Danish Crown: A Procurement Transformation
This content originally appeared in CPOstrategy Magazine
Procurement transformation represents a dramatic shift in an enterprise’s structure, operations and bottom line, resulting from the establishment of a new collective mindset, processes and tech. Those tasked with rolling out new procurement strategies require experience, ambition and the ability to motivate and organise large numbers of staff.
Danish Crown AmbA is a food processing company, dealing primarily in the meat processing of pork and beef and through its subsidiaries, as part of Danish Crown Group, it’s Europe’s largest pork-processing company and Denmark’s largest beef-processing company. Like many traditional and well-established manufacturers, Danish Crown operated in a divisional, siloed structure that saw separate arms of the company working in relative isolation. However, the current demand of business owners, the wider market and the all-important customer focus now require companies like Danish Crown to be fast, agile and centralised.
In 2016, Danish Crown launched a new transformational programme across the Group called the 4WD Strategy (4WDS). 4WDS was established to reconfigure the €9bn company so it could break free from its different divisions, to work as one unified company. An integral part of the strategy involved the transformation of the procurement function.
Lars Feldskou joined Danish Crown as Group CPO in 2017 to help facilitate the 4WDS across procurement. A highly experienced procurement professional who has delivered many transformations at previous companies, Feldskou relished the challenge of delivering a Group-wide strategy. “The old strategy was very much decentralised, while the new strategy is very much based around centralisation and a group perspective on many key areas,” he explains from Danish Crown’s offices in Randers. “I must say, I love the challenges of working with transformations, development projects and change management.”
Feldskou’s procurement transformation at Danish Crown was initially two-fold. The first element was to establish a number of initiatives to create some bottom-line savings. The second ambition was to build up a centralised global professional procurement department. “Formerly, the business units had their own local setup for procurement,” he explains. “And so, the first thing we did was create a group of existing staff within it. I’m a very strong believer that things are driven by people and not only by Excel sheets and PowerPoints and other systems. We had to get the people engaged and centralised. I had to create a strong management team that understood the journey, the vision, while also being prepared for a massive amount of change such as the collective mentality, involving the readiness to live in an environment where everything changes week by week and month by month. Some people live it and love it. Other people hate it. For me it was important to find out who could embrace this change and the journey and who could not. Setting the right management team and the right procurement team, was the first thing that we focused on.”
Danish Crown now has seven main leaders in the procurement management team with a mix of new and existing staff, some of whom know the business from the inside out including Annette Jakobsen, Henrik Skov Madsen, and newcomers Chris Hoffmann, Niels Hedegaard, Ole Mortensen and Adrian Fisher. “I now have a good set-up and a mix of people that know the business from the inside, and people that have come in with knowledge from the outside, from companies that have been on a similar journey over the years,” he says.
According to Feldskou it was the tangible business opportunities that were the main drivers behind the new strategy. “Danish Crown got a new CEO, in Jais Valeur in 2016, who saw that there was a number of opportunities that could be harvested in doing things in a different way,” he explains. “This was about working across the different businesses, some of which were better at it than other business units, but it was never really planned or managed in an organised way. He saw that going a bit horizontal instead of going vertical, in our approach to a lot of things, could benefit the company.”
The start of the procurement transformation was about creating relationships with the businesses, as Feldskou talked with them about their ambitions and the best strategies to achieve them. “Danish Crown is a big company with nearly 25,000 employees and 60-plus factories all over Europe and Asia also. So, for me, in the beginning, I was getting out and getting to know people to find out what they were doing, as well as their challenges, what they were good at, and where they could see possibilities. It was very much about creating some fast and significant results that we could use in our communications to prove that working together across the company was a greater benefit to working in silos. It was very much about convincing people that this new setup was right with benefits within it, so they could play an active part to get something out of it. We established a very clear structure and organisational plan, including a new reporting set-up. We outlined some very clear targets and KPIs.”
