In our newest podcast episode, we sit down to discuss the advantages of having a more strategic approach to supply chain operations. Our special guests for this episode are Axel Lundstrom, Vice President of Indirect Procurement, Danone North America, and Dave Gawthrop, Senior Director of Business Development, DHL Supply Chain.
In our newest podcast episode, we sit down to discuss the advantages of having a more strategic approach to supply chain operations. Our special guests for this episode are Axel Lundstrom, Vice President of Indirect Procurement, Danone North America, and Dave Gawthrop, Senior Director of Business Development, DHL Supply Chain.
Welcome to All Business No Boundaries, a collection of supply chain stories by DHL Supply Chain, the North American leader in contract logistics. I'm your host, Will Haywood. This is a place for in depth discussions on the supply chain, challenges keeping you up at night. We're breaking beyond the boundaries that are limiting your supply chain. Today's episode is building Sustainable Strategic Partnerships, a look at supply chain operations with Danone and dhl. Our guests are Axel Lindstrom, Vice President of Indirect Procurement at Danone North America, and Dave Goro, Senior Director of Business Development at DHL Supply Chain. Let's dive in. Okay. Well thanks to you both for being here. I've been looking forward to this conversation. Let's start by intros. Axel, if you could tell us a little bit about who you are, what your role is, a little bit about your organization, and then we'll kick it over to Dave.
Speaker 2:Sure will. No problem. So, yes, I'm Axel Lundstrom, I'm in charge of indirect procurement. I'm with Dino North America. Indirect procurement covers everything from logistics and transportation all the way through to media marketing, uh, IT and CapEx spend. I've been with the company now for just a little more than 15 years and been known as a global food and beverage company operating in more than 50 countries, roughly a hundred plus thousand employees.
Speaker 1:Okay. Dave, Good
Speaker 3:Morning. Dave Gour. I'm a senior director and I've been with DHL Supply Chain for about 10 years now in a variety of, uh, positions all customer facing and account development related, and I'm looking forward to this conversation.
Speaker 1:Great. So I wanna come back to the indirect procurement. I believe you told me you've been in various procurement roles around and own what would fall in sort of the direct procurement bucket?
Speaker 2:Yeah, so direct procurement is essentially anything that would go into the product. So if you think about a cup of yogurt, uh, it would be the milk, the fruit, the cup, the label, the packaging. Essentially what you take home to your house would be what most of our direct packaging is. The indirect is essentially everything else that goes into making that product. Uh, you think of all the services and all the people behind the scenes that is, uh, the indirect side.
Speaker 1:And do you find any kind of standout differences between the two types of procurement?
Speaker 2:Before this role, I spent roughly eight years working with most of our dairy farmers across the country in a variety of different types of milk, both organic, smaller farms, say as small as maybe 10 to 15 cows all the way up to larger farms, which had, you know, an upwards of 5,000 cows. I would say when you work with especially suppliers of some of these very important commodities, the relationship, I would say is a lot different. It's much more personal, you know, you're going into people's homes and you're talking with them about how both of our businesses connect with one another and how they have this kind of symbiotic relationship. So I'd say, at least in my experience on the milk side, it's been different than indirect. Indirect has been much more tactical where, where the milk side specifically was much more, uh, strategic and long term.
Speaker 1:Okay, good. So Dave, I'd like you to talk a little bit about the relationship between DHL and Danone. I'm assuming you know, you don't have Axle coming over to your house. What's the history? Um, what's the, uh, current operations profile? What services is the company providing for<inaudible>? Yeah,
Speaker 3:It's been a long history working together in a variety of capacities, most of which is DC oriented. So product in, product out, uh, hitting service levels and operational expense expectations. You know, we've had, uh, a bit of a struggle growing, uh, and trying to find ways to leverage relationship beyond its current state, which we have a facility out west where we've got about 400,000 square feet of ambient and refrigerated space moving product in and out for their yogurts product group.
Speaker 1:Okay, good. And so Axle, I'm assuming when you went into your current role, you kind of inherited that relationship?
