F#%k the LGC Revolution where's my regular production at?

[oliverdst]

I am sure some business rules do not apply to a socialist economy.

[wabashcr]

"Obviously the Cuban government operates a little differently,"

Why?

All correct and I second what you are saying but why different? You all seem to ignore the owner's structure of HSA. The Cuban govt just holds a 50 percent share. Fifty percent is Imperial-owned, and they work to rather normal "western" economic standards.

Storage does cost of course, whether in Cuba or elsewere. We have seen the results of that in the past, with slow movers and costly lines and marcas having been axed heavily. First, when Altadis came into play, then again with Imperial Tobacco entering stage.

I guess we don't have to debate much on these things - it just happens!

I don't think Tabacuba (or HSA for that matter) pays interest to the Cuban government if it needs to borrow money. I would imagine that money is just appropriated from another government venture. It's really a meaningless distinction to my point that slow moving inventory negatively impacts cash flow. So if you have slow moving items, you need fast movers (REs and ELs) to offset that effect.

[El Presidente]

I am sure some business rules do not apply to a socialist economy.

Altadis paid 500 million Euro for a 50% share in HSA. Imperial purchased Altadis.

You bet your boots business rules apply

[oliverdst]

Altadis paid 500 million Euro for a 50% share in HSA. Imperial purchased Altadis.

You bet your boots business rules apply

For sure, Rob. Profit is profit. Period.

But I assume HSA does not have advanced logistics INSIDE Cuba (fuel, optimum truck routes...). Like someone rightly pointed some posts above (I think it was Shlomo, Fuzz and Wabaschr) warehouses are a big problem in not poor countries but in Cuba I am sure warehouses can be built anywhere state needs.

[El Presidente]

For sure, Rob. Profit is profit. Period.

But I assume HSA does not have advanced logistics INSIDE Cuba (fuel, optimum truck routes...). Like someone rightly pointed some posts above (I think it was Shlomo, Fuzz and Wabaschr) warehouses are a big problem in not poor countries but in Cuba I am sure warehouses can be built anywhere state needs.

Unfortunately not climate controlled warehouses.

It is an expensive exercise here in Oz. Import what you need into Havana + the spare parts/backup systems + generators to cope when the power goes out and it is a hefty financial commitment. I wouldn't be building one for SP Beli and friends.

[MrGlass]

Like someone rightly pointed some posts above (I think it was Shlomo, Fuzz and Wabaschr) warehouses are a big problem in not poor countries but in Cuba I am sure warehouses can be built anywhere state needs.

I work with software used in warehouses, and I have been to warehouses throughout Asia, the Middle East and Africa. The one thing I can tell you is that these warehouses are incredibly expensive, even in poor countries, if you want them done right. As Rob mentioned, everything needs to be imported if you want anything that is quality. The places I visit are simple tiny facilities that store boxes and even their setup and operating costs are phenomenal, especially when you consider the market they are in. And that's before you throw in the added complexity of requiring climate control because you're storing a perishable good.

Just because the labour may be cheap doesn't mean that everything else is as well.

[Fuzz]

I work with software used in warehouses, and I have been to warehouses throughout Asia, the Middle East and Africa. The one thing I can tell you is that these warehouses are incredibly expensive, even in poor countries, if you want them done right. As Rob mentioned, everything needs to be imported if you want anything that is quality. The places I visit are simple tiny facilities that store boxes and even their setup and operating costs are phenomenal, especially when you consider the market they are in. And that's before you throw in the added complexity of requiring climate control because you're storing a perishable good.

Just because the labour may be cheap doesn't mean that everything else is as well.

Very true.

There are two ends of the spectrum in running a warehouse, manual or automated. On the manual side, set up is relatively cheap (I say relatively, because warehouse are just plain expensive no matter where you are), but costly to operate (labour and time being the biggest expenses). Whereas a fully automated warehouse is ridiculously expensive to set up, but cheaper to operate in the long run (depending on size).

