole, and fills the barrel with
water and air under pressure. This takes another 15 seconds per barrel (for a total of 30 seconds at this
workstation). Two workstations are dedicated to this process step. This is the initial step in the final
testing process.
At the final inspection workstation, the barrel is visually inspected to check for leaks (from the
pressurized air and water added at the last workstation), as well as checked for minor defects that are
repairable (at that workstation) and major defects that require the barrels to be broken-down and
reassembled by the coopers at one of the “raising” process workstations. The plug/bung is removed,
and the worker checks to see if the air-pressure was held in the barrel during the test. The final test
takes about 35 seconds per barrel at each workstation; two parallel workstations are dedicated to final
inspection.
After the final test, the barrels are moved toward the loading dock where they will be loaded onto
trailers and hauled to either the Jack Daniel’s Distillery, or to one of the other internal customers under
the Brown-Forman corporate umbrella.
Transportation, Daily Demand, and Supply-Chain Considerations
Although the Brown-Forman Cooperage manufacturers 2000 barrels per day for Jack Daniel’s, it
produces more than that on a daily basis, to accommodate three other distilleries owned by BrownForman Corporation. The Brown-Forman Cooperage also supplies new charred-oak barrels for the
Woodford Reserve, Old Forester, and Early Times brands.
Currently about 3,000 barrels per day are produced at the Brown-Forman Cooperage, in two 7.5-hour
shifts, five days per week.
About 8 trucks per day at 250 barrels per truck (2000 barrels per day) are transported to the Jack Daniels
Distillery in Lynchburg, Tennessee. This delivery schedule matches current customer demand for Jack
Daniels; about 2,000 barrels per day are filled at the Jack Daniel’s Distillery. As mentioned previously,
the barrels cannot be made too far in advance of need. The barrels leave the Brown-Forman Cooperage
within hours of completion; the barrels are somewhat perishable and they need to be used before the
staves dry-out and loosen, at which point the steel bands also will loosen, and the barrels will leak.
In addition to 2000 barrels per day being shipped to Jack Daniel’s, about 200 barrels per day are shipped
to Woodford Reserve, 500 barrels per day are shipped to Early Times, and 300 barrels per day are
shipped to the Old Forester Distillery.
Currently, the Brown-Forman Cooperage supplies barrels to Jack Daniel’s (in Lynchburg Tennessee),
Early Times Distillery and Old Forester Distillery (both “across town” in Shively, Kentucky) and Woodford
Reserve Distillery (Versailles , Kentucky). Another member of the Brown-Forman corporate family,
Canadian Mist (Collingwood, Ontario, Canada) currently purchases barrels from another external
supplier. However, as suggested by your client’s engagement of your consulting services, corporate
executives at Brown-Forman are considering a switch: they want to evaluate using the Brown-Forman
Cooperage instead of the external supplier to provide barrels for the Canadian Mist Distillery.
If the Brown-Forman Cooperage were to provide barrels for the Canadian Mist Distillery, Canadian Mist
would require nearly 1000 barrels per day. When added the current production capability of about 3000
barrels per day, Brown-Forman would need to supply a total of 4000 barrels per day for these five
internal customers.
Currently, the internal cost of goods sold (COGS) per barrel is $185 each. Estimated holding costs are
limited due to the quick turn-around on the barrels and their perishable nature; the estimated holding
costs are $0.35 per barrel per day. Estimated supply-chain administrative costs are $100 per truckload of
barrels for internal shipments from Brown-Forman Cooperage. Due to truckload (TL) shipping
limitations, optimal economic order quantities might not be practical. Explore that option.
Administrative costs associated with the current externally sourced barrel supplier (currently only for
Canadian Mist) are about $300 per truckload; this includes costs associated with additional
communication, coordination, and information systems integration with the supplier. The purchase
price from the external supplier is only $300 per barrel, with freight shipment charges of $1600 per
truckload.
If necessary, feasible capacity expansion options include:
1) Expand capacity of the current Brown-Forman Cooperage facility location in Louisville, KY. At this
location, the possible expansion options include: 1a) adding a 3rd shift (additional 7.5 hrs per workday),
or 1b) purchasing additional equipment and hiring additional employees for the two shifts that are
currently in operation. Adding a third shift at the Louisville cooperage will keep the internal COGS for
each barrel the same, at $185.00 per barrel. Adding additional employees and equipment to the two
existing shifts would increase COGS per barrel to $210.75.