Speaker 2:Yes, so that it's been something that my predecessors signed on and has been, I think, maintained over quite a few of the past years. And as we looked, I would say as we look to global suppliers that we have in the US specifically around warehousing and logistics, we realized that we weren't maybe leveraging that relationship to its fullest potential. So we had initial conversation with Dave and some of his colleagues on just how do we look forward as to where our business will be evolving too, and understand maybe other business propositions that DHL has that that we can connect the two companies
Speaker 1:Together. Okay. So I get that, but I wanna press on to leverage the, um, partner point a little bit more and just try to understand what your maybe some other objectives that you would seek to explore with a partner like dhl.
Speaker 2:Yeah, I think when you look at our manufacturing footprint, um, at least over the past say seven years, it's changed quite a bit. We acquired, uh, Danone acquired a company in the US called WhiteWave Foods. WhiteWave had similar products but different manufacturing footprints, different factories. So it was really two complete companies and supply chains that we were trying to merge together. We've been working, say over the past five years to figure out how do we create some synergies between those two. And I'd say DHL and the location that you manage in the Salt Lake area has been the first step in that, but we see that evolving across the country and across all the different manufacturing locations we have. So where do we want to grow? Where do we want to combine efforts? I think what other businesses that are managed outside something along the lines of parcel or even getting into MRO opportunities, you know, we just, we really like to open up, I think our overall strategy as a company and see where companies like DHL can fill the need. So I think as much transparency as we can get with each other will just allow us to see where we want to work together and where there's opportunities to, to help each other out.
Speaker 1:Okay, good. And then for our acronym, challenge audience mro, what does that mean? So
Speaker 2:It's essentially maintenance and spare parts. So it's, it's essentially everything that they would buy in a factory to keep the lines running that manufacture our products.
Speaker 1:Okay, good. So Dave, when Axel came to you and kind of framed up, we'd like to make the relationship a little less tactical and more strategic, what jumped to your mind? Or I guess what did you get started on in response to the question?
Speaker 3:Yeah, well first of all, I mean the immediate response was really well received in that I have recently taken over responsibilities for the account. But the history between us, although I mentioned it, we've struggled to grow. It hasn't been because of a, a poor level of partnership. The partnership's fantastic. So the foundation is there. And so I was pretty excited then to step into action and look to try to find ways to elicit the dialogue between our teams, both operational strategy and business to sit down and determine where from within our value added service sets, do we have a strong fit? Where can we leverage that fit as components of a DC operation or extensions of a DC operation perhaps. Um, and those are things like transport, e-commerce, omnichannel type fulfillment. Certainly I'd be remiss if I didn't mention co-packing, putting value into that secondary packaging effort, all of those points of value add that we've commonly brought to market for other clients that are looking to expand the relationship in a similar fashion. I think, and most importantly though, and what I've heard Axle say and demonstrate to me in our dialogue is a need to really leverage where DHL supply chain has been investing heavily relative to the future supply chain operations and efficiency. And that has to do with everything digital. So innovation and automation, robotics. We've had some conversation about where we're investing to ensure that we are the three PL of choice from the market at large with respect to the employee side of the business. And so what we've structured here is an, an upcoming session at one of our innovation centers in Chicago to really have a workshop focused on the art of the possible and start to open up the dialogue with respect to what could we achieve if we took all the, the bridals off and just said, Hey, what's possible here for the expansion of the relationship in the name of effectively serving the growth that Danone is well aware of and forecasting moving forward. And so we started to shape up those types of workshop activities and joint business planning activities.
Speaker 1:Great. That's really interesting. So Axel, have you participated in similar kinds of, I don't know, brainstorming workshops with other providers at Danone? And if so, what are they like?
Speaker 2:Yeah, I think we're in the process of working through a couple of exercises with, with suppliers across the spectrum within MySpace with an indirect and even in an, in the direct space, there's even some crossover a little bit. I think what has been key in those situations is to remove the filters or any of the background of history or belief or even maybe where you think the category should be or where the category shouldn't be. Look at what is the full potential. And I think only then when you take off that filter and you, you dig deep into your box of candor, you start to find that there's areas of opportunity that maybe you didn't realize were there. And then those areas of opportunity probably have large momentum for growth. And in the sessions that we've done in the past with other suppliers, when we've been able to kind of take the gloves off, we have really seen huge growth over a very short amount of time for both companies. It's allowed us to, to probably take advantage of maybe additional productivity or like Dave said, opportunity for just overall fulfillment with the workforce on both sides. You know, the way of working will improve all the way through to, you know, margin and improvement for the company that we're working with. So I think it, it's hard to do because I think to be totally honest with one another, you have to have a certain amount of trust. And that's something, you know, over the past few months that Dave and I have been trying to work to is to say, how do we get there? And you know, you have to start somewhere. And I think this next visit that we're going to do as a larger group is, is the, you know, the first step in that.