For those who are not in the biz, most warehouses are nearer the bottom end of the scale, and operate a manual warehouse with basic equipment. This would be at the very least some type of manual handling equipment (pallet jacks or forklifts) and maybe a warehouse management system (WMS). The bigger you get, the more automation you need; eg more sophisticated WMS using voice picking, forklifts with mounted computers, automated racking systems, etc.

Voice pick system:

Then things can get really fancy with AGVs. Companies like Ikea, Lego, car manufacturers etc, use computer controlled racking, picking and AGVs to move parts around their warehouses and factories. Just imagine a warehouse with no lights on, and all the machinery working away and whizzing around in the dark on their own. Hell, nowadays you don't even need a person to palletise goods any more. Scan the dimensions of every product you sell, and a computer will determine exactly where multiple items should go on a pallet, and robot will place each item in the correct place.

HSA is definitely not running anything remotely as sophisticated. Labour being cheaper over there, they would run a manual warehouse, but it would still be costly.

[Fuzz]

Funny how a thread originally about production evolves into warehouse management.

[shlomo]

Then things can get really fancy with AGVs. Companies like Ikea, Lego, car manufacturers etc, use computer controlled racking, picking and AGVs to move parts around their warehouses and factories. Just imagine a warehouse with no lights on, and all the machinery working away and whizzing around in the dark on their own. Hell, nowadays you don't even need a person to palletise goods any more. Scan the dimensions of every product you sell, and a computer will determine exactly where multiple items should go on a pallet, and robot will place each item in the correct place.

.

Need some of that software for the humidor.

[Fugu]

I am sure some business rules do not apply to a socialist economy.

Tabacuba might perhaps still work - to a certain extent (there are also strong and recently reinforced western joint ventures in certain areas, such as e.g. with your country (Brascuba) in the field of cigarette production) - to socialistic market form standards.

HSA does certainly not.

[wabashcr]

I think the initial argument was not about the overall cost of warehousing in Cuba, but rather the incremental or marginal cost of storing slower moving inventory in already existing warehouses. The assumption of course would have to be made that the warehouses in question are not at or near full capacity, and the slower moving inventory isn't taking up space needed for faster moving product. I would agree that in this case, the cost of warehousing the slower moving product is more or less negligible.

I still think it would cost much less to build and operate a warehouse in Cuba than in most other places. The structure itself would go up for very little cost. Racking can be expensive if you buy all new racks, but it's likely they're paying pennies on the dollar for second hand racking. The labor to install the racking would be cheap. Fork trucks and order pickers can be costly, but can also be found on the secondary market for much less. A bare-bones, off the shelf warehouse management system would cost very little to buy, and even less to maintain.

Climate control of course is expensive the way we think of it. My understanding is that in Cuba, climate control consists of windows and fans. Same with security. We're not talking about motion detectors, sound and vibration sensors, and security cameras all wired into a central or remote location. More like a couple guys with rifles.

Full disclosure, I have not been to Cuba, and there are many assumptions in this post based on what I've read about Cuba, and what I've seen in other third world countries. I do have a good deal of experience in both building and operating a warehouse. I'm aware of what the costs are, or can be, in the US. Trying to apply that to what I think I know about Cuba, I can't imagine HSA/Tabacuba's warehouse costs are too exorbitant.

[jat]

Funny how a thread originally about production evolves into warehouse management.

Ok hands up who here is involved in logistics / warehousing / inventory management etc and would just love to get into Cuba and sort them out, I'm sensing a few frustrated professionals here.

[Fuzz]

Ok hands up who here is involved in logistics / warehousing / inventory management etc and would just love to get into Cuba and sort them out, I'm sensing a few frustrated professionals here.

Lol!

[TCContender]

Need some of that software for the humidor.

I wish I had that problem!

[oliverdst]

Climate control of course is expensive the way we think of it. My understanding is that in Cuba, climate control consists of windows and fans. Same with security. We're not talking about motion detectors, sound and vibration sensors, and security cameras all wired into a central or remote location. More like a couple guys with rifles.

Full disclosure, I have not been to Cuba, and there are many assumptions in this post based on what I've read about Cuba, and what I've seen in other third world countries. I do have a good deal of experience in both building and operating a warehouse. I'm aware of what the costs are, or can be, in the US. Trying to apply that to what I think I know about Cuba, I can't imagine HSA/Tabacuba's warehouse costs are too exorbitant.

