Getting to Happy Hour on Liquor Distribution

There are valid reasons for a state to control where liquor is sold but there is very little reason I can see for a state to be in the business of warehousing and transporting it.

That’s better left to the logistics experts in the private sector.

This is becoming an issue in the state of Washington, where moves are afoot to privatize liquor sales and distribution. It could be a ballot initiative for voters in the state to decide this fall.

Washington is one of 18 so-called control states that have broad authority over wholesale liquor distribution. Some of those states also are involved in retail sales.

Washington, however, has state-run liquor stores along with outlets operated by private contractors. It’s been doing this since 1933.

The big problem, especially from an outsourcing and logistics perspective, is with the Washington State Liquor Control Board’s management of its huge distribution facility in South Seattle. The 250,000 square-foot warehouse and DC is where all of the state’s liquor is imported, processed and then transported to some 315 state and contract stores. It’s a fairly modern, automated facility that opened in 2003.

But a recent King 5 Television News investigation uncovered serious operational problems there, including equipment malfunctions, computer glitches and perhaps most costly and avoidable, overpayments to the trucking companies distributing the liquor due to weight miscalculations.

Simply put, trucking companies are paid based on the number of miles driven and the weight of each shipment. It’s not all that hard, but apparently it is for the DC’s state employees. For the past six months and perhaps longer they have miscalculated the weight of liquor cases, resulting in overpayments to some trucking companies. “We can’t tell you how much it’s cost taxpayers or even how long it’s been going on because the people running the DC don’t seem to know,” King 5 News’ Linda Byron reported.

But while Control Board officials say the problem occurred for a day or two and was fixed almost immediately, various documents obtained by King 5 indicate otherwise. One report cites problems with Bill of Lading and Packing lists that are sent to stores and then used by carriers to create an invoice. Apparently that is how the overpayments – and potential underpayments – due to faulty weight calculations are occurring. A case of liquor can weigh from 12 to 55 pounds, but trucking companies are paying based on a formula that uses an average weight of 37 pounds per case.

This sounds to me like sloppy and lazy practices on the part of the DC’s state employees, costing the state and its taxpayers some serious money.

Currently, liquor brings in about $320 million in revenue to Washington each year, but a recent report by Washington State Auditor Brian Sonntag found the state could increase revenue by as much as $277 million over five years if it changed its current liquor model, including distribution.

A state legislator recently introduced legislation to sell the DC, but perhaps that drastic step could be avoided if a Vested Outsourcing team was enlisted to collaborate with the board and its distribution providers to get liquor distribution back on track. This would be a quicker and cleaner solution that would also take the issue out of the political arena and into the hands of the experts.

A new approach and structure — see the Five Rules, especially Rules 4 and 5 — is needed: A properly structured pricing model that incorporates incentives for the best cost and service trade-off, and a new governance structure that provides insight, not just oversight. Possibly a structure that migrates away from using weight as a major determinate for payment in all cases (sorry) in favor of cube pricing; also, packaging and carbon neutral tariff incentives are now in the outsource provider’s quiver.

Liquor distribution is not a core function of government. In Washington State this is ripe for a collaborative, mutually beneficial, efficient and outcomes-based Vested Outsourcing relationship that uses all that’s available in modern outsourcing.

As Peter Drucker said, “Do what you do best and outsource the rest.”   The last time I looked, state governments didn’t really have a competency in warehousing!

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