Speaker 1:Great. So the um, I, I know you're obviously actively involved Axle, but within Danone, is there kind of a shift happening or is this more of a, you know, you're systematically going through your procurement categories and trying to identify these barriers and work through them?
Speaker 2:I wish I could say that I was maybe much more strategic and work through the categories. I think these past couple of years have made us realize that the strategies that we had are maybe a little too long term and they change maybe too frequently. I think the procurement function doesn't have a great track record for thinking strategically. We tend to be thought of as the the buyer who's going to save you money or help you negotiate better with the customers or the suppliers that we work with. I think there's a shift right now within the procurement world to say how do we become value providers for stakeholders and how do we help the suppliers that we're working with find value within their organization and connect it? And maybe in some categories, if I go back to what I was saying on the direct side, on the milk side, it's very easy because the relationship is extremely personal in the beginning. And you can build that trust and you can work to align both parties. I think in business it's not quite as easy. You know, you're not the owner of dhl, maybe you have some stock or you have some equity, but you know it isn't your business. So it's hard to be as connected to it. And I think we wanna change that conversation as a procurement group, we want to change it. We know that in order to be ready for the next crisis that's coming, we're gonna have to think much more long term 5, 7, 10 years down the line. And we think that, you know, these types of relationships with large scale global providers to have a really strong history of success will be the enabler to help us, help us get there.
Speaker 1:Yeah, interesting. So Dave, you've been in business development for a long time. This kind of trend that you're seeing or is this more of a one off or where's Denon on the sort of bleeding edge versus industry lagger? I don't wanna put you on the spot necessarily, but would just be interested to see what you're seeing with other folks in the market.
Speaker 3:Yeah, I think the market's broken down into thirds, right? Those that are already there to the goals that Axel's describing, those are kind of in the middle, which is where Danone is, you know, strong partnering type company, just seeking to expand the value that they can bring through the relationships with organizations like ours. And then there are the laggers, the the lower third. That's kind of the way I see it breaking down out in the marketplace today. I will say those in the top two tiers are going very, very fast. I think it's an outcome of the last couple of years, as Axel mentioned, that did a lot to expose and or accelerate a move toward all things automation, all things analytics, data visibility. And with that you've got to be able to create transparent relationships and trust your partners in the three PL space. I don't think you can continually play out the whole game of the three PL as a commodity provider of labor, if that's your, your approach with what we know we don't know moving forward those organizations and I would put those in the lower tier, the last third are going to be in trouble, uh, when the next pandemic hits or globally, you know, some geopolitical event that shuts down a region. I, I think we really are seeing a much more interested market out of the middle and the top naturally to partner tightly to take advantage of where we've been investing for the last eight to 10 years on the technology side and the people side and fill the warehouses and the operations from a logistics standpoint with really smart people working next to really smart machines and just having fewer, fewer and fewer numbers of what I would call traditional low skill labor.
Speaker 1:Yeah, good. On the automation front axle, where's Danone's sort of head around that topic? Do you foresee a lot more of it in your distribution facilities or does your profile not really match up with whatever's out there on the market today?
Speaker 2:I think there is large opportunity for advancing automation across the company and I wouldn't just limit it to just the warehousing operations. I think across the company there are many, many pockets where we can find ways to just drive overall efficiency in the way that we work. Whether it is in a warehouse through technology to, you know, help manage labor better, improve employee satisfaction and also likely improve efficiency. I think over the years there's been cycles where we've been more focused on automation as a company mainly in our manufacturing space than I would say in the office. And these latest challenges with the huge amount of people that are exiting the market and and more to come I think as these last few years of the baby boomers are, are working and we'll be retiring, this is gonna be a challenging environment and we know we have to get ahead of it. And I think we can only invest in technology so much in r and d so much because we're running an operation that needs to produce a product and doesn't have a lot of r and d behind it. And we use suppliers to enable that at innovation. Uh, I'm really excited to understand, you know, some of the, the assistance that's going on in the robotics space in the warehouse facilities. I've seen quite a few examples of that lately and I'm excited to see how that has advanced. You know, we've had AGVs in our factories for about 15 years now, uh, moving product around, but we never took it, you know, to that next step. So I'm really excited to to see where that goes. And I think even also on the office side of the business, if you think about the office as a manufacturing location, there are a lot of manual processes that we have today and we're looking for ways to transfer data automatically between our suppliers, between our customers and you know, we know that that opportunity is there. I think it's just a matter of how much time are you gonna invest into it and what partners are you gonna use to help you accelerate it.