One of the key parts of the procurement strategy involved the establishment of a new operating model that would place the procurement function at the heart of the Group, and Boston Consulting Group (BCG) came in to recommend points of action. “We invited BCG to come in early 2019 and make a review about the level we had achieved to that point and asked them to come with their recommendations about how we should take it to the next phase. They (BCG) went around and talked with a lot of people both in the business unit and the group setup and came up with a model which introduced business unit procurement partners, that represents group procurement inside the business units. The partners have a role in the daily life in each of the business units, but also play a part in our procurement strategy and journey. They became ambassadorial and acted as a bridge between us and the business units to ensure the projects and the strategy we execute is also implemented out in the business units. It was a good, strategic move to get an external company like Boston Consulting Group to come in and do that for us because they were neutral and looking from the outside in.”
It’s vital to have the support from the top management; support that is very visceral, very communicated, and fundamental to all layers of the company.
Feldskou has delivered a number of transformations in his time, but even accounting for his experience, this shift at Danish Crown represented a massive challenge. “Danish Crown is a huge company and has a long, long history of being decentralised. Then, suddenly, you’re working on group targets, group mandates, group perspectives, which are a huge challenge. This is a 180-degree turnaround. There was also a massive job in terms of standardising master data across all the different levels of the company from business unit to business unit.” The technological side to the transformation addressed Danish Crown’s procurement tools. For many years, Danish Crown had been running SAP across the different business units and individual set-ups. However, JAGGAER was introduced as a procurement tool for source-to-contract which also addressed e-procurement in the business units, acting as an umbrella across the business.
“From a procurement point of view, we can do a lot of stuff, having implemented that system. This will give us transparency and knowledge about our daily business. Right now, we’re creating the baseline or the foundation for taking the journey into a lot of other procurement activities and areas. We still have a way to go to establish, for instance, transparency on our master data. In certain categories, we’re very good, because in the categories like ingredients and packaging materials that goes directly into our end products, we have a lot of knowledge; we have item numbers, we have a specification and stuff like this. But in other areas like our logistics, our indirect, our CapEx spare parts and stuff like this, we don’t have the transparency and we really need to move as fast in those categories as we can. We’re going live here in the second half of 2020 with our ePro as we call it, and that will take us into the next level with precise, described procedures and processes and even further transparency. We can then control our spend and eliminate a lot of the tail spend and maverick spending that we have today. That will probably take a couple of years before we are through with that journey.”
Niels Hedegaard is Senior Director Group Procurement, Business Development: “One of our levers for getting more in control with our procurement activities across the company is through implementing systems that will help us. So, we have invested in a piece of software called JAGGAER, consisting of two modules. We launched the “Source to contract” module on the 13th of December, so that all of our category managers can operate in our six-step sourcing model, through that tool. The other part is the “E-procurement” tool. That is more or less an eBay platform for all of our employees across our company. Whenever they want to buy anything from a pencil, to a spare part, a piece of machinery, or a marketing event, or whatever they want to buy, then they will actually go into this platform instead of just picking up their phone and doing maverick buying. Getting this tool implemented will be a great, great lever for us to be even more in control around our procurement activities. This will make us even better in securing the suppliers with whom we have contracts because their catalogues are available in the JAGGAER system. So, it’s easy peasy for our colleagues to find whatever they need from the suppliers that are already approved.”
Group CPO, Senior Vice President, Danish Crown
For the past 20 years Lars has worked on establishing, optimizing and restructuring and / or building up / downsizing organizations such as Ecco Shoes, BB Electronics, Vestas and MHI Vestas Offshore. His work has included major change management transformations with massive cost-out and source-to-pay transformation programs within procurement, logistics and supply chain management areas. Lars also has extensive experience in the management of big organizations including team establishing / team-building exercises.
Lars has been Group CPO, Senior Vice President at Danish Crown since 2017.
