Empty kegs have a tendency to grow legs and disappear. In my experience as CFO for a beer distributor, I can’t tell you how many times the inventory records showed one thing, and the physical count of empties showed another. There were always missing kegs. How many kegs do you own in your brewery? I’m talking about empties and full barrels — barrels that you bought and paid for. If you keep computerized records, the inventory report may tell you there are 1,000 kegs on hand. The big question is: how many do you really have?
In this article, I’ll highlight how much cash is tied up in kegs, and how much money you stand to lose if you don’t have a good system to manage this part of your inventory. Below are ideas you can use in your brewery to gain better control over your kegs. The ideas could also save your income statement from certain death in the form of a big write off of missing kegs.
Best practices to manage keg inventory
- Preach the gospel: empties are Inventory
- Pay attention: Understand where empties get lost
- Use this process to keep track of kegs in your warehouse
- Use this process to keep track of kegs at retail
Empties are inventory
A full size half-barrel costs about $100. If you have 1,000 in inventory, that’s $100,000 worth of stainless steel. A variance of a few percent can be thousands of dollars, and a variance of 15 or 20 percent is tens of thousands. One of the biggest challenges I faced as a CFO was to teach people that empty kegs are inventory. Our folks knew that beer in bottles, cans and kegs was inventory, but they did not view the empty barrel the same way. To them, it was just an empty barrel that we needed to send back to the brewery, MicroStar or Kegspeditor. To me, and to the income statement, that empty barrel was money.
The first step to better management of your keg inventory is to teach this principle to your team: empties are inventory and they need to be treated with the same diligence and oversight as the beer inventory. Pay as much attention to empty keg inventory as you do with your raw materials. Hops, malt and mother cartons are important, and so are the empty kegs.
Understand where empties get lost
The old saying goes that inventory has feet, and it will walk away if you don’t keep a close eye on it. The same is true for your empties — your kegs have legs. Empty kegs are stored all over the place: in the back parking lot, tucked into corners of the warehouse, and scattered across hundreds of retail accounts in the market. It’s easy to lose track, and take your eyes off the prize.
Where do all the kegs go?
- Theft: Retail accounts leave empties outside. Easy for passersby to snag them.
- Borderline theft: Other distributors pick them up and take them home (by accident, or otherwise).
- Kegs bought by customers at an off-premise account and never returned. They make for a nice coffee table in college dorm rooms.
With kegs in so many different places it can be difficult to properly account for them all. Inevitably, many disappear, never to return. Pay attention to where kegs tend to get lost and put in a system to make sure they get found.
Page 2 covers the process for keeping track of all the kegs in your warehouse
Use this process to keep track of kegs in your warehouse
To improve the management of your keg inventory you need a system to keep track of the empties. The system has to be written on paper and communicated to your team. In a nutshell, the most effective way to keep an accurate inventory is to make regular and consistent keg counts. However, the count has to be done properly. Below is the process I’ve used over the years and found to be effective. The basic tenets of a good inventory management system:
- Planning and preparation
- Execution
- Analysis of results
Planning and preparation
- First determine a day/time to conduct the cycle counts, and inform all employees about it. This way everyone can all work to make the count successful (for example, not picking product at the same time we are trying to count).
- Prepare the warehouse and control the count environment. Ensure it is clean and organized. Keep activity to a minimum, such as picking product or moving kegs around.
- Identify the counting team. Ensure that experienced people are doing the counting. Provide training on the process, ensure the team understands.
- Have one leader to control the count. One person needs to be in charge.
Execution
- Execute the count following these procedures.
- Recounts. Any count variance over 10 kegs, or 5 percent of total kegs, will be re-counted by a different person than the original counter.
- Adjustments. All inventory adjustments will be posted in the computer system as soon as the count/re-count is completed.
Analysis of results
- Investigate variances, determine causes, implement/recommend process changes as necessary
- Communicate the results to the count team
- Post the results so the entire team can see them. More eyes on solving the problem.
Use this process to keep track of kegs at retail
Let’s face it; this is where kegs go missing. You deliver kegs to customers, but not all of them come back. The kegs may be misplaced, stolen or picked up in error by another distributor. Either way, you stand to lose the most. The process to keep track of kegs at retail is relatively simple: create a report to monitor the keg sales and returns by retailer. Note how many kegs were sold in and how many were picked up from the account. Any shortfall should be accounted for with the customer.
To begin, the brewery rep takes an inventory of total kegs at the retail account and notes this count as the beginning inventory. Keg sales and pickups are then tracked going forward. The beginning inventory plus any sales and minus any pickups equals the ending inventory. The brewery rep can then count kegs at the account and reconcile to the ending inventory number.
There will be variances between how many kegs should be at the retail account and how many are actually there. These differences should be treated the same as the variances noted during a warehouse keg inventory count. Follow up with the retailer, determine where the kegs could have gone, and track them down. Think about it this way, if a retailer didn’t pay you for the beer you’d be all over them. Your kegs shouldn’t be treated any differently. Kegs are inventory.
The importance of regular counts
The key ingredient to managing empty keg inventory is to make regular, consistent and accurate counts of the inventory. There’s really no getting around this. One of the toughest things to do is figure out how a variance occurred. It’s like solving a crime. You need to get on the case right away before the trail goes cold. Regular and consistent counts will help you identify variances, determine the cause, and implement solutions.
Wrap up
Computer inventory records are notoriously inaccurate. There are lots of reasons: bad process, human error, or inventory management is a low priority item. There’s always something more important than counting the kegs. But you’ve got to count the kegs, and have a system to do it right.
There is a lot of money at stake here. If your keg inventory is not accurate, you may be looking at a write off of tens or hundreds of thousands. I’ve seen it. It’s happened to me. Don’t let it happen to you. Use the process outline here or implement your own. Understand where kegs can get lost — in your building, at the distributor, in the retail account or in a college dorm room. Close the loopholes, plug leaks in the inventory bucket and implement your keg management system. Your income statement is counting on you.
Kary Shumway is the founder of Beer Business Finance, an online resource for beer industry professionals. Shumway has worked in the beer industry for more than 20 years as a Certified Public Accountant and currently as chief financial officer for Clarke Distributors Inc. in Keene, N.H. Beer Business Finance publishes a weekly beer industry finance newsletter, offers guide books on topics such as sales compensation planning, SKU management and financial literacy, and produces a weekly podcast. The newsletter with a free six-month trial, industry guides and podcast are all available at www.BeerBusinessFinance.com.