That's exactly what I was trying to say.

Anyway, I know some guys here have excellent relations in Cuba. If, you guys, could have some info about the topic would be great.

In my next trip to Cuba, I guess it wont happen this year, I promess to dig in the matter.

[busdriver]

Storage? I didnt say anything about storage.....

But since we are on the topic of storage, we are talking pennies here. And nothing that costs extra just bc there are more boxes. They are not running out of storage space. They store the QdO boxes alongside the Monte 2 boxes. They dont have to pay anybody anything extra, the lights have to occassionaly function regardless of what boxes are on which pallete, etc... the only extra cost for 1000 boxes of QdO is the int'l shipping.....and time

Pennies.

The cost of storage question brings the Anejados program into the discussion. When I look at the price of aged cigars I always wonder why it is done as the small price increases dont seem to warrant the storage costs. As Rob pointed out the profit isnt real until they sell. The only short term 5-10 years sticks that seem to appreciate significantly by aging for a few years are the ones that were released, were smash hits, and are no longer available. Point being Anejados only make sense when there is a surplus is supply and you can store cigars for a brighter future.

I wouldnt expect any Anejados releases 5-8 years from now unless the concept of supply and demand is truly foreign to our communist brethren.

[Orion21]

The price of storage is real, but based on the prices vintage smokes are being sold for at retail I would imagine the cost is being recouped (if there is an accurate way to calculate it).

[El Presidente]

The price of storage is real, but based on the prices vintage smokes are being sold for at retail I would imagine the cost is being recouped (if there is an accurate way to calculate it).

By the retailer/distributor, not the manufacturer.

For the retailer/distributor it may have been a conscious strategy to age stock and recoup a higher margin or it could be a case of the cigars never sold originally and sat around.

For the manufaturer it is the latter only with the exception of the magical Anejado program.....supposedly

[Orion21]

By the retailer/distributor, not the manufacturer.

For the retailer/distributor it may have been a conscious strategy to age stock and recoup a higher margin or it could be a case of the cigars never sold originally and sat around.

For the manufaturer it is the latter only with the exception of the magical Anejado program.....supposedly

Once the cigars are sold to the distributors HSA is free of the stock, correct? Distributors can't/won't send stock that doesn't move back to HSA, right? I would imagine the distributors put in orders to HSA for what they would like and then it's on them to sell the boxes. Then there are other ways to get rid of overstock and slow moving cigars . . .

[El Presidente]

Once the cigars are sold to the distributors HSA is free of the stock, correct? Distributors can't/won't send stock that doesn't move back to HSA, right? I would imagine the distributors put in orders to HSA for what they would like and then it's on them to sell the boxes. Then there are other ways to get rid of overstock and slow moving cigars . . .

Distributors only order what their retailers want.

Retailers only order what their clients want.

Clients only order what they want.

There are still plenty of cigars that few people want.

In the end if they don't sell in a timely manner, they will be deleted.

[Fugu]

Really fun to see how many you guys think of HSA as being a Third World-enterprise, operating from a run-down backyard workshop.

Climate control of course is expensive the way we think of it. My understanding is that in Cuba, climate control consists of windows and fans. Same with security. We're not talking about motion detectors, sound and vibration sensors, and security cameras all wired into a central or remote location. More like a couple guys with rifles.

Full disclosure, I have not been to Cuba, and there are many assumptions in this post based on what I've read about Cuba, and what I've seen in other third world countries. I do have a good deal of experience in both building and operating a warehouse. I'm aware of what the costs are, or can be, in the US. Trying to apply that to what I think I know about Cuba, I can't imagine HSA/Tabacuba's warehouse costs are too exorbitant.

"My understanding is that in Cuba, climate control consists of windows and fans."

Some pics "stolen" from the blog of our BOTL Nino, example of main storage and freezing facilities (larger versions and more info there, thanks Nino!)

