Reference no: EM13825470

Katsand wines is a family owned business which was established in 1983 in South Australia's McLaren Vale and commenced production of wines in 1985. The winery was made up of 10ha of grape vines (Shiraz, Chardonnay and Riesling varieties) and a small production area containing a 1500kg/hour crusher, 4 x 20,000L fermentation tanks, 6 x 225L American Oak barrels and 4 x 225 French Oak barrels. Due to the small nature of the winery the bottling of wines was outsourced to a larger company.
During the 1980s Katsand established its brand with five key wines:

• Shriaz

• Chardonnay

• Riesling

• Sparkling Bubbles

• Shiraz Vintage Port

As the brand gained customer awareness, new varieties were introduced in 1989:

• Traminer Riesling

• Sauvignon Blanc

• Cabernet Sauvignon

• Cabernet/Shiraz Blend

As Katsand was not producing all of these grape varieties (Traminer, Sauvignon Blanc, and Cabernet Sauvignon) they needed to locate suppliers of these varieties. Traminer and Sauvignon Blanc grapes were sourced from suppliers in Eden Valley (Adelaide Hills) whilst Cabernet Sauvignon grapes were sourced from multiple suppliers in the Barossa Valley.

Expansion and Global Supply

In 1995, Katsand management made the decision to expand and move into the export market which was increasing significantly particularly to the United States, United Kingdom, Denmark, Norway, Canada and Chile.

In order to enter the market a number of processes needed to be undertaken:

• Travel to the new locations to find customers for Katsand products

• New labels to reflect export requirements

• Arrangement for appropriate transportation to new locations

• Work with distributors in new locations

• Liasion with Wine Australia and the Australian government to comply with export requirements

This expansion was a slow process and the first export wines were sent to USA in 1999 and over the past 12 years the export market has increased to all proposed countries. Katsand exported 100,000L of wine in 2010 and has a budget to increase this by 15% by 2015. To be able to produce this quantity of wine for export and still maintain a presence in Australia, Katsand outsourced crushing and fermentation requirements to other locations in the McLaren Vale and increased its outsourcing contract for bottling. The Katsand Board of Directors as decided that as this expansion increases they would like to maintain control of wine production and this has meant an increase in the number of fermentation tanks, oak barrels and crushing equipment required at the winery. A discussion is being undertaken as to how to procure this equipment. Directors are divided between direct purchase, lease, auction and tender.

Sustainable Procurement

The Board of Directors has also made a key decision to incorporate an environmental approach to all purchases to counteract the Australian Government's proposed Carbon Tax. Purchases will now take into account recycled products and those obtained from sustainable sources. Transportation services are also being considered.
In addition there has been a recent trend away from the use of cork to either plastic corks or stelvin caps. An investigation into the supply and effect of these items will also be taken in line with the sustainable procurement policy of the winery.

New Varieties

The market has changed recently and Traminer Riesling is no longer a sought after variety in any of the markets in which Katsand are competitive.

A market analysis has been undertaken and Katsand management are introducing the following varieties into the 2012 market:

• Semillon/Sauvignon Blanc

• Pinot Gris

• Sparkling Red (Shiraz/Merlot)

• Merlot

• Red Blend (Cabernet/Shiraz/Merlot)

Purchases

The general purchases made by Katsand are as follows:

• Bottles (various shapes and sizes)

• Printed labels

• Wood chips (oak)

• Activated charcoal

• Cleaning chemicals

• Laboratory chemicals

• Laboratory glassware

• Stationary

• Yeast

• Grapes (contract supply)

The capital equipment which needs to be purchased includes:

• Fermentation Tanks

• Pumps

• Oak Barrels (American and French)

• New Warehouse

• Bottling Line

Utilities that need to be purchased are:

• Water

• Electricity

• Gas

Services that are currently purchased by Katsand are:

• Accounting

• Transport (grapes, juice, bulk wine, bottled product)

• Bottling (to be replaced in part by Capital expenditure)

• Travel

Question

Katsand management have identified a key interest in sustainable procurement and environmental issues. Investigate the impact of these objectives on the procurement of their required resources.

Additional Requirement

This question belongs to Operations Management. This question is about an Australian wine business, which is dealing with carbon tax under the environmental protection. In order not to invoke the carbon tax and also not to damage their goodwill with their customers, the wine business is contemplating to introduce sustainable procurement strategies for the future.

Word Limit 1600