The Supply Chain has become a Critical Competitive Advantage for Every Business
Niels Boersema is the Supply Chain Integration Director at Danone, responsible for the security of supply to Danone’s factories, primarily in Europe and North America. Niels took the time to speak to us about how the past two years have shaped Danone’s approach to risk mitigation in the supply chain and the role technology plays in driving trust, transparency, and agility.
How have recent events shaped Danone’s thinking regarding how it manages operations, processes, and relationships across the supply chain?
One area where we’ve accelerated is general risk management. We’ve had the right tools and processes in place for some time now, but they’ve obviously gained relevance in the current context. We don’t want surprises, which means getting systems in place to give us a broad range of alerts, not just on the big topics but also on more minor and emerging issues. We know that some problems are not easy to mitigate. It takes time to find a backup supplier, for example. So we’re looking a lot further out and taking a 12-18 month view versus a 3-6 month view. Good data is one thing, but that information needs to be absorbed by the company and translated into concrete actions. We’ve built teams and refined systems, so the correct information gets to the right people at the right time.
Can you give us some sense of the scale and complexity that an organization like Danone manages in its supply chain?
Just the number of direct suppliers we’re dealing with is comfortably in the thousands covering tens of thousands of materials we source. You can’t manage that manually. You need some level of automation in place to manage those relationships, particularly at the risk mitigation level. It’s worth mentioning that we’re not just looking at the risk facing our direct suppliers. We’re actively looking to understand risks deeper in the chain, the suppliers of our suppliers. You asked me what’s changed over the past two years. One thing that’s becoming more critical for procurement teams is to have a much more complete view of the supply chain in categories with multiple tiers. Often, we won’t have a direct relationship connection to second or third-tier suppliers, so that’s where we rely on technology to provide us with a view of those risks.
As technology opens new doors for risk management, does that mean the door will start to close on having teams of people in those roles?
Absolutely not. If I look at my scope, we’re using technology to secure supply rather than eke out efficiencies. We use Tradeshift, for example, to ensure we are always connected to our suppliers and can track order status in a way that any team member can see. We need to be able to coordinate on a regional or global level from a single source of truth. From a compliance and control perspective, technology helps our teams follow the right processes, and when there are issues, it also gives them a rapid link to suppliers. That’s critical in secure supply. At any given time of the day, there is complete transparency between us and our suppliers over the status of orders, contracts, or forecasts. We’re always looking to optimize, but that means optimizing the access to information our people have at their fingertips to help keep our factories running.
To what extent do you feel the past couple of years triggered a change in the relationship between buyers and suppliers?
The need to build strategic relationships is essential. Building that kind of trust and understanding requires a lot of homework. For a business like ours, you can’t expect to have strategic relationships with thousands of suppliers. You have to understand what’s really critical to the business and the vital elements we need for that. We’re prioritizing investments that allow us to collaborate much more closely with key suppliers. That means more human interaction, but it also means technology that facilitates engagement and builds integration. Partnerships work when the agreements and the systems that govern them work for both parties.
One term we’ve heard a lot over the past couple of years is the ‘bullwhip effect,’ where deviations in forecast cause problems with inventory through the supply chain. Can technology help to mitigate this?
Bullwhips tend to happen where there is a lack of trust in the supply chain. If you don’t know what’s going to happen, then you build stocks to secure yourself in case something does happen. The less you talk to each other in the chain, the more the bullwhip effect comes into play. If you break those walls and share information transparently, then these inventories are less needed. We share forecasts and inventory with our suppliers through our connection with them on Tradeshift. We also translate that information into raw materials forecasts, which can be shared with our suppliers’ suppliers. Suppliers can optimize their production more effectively by applying Vendor Managed Inventory (VMI) across the chain. This reduces the pressure to keep large amounts of stock in warehouses and keeps cash flowing faster through the chain.
Covid, Inflation, labor shortages; these are significant challenges. Is there much that businesses can do to mitigate against them, or do they simply have to accept them?
It comes down to agility. Agility means spotting problems early on and having a response ready to counteract a variety of scenarios. Take forecasting, for example. Even at the best of times, forecasting will never be 100% accurate. Instead, we need to focus on building agility into the system to take the right actions when deviations start to surface. For Danone, that might mean reprioritising the supplier base or removing mono-sourcing in certain categories. The outside world will be what it is; we can’t really influence that. The key is whether we can think of different scenarios so we are better prepared and agile when something completely unexpected happens.
There’s a lot of talk about the need to move away from just-in-time supply chains to cope with volatility. What’s your take?
There are certainly examples where just in time doesn’t make sense, such as when you’re sourcing from another continent. For certain commodities where you might not have other options, it’s sensible to build in buffer stocks and adopt a more ‘just-in-case’ approach. I don’t think volatility has killed ‘just-in-time,’ though. In a fast-moving world where cash is king, having products delivered too slowly means stock standing still, and that’s a waste. Again, the first word that comes to mind here is trust. When you have trust, transparency, and technology supporting that through the supply chain, just in time can remain very effective, even in a period of volatility.
To what extent do considerations around ESG impact your approach to supply chain risk planning?
Sustainability and the circular economy are central to how we operate at Danone. Staying true to those principles can make life more difficult because the way we source is governed by a stringent set of criteria. It might be tempting for businesses to look at taking the easy way out, but for Danone, the focus is always on long-term impact versus short-term gain. We have a compass, and we stick to it.
What would you say to businesses that might be thinking about delaying digital transformation projects in their supply chain due to the deteriorating macroeconomic picture?
Supply chain is becoming a competitive advantage for any business. Managing risk and having the time to take action are critical. You need technology to achieve that. Otherwise, you will be slower, less agile, and more in the dark.
Tradeshift’s Global Trade Report analyzes business-to-business transaction volumes (orders processed from buyers and invoices processed from suppliers) submitted via the Tradeshift platform to offer a perspective of how external events may be impacting business-to-business commerce in a variety of different regions and sectors across the globe.
To learn more about the global trade report and glean even more information from Q3 2022, download the latest Tradeshift Index of Global Trade Health.