And some info taken from CA (cited as well on Nino's site), state of the art - from almost a decade back:

"I visited the complex last week with English cigar merchants Jemma Freeman, head of Cuban cigar importers Hunters & Frankau, and Edward Sahakian, owner of London's Davidoff shop. The 90,000-square-foot building is a temperature- and humidity-controlled building for holding all cigar stocks for export. It has a capacity of about 70 million to 80 million cigars. Habanos S.A., the global distribution and marketing company for Cuban cigars, runs the facility." (Issue Oct/2006)

"Same with security. We're not talking about motion detectors, sound and vibration sensors, and security cameras all wired into a central or remote location. More like a couple guys with rifles."

Again, info taken from CA:

"Another exciting development is the new security system at the H. Upmann factory. Brown suggested that they had virtually cut out all thieving on the premises, which could include everything from loose leftover tobacco on the floors to boxes and cigars in storage. Brown showed me a closed-circuit television system in his office that scans the various departments in the factory. The cameras can zoom in on the workbench of a single roller, or any other worker." (Jan/Feb 07)

[NSXCIGAR]

I wouldnt expect any Anejados releases 5-8 years from now unless the concept of supply and demand is truly foreign to our communist brethren.

As long as HSA has turds sitting around, expect them to use the special release vehicle to move them.

If there's one thing that HSA has learned in the last 16 years it's that special releases sell and sell for a premium. The Anejados program is the most egregious example of HSA taking advantage of that fact. We all know HSA can make a good cigar when they want to. The Reserva program hasn't turned out any turds and the LCDH releases have been very reliable.

I have my issues with the ELs and the REs, but in recent years the majority of those the releases have been approaching regular production standards, although I do believe many 05-11 REs fall into the category of failed experiments as well.

In fact the high consistency of recent regular production, to me has exposed HSA's game. The Anejados, and to a slightly lesser degree the recent Maduro releases, are generally way behind regular production quality. I am totally convinced that these cigars were failed experiments that took HSA a few years to figure out what to do with them. Not only did they sell them, they sold them for more than regular production. 50% more.

I do wish HSA would concentrate more on regular production models. But HSA is making business decisions, and they've decided to crank out Revolutions rather than MdO#2s. The only consolation may be that the tobacco used in the model isn't available and they're limiting production for that reason. Not sure what the sales numbers are for LCG in general, so that may certainly be contributing to the neglect of regular production for the marca.

[El Presidente]

As long as HSA has turds sitting around, expect them to use the special release vehicle to move them.

If there's one thing that HSA has learned in the last 16 years it's that special releases sell and sell for a premium. The Anejados program is the most egregious example of HSA taking advantage of that fact. We all know HSA can make a good cigar when they want to. The Reserva program hasn't turned out any turds and the LCDH releases have been very reliable.

I have my issues with the ELs and the REs, but in recent years the majority of those the releases have been approaching regular production standards, although I do believe many 05-11 REs fall into the category of failed experiments as well.

In fact the high consistency of recent regular production, to me has exposed HSA's game. The Anejados, and to a slightly lesser degree the recent Maduro releases, are generally way behind regular production quality. I am totally convinced that these cigars were failed experiments that took HSA a few years to figure out what to do with them. Not only did they sell them, they sold them for more than regular production. 50% more.

I do wish HSA would concentrate more on regular production models. But HSA is making business decisions, and they've decided to crank out Revolutions rather than MdO#2s. The only consolation may be that the tobacco used in the model isn't available and they're limiting production for that reason. Not sure what the sales numbers are for LCG in general, so that may certainly be contributing to the neglect of regular production for the marca.

I agree with most of what you have said bar the last paragraph.

PCC decided to punp out LGC Revolution, and not HSA. If it works out for them them then good for them.

However, whether it is PCC or HSA or any distributor/retailer/FOH, mistakes will be made. That is the price of being in business and the reality is you need to get 8 things in 10 right. 2 you will screw up. If you only screw up 2 you are doing well and it is not fatal.

Business has always been thus. There is no definitive rulebook.

[Akela3rd]

And, to add to Rob's comments - it's the screw ups that get remembered, the other 8/10 are accepted as being normal and don't sit in the consciousness as much.

[Duxnutz]

I must say this thread has been a refreshing read.