Feldskou is particularly enthused by his team, tasked with driving the massive operational changes across Danish Crown. Feldskou is determined to underline the importance of the team and constantly underlines the importance of a positive and talented workplace. “We have a very good mix of people that are thinking very pragmatic and operational, and others who are thinking very strategically, and together they’re good at challenging each other. I think that’s where we start to see things happening. This team are good at challenges and supporting each other, and they’re good at moving each other into new levels. And by having such diversity in the team, we create a genuine speed that moves this transformation forwards, because there’s always one in the team that takes the next step and gets the rest of them to follow. I think we’ve come quite far in terms of the way we operate, communicate and the way we work in a standardised, organised way. I think we are recognised for that, and we already reached the targets in 2019 that were set for 2021. But that’s just the beginning of the journey and has created the path for the years to come. We are at a level now where we are very organised. We have a structure and a governance around what we do, which is working, and is making a lot of things transparent. It’s easy to communicate. It’s easy to make decisions.”
We’ve detailed a lot about the transformation program at Danish Crown, but what advice would Feldskou impart to a CEO or CTO or CPO contemplating such a large transformation? “It’s vital to have the support from the top management; support that is very visceral, very communicated, and fundamental to all layers of the company. One of the strongest things I have at Danish Crown, is a very precise strategy that runs the overall company. I have massive support from our CEO, COO and CFO in the journey, and that’s important. I have strong support from the management teams out in the business units, and I don’t think we would have been able to have the speed we have without that support. That’s the main driver besides creating the right team to actually execute it. So, ensure you have the right capabilities, the right skills, the right people with the right mentality. It is the people that drive it. In daily life, it’s the people that engage with the relevant stakeholders. For me, the most important aspect of taking on a transformation like this is to ensure that you have support from the top, and that you set the right team in place from day one. Then you can overcome a lot, and ensure that you have movement, and that you’re moving forward, fast.”
Niels Hedegaard, Senior Director Group Procurement, Business Development, Danish Crown
“Within the business development area, we have our strategic development that we are leading, we have our entire strategic governance structure, we have the controlling and reporting and KPI follow-up. We are also developing processes and systems in close cooperation with our colleagues in the Procurement Center Of Excellence in Krakow within procurement. And last, but not least, we are also heading up training and education of people within the group procurement environments.
The really big change Lars is leading, is one of the key strategic initiatives within our organizing, namely, to establish a group procurement organization and thereby delivering on the strategic ambitions within procurement. Previously all procurement activities were handled in the different business units, and thereby the opportunities with leveraging the size of our company were simply not happening. As part of defining the 4 Wheel Drive Strategy, we expect to improve on the company’s performance to start to join forces on procurement across the business. And that was why the group procurement organization was established and Lars was hired to take the lead on that journey. “
Annette Jakobsen, Director of Procurement, Danish Crown
“The main changes we are seeing now in the way we’re doing procurement is how we involve the business and work together with the business. Previously, it was very much doing the procurement at a desk and only looking at what we buy today: ‘Let us go and find the same, just at a lower price.’ Today, we look into the whole value chain and look for optimizations. In order to do that, we need to work really close to the business. We also have the new operating model that ensures that we actually do work with each business unit. Each business unit has a business unit procurement partner with one leg in procurement and one in the business unit. They report into the business unit, but work closely together with us. This brings us much closer to the business unit. “
Henrick Skov Madsen, Procurement Director, Danish Crown
“The benefit of making it into one big organization, where we pool the quantity is we’re much, much stronger together, in that we can start optimizing. Now we can work across Europe on finding ways to focus on the best suppliers. Because if you want to be a good European supplier, it requires a different set of skills to be a good Swedish, Danish or Polish supplier. From an organizational point of view, we need to make sure we get the benefits out of the size we have when we’re talking with suppliers.
We have opportunities that we simply didn’t have before when we were operating as eight different units at the time. When we put all the business units together, we can see the value of what it makes for us, but also what we can offer the supplier market, and help them with a totally different agenda than we have seen before. “