When Paul Gallagher, president of North American supply for premium drink maker Diageo, started his career on the shop floor more than 20 years ago, consumers had three options, "a stout, an ale, and a lager." Now, the range of high-end alcoholic beverage options is mind-blowing--Ciroc pineapple vodka and a $250,000 jewel-studded bottle of Diamond Jubilee by John Walker & Sons rum are just two of the hundreds of recent "innovations" at Diageo. That's why an ever-more nimble supply chain and operations are critical to meeting capricious consumer demand.
Gallagher gave the keynote address for Industry Week’s Best Plants Awards luncheon on May 5 in Charlotte, N.C. Diageo, with brands including Guinness, Tanguerary, Smirnoff, and Captain Morgan, is the largest premium drinks company in the world. Its North American operations account for 1/3 of the company's net sales and 45 percent of the global profit. The 25 U.S. operations, from wineries and distilleries to bottling operations, make over 50 million cases, handle and ship over 90 million cases a year, and oversee 4,000 SKUs in the “most complicated regulatory environment in the world,” says Gallagher.
“With that many locations, it’s always key to look and see where you can optimize, rationalize, streamline and get the best value out of that,” says Gallagher. “And that’s part of the journey that we have been on. The key thing for us is about how do we react and how we anticipate the demand we see coming at us and also the complexity that it brings.”
The far-reaching variety of Diageo's products requires vastly different supply chains, components, and suppliers, as well as workers with different strengths and skills. At one plant, detailed-minded finisher completers work with material from a consistent supply chain for 750 ml bottles of $20 Captain Morgan rum. About 100 feet away, a production line of “entrepreneurial-spirited individuals” make bespoke products “for which we don’t know what the forecast is going to be.”
“The first half of 2015, we’ve introduced 150 innovations and renovations,” says Gallagher. “That’s about one a day. With all those innovations cycling in and out, you have to be thinking differently about how you manage your business. You have to consider you don’t necessarily know how all these innovations are going to be run in your production facility, so your process has to be exceptionally slick. And you also have to figure out how to factor in and predict the demand.”
The company has streamlined by eliminating write-offs and reducing the amount of inventory, as well as optimizing their metrics. “A lot of our metrics were lagging,” says Gallagher. “They weren’t telling us where we were and predicting where we needed to be. We had to change that, because more and more we’re moving toward a differentiated supply chain.”
Standardizing plant operations, from equipment (so production can change quickly) to readily available information about performance on the line has actually increased flexibility. “We can pick products from one plant and move it to another,” says Gallagher. “Most recently, footprint is not our major cost driver. It’s actually logistics—moving production to a location closer to where liquid is being produced.”
“If we’ve got spare capacity, we think about ‘How do we fill that with consumer demand?’ rather than wait for consumer demand to come,” Gallagher says.
For Gallagher, meeting consumer demand can sometimes mean going back to his old stomping ground--the plant floor. A specialty whiskey called Orphan Barrel got its start at one of the company's operations in Tennessee, where Diageo executives happened to be visiting. "A number of operators came up and said, 'We have liquid we’re just going ot blend off and we think it's a unique liquid with a unique opportunity," says Gallagher. "This has become a multi-million-dollar opportunity because we listened to people on the shop floor."
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