2) Build a new facility to accommodate all barrel-making demand (4000 barrels per day) required for all
five internal customers of Brown-Forman Corporation listed above. Use course-related techniques for
determining a new facility site. Any new facility location should be located in a city of suitable size
(population of at least 400,000), to ensure labor availability, stable utilities and utility rates, etc. All
estimated fixed costs for a new facility can be amortized and translated to become part of an estimated
COGS of $190.50 per barrel at nearly any new location. All transportation costs from a new location
would be based on the current internal Brown-Forman transportation cost model.
3) Status quo: continue to supply the Canadian Mist Distillery with the outsource supplier that is
currently being used.
Class Notes:
1) Approximately 25% of the evaluation of the Consulting Assignment will include a review of
appropriate grammar and written business communication skills; specifically, some of the evaluation will
relate to the appropriate use of terminology and language appropriate for an Operations Management
analysis.
2) Each team member will evaluate the other team members in her/his group on their levels of relative
contribution to the success of the Consulting Assignment.
3) Evaluation of the oak-barrel production processes should include flow diagram(s) and value stream
map(s), (and other appropriate visual aids) and appropriate calculations to determine the current (and
potential future) bottleneck of the manufacturing process for barrel assembly at the Brown-Forman
Cooperage.
4) The Consulting Report for your client (Brown-Forman Cooperage) should be long enough to provide
sufficient detail, analysis, and rationale for your recommendation, without including extraneous
information not relevant to the decisions or recommendation. Recommendations should be backed-up
with relevant data, analyses, and other quantitative and qualitative information that pertains to the
solution of the client’s problem. Data and calculations should be organized and appropriate for a variety
of external reviewers (again, from the perspective of effective written business communication skills).
Consider the appropriateness of using appendices for heavy data analysis, with key results, charts, and
diagrams included in the body of the consulting report.
5) The Consulting Report should start with a two-page (max) Executive Summary that highlights the
problem, key findings, calculations and analyses, and recommendations for each key client concern.
Appendix A
Transportation Cost analysis data:
Currently, Brown-Forman uses internal drivers and trucks to deliver finished barrels to Jack Daniel’s,
Woodford Reserve, Early Times, and Old Forrester. Below is an example of internal costs for one fivehour (250 mile) trip from the Brown-Forman Cooperage to the Jack Daniel’s Distillery location in
Lynchburg, TN.
Example Five hour trip -7 250 mile
trip
Driver Salary
Wages: $45k/yr -7 $22.25 / hour;
Loaded wage rate (with benefits) =
140% of $22.25/hr = $31.15/hr
$156
Fuel (diesel)
$3.85 / gallon; 7 miles/gallon
$138
Fuel efficiency
$7 miles/gallon
Equipment wear &
tear, and depreciation
$0.40 per mile
$100
Total cost per trip
$394 per trip
Total cost per mile
$1.58 per mile = ($394 / 250 miles)
For trips totaling less than one 20-hr workday, use cost per mile.
Assume that trips greater than 10 hours can be accomplished with 2-driver teams without significant
loss of efficiency (approximately 20-hour blocks of driving).
Assume that return trips on full TL trips, are break-even with back-hauling opportunities, so that the
return trip produces no additional costs or profits for the Brown-Forman Corporation. Thus, only the
one-way transportation costs should be used for full TL trips to customers. LTL (less than load) trips
should be evaluated on round-trip mileage.
Current transportation distances from the Louisville, KY location of Brown-Forman Cooperage:
From Brown-Forman Cooperage
in Louisville, KY to:
Destination
Miles
Travel days
Woodford Reserve Distillery
Versailles, KY
65 miles
Less than 1
Jack Daniel’s Distillery
Lynchburg, TN
250 miles
Less than 1
Early Times Distillery
Shively, KY (directly
adjoins Louisville, KY)
Shively, KY (directly
adjoins Louisville, KY)
10 miles
Less than 1
10 miles
Less than 1
Collingwood, Ontario,
Canada
635 miles
1 (twodriver
team)
Old Forester Distillery
Canadian Mist Distillery
Other Information Sources:
1) NGHT, Inc. (2011). “Ultimate Factories: Jack Daniel’s” (approximately minutes 17:00 – 28:50…
