Computer refit a bust; state tries a reboot

Ohio replaced a 40-year-old computer system for tracking liquor sales and distribution two years ago at a cost of $21 million, with the promise that the system for running the state-controlled liquor business would be more accurate and reliable.

It’s been anything but.

The new system has been a disaster of inaccurate inventory data, unreliable purchasing orders and incorrect sales information, according to about a dozen distillers, retailers and distributors, as well as state documents.

Problems have been so great that one medium-size distiller said it is owed $1 million, while another said it is out several hundred thousand dollars. Both said the numbers certainly are higher for the largest liquor producers.

“The level of frustration has been high,” said Kristin Mullins, chief executive of the Ohio Grocers Association, whose members hold most of the state’s liquor retail contracts. “With the new modernization program, things didn’t work the way they thought it would work.”

JobsOhio, the state’s economic-development group, which leases the liquor business from the state, said it’s aware of the problems and vows to address them.

The retailers’ chief complaint is that the state fails to fulfill order requests and forces them to stock whatever shows up, even products that customers don’t want. Retailers say there hasn’t been a meaningful audit of inventory in the two years the system has been running.

Meanwhile, distillers haven’t been paid fully for products shipped by the state to retailers, restaurants and bars because of the failures of the system to accurately track inventory, according to multiple sources. They also say the number of bottles of a product on a store shelf often differs widely from the number that is listed on the state’s inventory system.

It’s impossible to determine how much has been lost. Global liquor giant Diageo, maker of Johnnie Walker, Crown Royal, Captain Morgan and many other brands, alone could be out more than $1 million, sources said. Total losses for Diageo and other large suppliers such as Beam Suntory, maker of Jim Beam, and Brown-For-man, maker of Jack Daniels, could be several million dollars.

Diageo, Beam Suntory and Brown-Forman did not respond to multiple requests for comment.

Both retailers and manufacturers declined to comment publicly for a story, citing concerns about retaliation by the Ohio Division of Liquor Control. The division controls which producers are allowed to sell liquor in the state and licenses the retailers, restaurants, clubs and bars that are allowed to sell it.

Liquor sales total more than a $1 billion a year in Ohio. Sales by state-licensed liquor stores make up about three-quarters of all liquor sales. The remaining sales are made by bars, clubs and restaurants.

Liquor agency retailers, which number in the hundreds and range from big grocers to mom-and-pop bottle shops, have vented their anger to the state and JobsOhio, which uses the profit — which totaled $242 million in 2016 — to fund economic-development projects.

A solution can’t arrive soon enough, Mullins said.

Seeking a fix

The state acknowledges that there have been problems but says the issues aren’t as severe as retailers and liquor companies say, and that a new version of the computer system, to be rolled out beginning in April, will make dramatic improvements. The new system is costing an additional $19 million.

“They have recognized and taken some ownership of the downfall of this first phase, and is attempting a phase two, which we hope will be better,” Mullins said. “But, until that arrives, life goes on, and it is a major source of stress.”

The state’s liquor-control operations are funded by liquor sales and don’t depend on tax dollars.

“We know there are complaints from the suppliers, from the vendors, from the agencies, from customers. We hear what they’re saying,” said John Minor, JobsOhio’s president and chief investment officer. “We also recognize this thing needs to get fixed. Look, we accept responsibility for this. We own it.”

Minor said JobsOhio is trying to figure out whether suppliers are owed money, and they will be paid if they are. The state did an inventory of its four warehouses throughout the state on March 1.

“If we owe the suppliers money, we are going to pay them, bottom line. But we do need that information. We need that data that shows where the discrepancies are,” he said.

As far as complaints that the division retaliates against those who publicly complain, Minor said that is not JobsOhio’s intent.

“If anyone has a degree of fear with us, I’d love to talk with them and have that conversation because that’s not what we’re trying to do here at all. How do you have an effective partnership if one of the partners is fearful of the others?” he said.

Troubled launch

The computer system, called Microsoft Dynamics AX, launched Feb. 1, 2015. It replaced one that was 40 years old and considered antiquated, according to the liquor control division. “Continuing to use these processes would be like listening to your favorite songs on 8-track when everyone else is streaming music on their smartphones,” the division said on its website.

A month after the launch, Bruce Stevenson, then superintendent of the Division of Liquor Control, heralded the new system.

“Much progress has been made in the past few months and we are excited about the many benefits stakeholders will enjoy once the project is completed,” he wrote in Ohio Spirits Insider, a division newsletter.

But there were problems right away. Weekly updates posted on the division’s website show repeated issues with inventory tracking.

“We’re still living with a lot of the issues that came about from last year’s rollout,” said Harry Knight, who took over as superintendent when Stevenson retired last year, during a town-hall meeting with retailers in October, according to a video of the event.

“We know that a lot of that was driven with the best intentions, but it was a very, very poor rollout ... and that has created some significant issues with us that we are still having to deal with today.”

The system was not properly tested before it was launched, said one source in the liquor business, who asked not to be identified because of fears of retaliation by the state. Just as the system went live, problems developed, including transactions tracked by the system that dropped lines of code representing sales, the source said.

“I think it’s clear that suppliers were not paid for items that were delivered to state agencies,” the source said.

Navigating a mess

Selling liquor isn’t much of a money-maker for retailers, who get 6 percent of sales. Still, liquor sales drive traffic to grocery stores, and customers often buy other items.

The issues with the new system, however, have made operating the agencies more difficult, consuming more time and labor. Retailers also complain of missed opportunities to grow sales because there is no way to tailor inventory to a store’s customer base.

Issues with inventory are a problem for both retailers and distillers. Both sides say the system is flawed, with system data showing what is at a specific store almost never lining up with reality, leading to either overstocking or shortages.

Liquor producers say the inventory system is so fouled up, they have had to buy their own products from the state’s four distribution sites, or wholesale stores, and take it to retailers. They say that there is no way to reconcile how much product has been shipped from the warehouses to the retailers and bars.

Under the state system, liquor companies deliver their products to one of four distribution sites across the state controlled by Spartan Logistics, where liquor is stored until it is sold. Spartan delivers the products to stores and bars across the state.

Liquor producers get paid by the state when their product leaves the warehouse. Steve Harmon, Spartan’s president, said his company is not responsible for discrepancies in shipments.

“My family and our business have served Liquor Control for 25 years and we did not forget how to pick liquor when they put in the new system,” he said.

Many changes ahead

The state is preparing to roll out its new version of the system at a difficult time.

Knight, who became the liquor superintendent in October, resigned abruptly in the last week of February after heading the agency for less than six months. He declined to comment for this story or about his departure from liquor control.

Spartan, meanwhile, lost its state liquor contracts to Westerville-based Exel, which is owned by German shipping giant DHL. The change in distributors comes with a switch to using two warehouses instead of four across the state, a change that will occur as retailers and liquor companies also adjust to a new computer system.

Given the upheaval, both retailers and producers are concerned that problems will carry on, sources said. Mullins wants the retailers to have a say in how that system works to allay fears.

“We have to have a seat at the table,” she said. “We all want the same thing, an efficient way to sell this product to our customers.” mawilliams@dispatch.com @BizMarkWilliams jmalone@dispatch.com @j_d_malone