Speaker 3:Right. Axel, do you see um, a bit of a lag on the supply chain side versus the manufacturing side with regard to digitization?
Speaker 2:Yeah, our manufacturing facilities, when I came to Danone, they were really going through their transformation. That was 15 years ago. The first project I had as an engineer in the factory was to install AGVs in all of our locations. So we were ahead, I would say of the curve then. And as time has gone on and I think, you know, the business moves at a pace maybe faster than you're able to develop new ideas, you kind of forget about it. And I think in some ways the automation on the manufacturing side kept up maybe when you think about just equipment in and of itself, but then when you think about business processes they didn't keep up and tear point, I think there's still a tremendous amount of connection that needs to happen between our E R p, between the WMS that you're running, understanding how our scheduling is automated, how are we managing our lots? And then even too on the technology side, the fact that we don't have more electric shuttles or yard dogs and we don't have autonomous vehicles between factories or warehouses that are extremely close. I think it's concerning because the date is coming when there will be a significant amount of people exiting the workforce and I think we have to be ready for it. And I don't know why that is, Dave. I mean I think it's easy to keep doing what you've always been doing because it worked until it doesn't work. And I think now we know it doesn't work and we're a little too late. So I think those companies that are in the early adopter phase and that early adopter third are gonna be the ones that are really gonna stand out against the ones who are in the middle and the lower lower core top.
Speaker 3:Yeah, I think even those early adopter phase category folk, they also, if forced to put a, an introspective lens on it, they would say that as much they are an early adopter on the logistics side today, it's still lagged behind their manufacturing side. So I think everybody kind of walks it kind of down the same path, if you will. Yeah,
Speaker 2:I think
Speaker 3:Manufacturing takes precedent and then, and then everything else. Yeah.
Speaker 2:And I think no one thinks about some of these businesses that exist on the sides or on the periphery. They don't think about them as needing to be efficient, right? We're the, we call ourselves the shock absorber a lot in the logistics space, whatever, whatever happens upstream eventually gets absorbed at the end. And if you thought about it almost in the opposite way of making it efficient from the end back to the beginning, I think we would make leaps and bounds of, uh, progress in a very short amount of time. That's maybe why this conversation has evolved over the past few months as we see that it's one of the areas that hasn't had that much focus and as a overall industry it hasn't had much focus. Right. We're talking about autonomous taxis more than we're talking about autonomous vehicles and autonomous trucks or autonomous yard dogs.
Speaker 1:A good segue axle cuz I I wanted to ask you and really thinking about it from that back to front perspective that you just mentioned, you know, sustainability is on the corporate agenda everywhere you look, we're both European based companies where the actions probably a bit ahead, but I know we're thinking about North America in a lot of ways. How does sustainability factor in to danone's thinking? And then Dave, how do you sort of bring what DHL's doing more broadly in that arena to a conversation like what you're setting up with Danone?
Speaker 2:Yeah, I, I think that Theone organization has been very focused on the, the challenges that industry provides to the planet, you know, for quite a long time. So it's really in our dna, it's in our vision and our, our mission. I don't see it and I think the company shifted a little bit that the sustainability goals drive the business. I think the business will drive the sustainability goals and, and outcomes, meaning that if we can, you know, focus on an optimized network, we will likely reduce our carbon footprint by half in the logistics space. That's huge. There's no ESG or corporate sustainability group that's gonna come up with a list of projects that are gonna make that much of a difference. When we look to what we're doing on the farm side and what we're doing to reduce the fermentation that happens within a cow, that will reduce likely about the same ratio by the work that they're doing to improve regenerative agriculture and, and work on the diet of the animal and really get to the root cause. And I think that has a financial benefit, which is, you know, why we focus on it. And then the outcome is also a huge reduction in the amount of resources that we're using to produce the products that we do. So I think it's still that backwards way of thinking, not that your sustainability will push your agenda, but your agenda will impact the sustainability.
