Digital supply chain transformation at Diageo

Diageo, the global leader in premium drinks, is transforming its supply chain to meet the future.

When you’re a global leader in spirits and beer, with sales of nearly $17 billion for the last financial year, a portfolio of brands which spans the spectrum of tastes and occasions, including Guinness, Johnnie Walker, Smirnoff, Tanqueray and Don Julio, and expanding sales (net sales were up more than 20% in the last fiscal year), where and how do you invest in your supply chain to maintain a market leading advantage?

Just as important, how do you do so when consumer tastes in this space are forever changing, with unexpected demand spikes, in products that are at heart agricultural? Especially when some of those products may need years to mature in a cask?

Those were among the questions I had the opportunity to discuss recently with Livia Kandiyoti Konak. A 30-year supply chain veteran who is the head of planning and logistics at Diageo,  Kandiyoti Konak spent her first 28 years with another market leader, Procter & Gamble. There, her experience spanned the end-to-end supply chain.

“While I was at P&G, I ran plants, regions, categories and functions,” she said. “And, I have lived and worked on four continents, both emerging and developed markets, and have managed growth and financial turmoil, divestitures and acquisitions.” In her last role with P&G, she was the vice president of product supply, global haircare supply chain transformation.

She joined Diageo as head of planning and logistics in 2020, perhaps the most challenging time in recent memory for the alcoholic beverage business. On the one hand, part of the industry’s business went away in a matter of weeks as bars, restaurants, sporting events, hotels, cruise ships and just about any other place you can think of where we consumed or bought drinks outside of the home shut down. At the same time, the 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To say that planners were challenged is an understatement, as there was no historical reference point for what happens to demand during a global shutdown; for planners in the alcoholic beverage space it was doubly so, since all alcoholic beverages start with agricultural products such as grain and many are aged for years. You can’t simply generate more 12-year-old Scotch overnight. Or, in the case of Diageo’s tequila business, distill more of the spirit given that, as Kandiyoti Konak explained, “it takes multiple years to grow agave and to mature the anejo. You have to be able to plan for both the short and strategic long term.”

As a starting point, I asked Kandiyoti Konak to describe Diageo’s supply chain. “It is simply fascinating,” she said. “First, our products vary from whisky that may have been maturing for the last 20 years to beer that is ready to serve within hours of production. Our portfolio is an array of global icons as well as local gems.” As to 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. Although the industry is heavily regulated, driving at least in North America who can sell what and where, Diageo is also investing in a fast-growing e-commerce business. There’s another dimension as well, which is the constant introduction of new products or new variations to existing products. They have to be scaled up and rolled out quickly to the market, yet with little in the way of history to shape the plans.

E-commerce in particular accelerated during the pandemic. And, as the lockdowns were announced, consumer needs evolved. One day, pubs were open, drawing beers from kegs, the next day shopping was limited to cans purchased in the supermarket. When I asked Kandiyoti Konak how Diageo’s supply chain navigated its way through the pandemic, she said that the company had previously invested in “a lot of resilience across all the supply chain nodes. During the pandemic, we constantly ran scenario plans, which paid dividends.”

Kandiyoti Konak identified four strategies that helped the firm respond to a volatile landscape.

• First, Diageo honed in and then focused on what really mattered. “We worked hand-in-hand with our commercial teams and managed decisions across short-, mid- 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 required.

• Third, they brought the logistics network together and “built an ecosystem of ports, carriers and forwarders,” Kandiyoti Konak said.

• Finally, Diageo invested in digital capabilities to enable real-time visibility across the supply chain and to be able to monitor, predict and act.

While we are all still managing disruptions and unpredictability, Kandiyoti Konak said that Diageo is now striving for a balance “in sufficiency, efficiency, agility, resilience and sustainability.”

That includes investments in digital tools “all the way from basic visualization tools, which we call descriptive, to more predictive tools that help us understand the next possible drift, and then playing into the prescriptive space for managing it,” she said. These include simple bots as well as AI tools and digital twins. “What’s important is that the data is accessible end-to-end so our customers are well informed,” she said, adding “our edge is reading the trends in real time and then being very agile in responding 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 fast, making short-term and three-year plans is difficult to do without tools,” Kandiyoti Konak said. “But using an advanced planning tool to run scenario plans, we will balance short-term demand, delighting the customers, and the long-term growth of the category that needs mature liquids in a couple of years.”

We ended the interview talking about the impact of ESG initiatives on the goal of balancing efficiency, sufficiency and sustainability.

“We are committed to creating a positive impact on our company, within our communities and for societies, wherever we live, work, source and sell,” she said. “We have set 25 targets aligned with the United Nation’s Sustainable Development goals.Society 2030: Spirit of Progress’ is our 10-year ESG action plan to help create a more inclusive and sustainable world.”They are centered on three focus areas:

Promote Positive Drinking: “We want to change the way the world drinks for the better, celebrating moderation and continuing to address the harmful use of alcohol by changing attitudes and expanding our initiatives tackling underage drinking, drink driving and binge drinking,” she said.

Champion inclusion and diversity across the business and with partners and communities, help shape a more tolerant and equal society. “We’re improving representation at every level of the business, and everywhere we do business,” she said.

Grain to Glass Sustainability is a commitment Diageo has made to preserve the natural resources on which we all depend. “Working in partnership we will continue to preserve water for life, accelerate to a low carbon world and become sustainable by design,” she noted.

“We are in the second year of our journey,” Kandiyoti Konak said. “We are making progress across all three areas, but we still have more to do.”