Diageo, the global leader in premium beverages, is transforming its supply chain for the future.
If you are a global leader in spirits and beer, with sales of nearly $17 billion in its last fiscal year, a portfolio of brands spanning the spectrum of tastes and occasions including Guinness, Johnnie Walker, Smirnoff, Tanqueray and Don Julio, and growing sales (net sales grew more than 20% last fiscal year), where and how are you investing in your supply chain to maintain a market-leading advantage?
Equally important, how do you do this when consumer tastes in this space are ever-changing, with unexpected spikes in demand for products that are essentially agricultural? Especially when some of these products take years to mature in the cask?
These were some of the questions I recently had the privilege of discussing with Livia Kandiyoti Konak. Kandiyoti Konak, a 30-year supply chain veteran and director of planning and logistics at Diageo, spent her first 28 years at another market leader, Procter & Gamble. There, her experience covered the entire supply chain.
“While at P&G, I managed plants, regions, categories and functions,” she said. “And I’ve lived and worked on four continents, in both emerging and developed markets, managing growth and financial turmoil, divestitures and acquisitions.” Her most recent role at P&G was Vice President of Product Supply, Global Haircare Supply chain transformation.
She joined Diageo as head of planning and logistics in 2020, at what is perhaps the most challenging time in recent memory for the alcohol beverages business. On the one hand, some of the industry’s business disappeared in a matter of weeks as bars, restaurants, sporting events, hotels, cruise ships and pretty much every other place you can think of where we’ve been consuming or buying drinks outside the home have all shut down. At the same time, home consumption of alcoholic beverages exploded.
To say that planners were challenged is an understatement as there was no historical reference point for what happens to demand during a global shutdown; For alcoholic beverage planners, this was doubly so, since all alcoholic beverages start with agricultural products such as grain, and many have aged for years. You can’t just make more 12-year-old Scotch overnight. Or, in the case of Diageo’s tequila business, distill more of the spirit since, as Kandiyoti Konak explained, “It takes several years to grow agave and mature the anejo. You have to be able to plan both in the short term and strategically in the long term.”
As a starting point, I asked Kandiyoti Konak to describe Diageo’s supply chain. “It’s just fascinating,” she says. “Firstly, our products range from whiskey that may have been aged for the last 20 years to beer that is ready to serve within hours of being made. Our portfolio consists of a range of global icons as well as local gems.” In terms of markets and channels served, she noted that Diageo has its ‘On Trade’ business serving pubs, bars and restaurants; and “off-trade” channels such as wholesalers, distributors, retailers and liquor stores. Though the industry is heavily regulated and, in North America at least, dictates who gets to sell what and where, Diageo is also investing in a fast-growing e-commerce business. There is another dimension, which is the constant introduction of new products or new variations of existing products. They need to be scaled and brought to market quickly, but with little history to inform plans.
E-commerce in particular has accelerated during the pandemic. And when lockdowns were announced, consumer needs evolved. One day pubs were open and tapping beer from barrels, the next day shopping was limited to cans bought in supermarkets. When I asked Kandiyoti Konak how Diageo’s supply chain was making its way through the pandemic, she said that the company had previously invested in “a lot of resilience across all supply chain nodes.” Throughout the pandemic, we have been constantly creating scenario plans that have paid off.”
Kandiyoti Konak identified four strategies that helped the company respond to a volatile environment.
• Diageo first refined and then focused on what really mattered. “We worked hand in hand with our commercial teams and made decisions over short, medium and long term time horizons. Then we segmented our portfolio and focused on the strategic part.”
• Second, the supply chain team worked closely with strategic suppliers and developed alternative sources of supply when needed.
• Third, they brought the logistics network together and “built an ecosystem of ports, carriers and shippers,” Kandiyoti Konak said.
• Finally, Diageo invested in digital capabilities to enable real-time visibility across the supply chain and be able to monitor, predict and act.
While we all still deal with disruption and unpredictability, Kandiyoti Konak said Diageo is now striving for a balance “in sufficiency, efficiency, agility, resilience and sustainability.”
This includes investments in digital tools “ranging from simple visualization tools, which we call descriptive, to more predictive tools that help us understand the next potential deviation and then step into the prescribed space to address it,” she said. This includes simple bots as well as AI tools and digital twins. “What’s important is that the data is accessible end-to-end so that our customers are well-informed,” she said, adding, “Our advantage is being able to read the trends in real-time and then be very agile in reacting and executing with high impact.”
The tequila category is a good example of this concept. Diageo has implemented advanced planning tools that allow the planning team to run and analyze different scenarios to then make informed decisions in the short-term but also for the best strategic long-term outcome. “When you’re growing very quickly, it’s difficult to create short-term and three-year plans without tools,” Kandiyoti Konak said. “But with an advanced planning tool to execute scenario plans, we will balance the near-term demand that excites customers and the long-term growth of the category that needs mature liquids in a couple of years.”
At the end of the interview, we talked about the impact of ESG initiatives on the goal of balancing efficiency, sufficiency and sustainability.
“We strive to have a positive impact on our business, communities and society wherever we live, work, shop and sell,” she said. “We have set ourselves 25 goals aligned with the United Nations Sustainable Development Goals. Society 2030: Spirit of Progress is our 10-year ESG action plan designed to help create a more inclusive and sustainable world.” They focus on three focus areas:
Encourage positive drinking: “We aim to change the way the world drinks for the better by celebrating moderation and continuing to address harmful alcohol use through changing attitudes and our initiatives to address underage drinking, drink driving and binge drinking expand,” she said.
Advocate for inclusion and diversity across the organization and with partners and communities, and help shape a more tolerant and equal society. “We are increasing representation at all levels of the company and everywhere we do business,” she said.
Grain to Glass Sustainability is a commitment Diageo has made to conserve the natural resources we all depend on. “Working in partnership, we will continue to conserve water throughout life, accelerate towards a low-carbon world and become sustainable through design,” she noted.
“We are in the second year of our journey,” said Kandiyoti Konak. “We are making progress in all three areas, but we still have work to do.”
About the author
Bob Trebilcock Bob Trebilcock, Editor-in-Chief, has covered materials handling, technology, logistics and supply chain issues for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. Trebilcock is a graduate of Bowling Green State University and lives in Chicago. He can be reached at 603-852-8976.