Speaker 1:Hmm. Yeah. Interesting. So, so Dave, going into your, your workshop, what areas are you thinking about targeting or sort of focusing on with respect to Danone to kind of get them moving along the path here?
Speaker 3:Yeah, I think it's really a conversation around those things that will make the biggest impact. And so, um, we'll talk a little bit about electrified shuttle fleets, certainly talk about the whole yard dog activity, electrified yard dog equipment. And you know, in order to kind of find that balance that axle's describing work at a much closer level to understand, I would say the sustainability influenced ROI model that Danone uses. Um, you know, we can all use a traditional financial ROI model that is intended to focus on the, the dedication of capital with an expected return. But you know, it's different when you're starting to pull in the whole concept of sustainability because it, quite frankly, there are instances where you can offset the use of electricity and reduce overall costs and improve the ROI through the investment. But those are very clean examples and most aren't that clean and require some expanded look from an ROI perspective to prove out the value. And so what we'll end up doing is trying to get bit of a better picture outside of the financial mechanism. What are the influencers to that model from Dino's perspective that means something in terms of the value that a sustainability project will bring to the organization. So those could be things like the view that the employee base has, how does that help Danone appeal to future and potential employees or retain their current employees? How does the whole concept from a a marketing standpoint play out in the marketplace and, and how is that built into their own internal ROI models to uh, add complimentary value to what would typically be just kind of a flat financial model. So we'll start to expand those dialogues and for us as an organization, it really requires getting very close with the decision making units at organizations like Danone and building out a plan that makes sense across all of those levels of evaluation. So like I say, is it financial? What comes with the financial and what are those complimentary elements of the ROI that we can bring to light to make sure that the projects and proposals are put in the best possible light for Axel and his team as they're evaluating what to do next?
Speaker 2:Yeah, well if maybe I can build them what Dave was saying a little bit because we do look at the business and maybe what we do in these three elements. So it's the people, it's the profit and it's also the purpose. And when we build out our strategies, we tend to wanna put our strategies into those three buckets and make sure that we have all three buckets within our strategy. So, you know, many of us came to Danone because we believed in the social responsibility that we have as a company. You know, the fact that we are a B Corp and we're an extremely large CPG company with that status is very unique and along with it comes a lot of commitments, I think to the environment, which helps with the retention and helps with the overall productivity tied to working for a company like that. I think when we look at the financial models flows over maybe a little bit to the purpose and the profit side, if we can reduce carbon, we know that there is a financial risk offset to that because there's so many people entering the market today having lots and lots and lots of commitments that the price for that carbon credit, if you have to go buy it outside, is only going to go up. So we think about these projects that we're doing internally as a way to really hedge the carbon market and also, you know, do something very wonderful for the environment and for the company. So this model we've been working on for, you know, quite a few years and as the price of carbon is low, it doesn't necessarily pay out, but as the price of carbon goes up, it will pay out. And I think the last part that Dave mentioned that we've had a very difficult time with, and we have had some successes on some brands is, is the consumer willing to connect with brands that maybe do have an on cost in the beginning? And you do have to pass that price on because doing these things do cost something now, but in the future will not. And I think what we're learning is it's just an expectation from the consumer now. There is no on cost that needs to be passed on, it needs to be the company's commitment to do the right thing. And then we as procurement professionals or or supply chain professionals, we have to find a way to close that gap. So we do have to find productivity to help offset the fact that we're doing work that maybe doesn't have a clean ROI today. And the hope is that at some point in the future it will and we will be ahead of it and maybe we'll even be in an excess of carbon credits that we can actually sell them to other companies that maybe aren't quite there yet.
Speaker 1:That's all very interesting. I mean, you guys were set up for a pretty rich discussion in this upcoming workshop and I, I had no idea you guys were a B Corp. I think we could do a whole podcast about that alone, but unfortunately we're at time here, so we'll look to do that on another day. Thanks to both of you for the discussion. I really enjoyed it and I wish you luck when you get together in person in the weeks to
Speaker 2:Come. Sounds good. Thank you Will. Thank you Dave.
Speaker 1:Thank you Will. Thank you Axel. If you enjoyed the conversation today, please share it with a friend and rate us on Apple Podcasts. You can find us online at dhl.com/all business, no boundaries, and follow us on LinkedIn and Twitter, DHL Supply Chain. We'll see you next time.