0:00

If we look into that for me, theend-to-end visibility of our value chain.

0:04

So not just the supply chain, theend-to-end value chain, that next

0:08

year will become absolutely critical.

0:11

And for that, we need to make sure that wehave the data and we have the technologies

0:15

to rapidly address all the issues thatcome from a consumer, a customer, or

0:22

a political and economical nature. That is, in a nutshell,what I expect into 2024.

0:29

Welcome to the Futureof Supply Chain podcast. My name is Sin To and I'mmarketer, blogger and supply

0:33

chain podcaster here at SAP. Today's episode is about the product oran industry that almost everyone knows.

0:39

And I'm very excited to welcome HugoTimmermann from Heineken today and

0:43

to talk with him about the worldof brewing and challenges it has

0:45

faced in recent years, and maybewill continue to face in the future.

0:50

But first welcome Hugo and thank you somuch for joining us today in the show.

0:54

Could you please take a momentto introduce yourself and give

0:57

some insights into your role? Yes, of course.

1:00

And thank you, Sin. Just a few words there.

1:02

I'm responsible for what we call digitaland technology for the global supply

1:06

chain within the Heineken company. And as hopefully, you know, andmany others, Heineken is the

1:12

world's second largest beer companywe've existed for over 150 years.

1:16

So, we have a massive legacy. And we are very proud to be the mostinternational brewer on the planet with

1:23

more than 300 brands in 190 countries.

1:26

And with 85,000 employees or morethan that actually we produce and

1:31

we distribute more than 250 millionhectoliters of beer, of which the

1:37

Heineken brand is more than 20%. And if we look into our globalambition, one part of that is to be

1:43

the best connected brewer, means weconnect to our consumers, we connect

1:47

to our customers, but also within oursupply chain and to our suppliers.

1:52

And we are at the moment in the middleof a massive digital transformation where

1:57

we are moving from quite a federatedlandscape where most operating companies

2:02

have their own digital estate to whatwe call a global digital backbone where

2:06

we aim to align processes, data, andsystems, so that we have an end to end

2:11

transparency and we can actually benefita lot more from our global footprint

2:16

and to deal with, I think some of thesupply chain challenges that we will be

2:19

talking about later on in this podcast. Thank you so much for the introduction.

2:24

So as you said, Heineken isinternational well known as one of

2:28

the biggest brewery in the world,and it's also one of the largest

2:31

brewery groups in the world, right? But however, the beer industry is, orhas been facing a number of challenges

2:37

like other industries too, due to theCorona pandemic and the war in Ukraine,

2:41

such as supply chain disruptions,price increases, rising inflation,

2:45

and also a tight labor market. So these challenges have led to adynamic development in the beer industry.

2:52

And what's happening in the beer industryright now and how does the change in

2:56

consumer behavior affect the industryand therefore also your supply chain?

3:01

Yeah, I think you're spot on. Nothing that happens to theconsumer goods industry is strange

3:07

to us in the beer industry. So we're absolutely in the middle andso when you talk about the impact of

3:12

the Corona period, where actually insome countries we were not even allowed

3:16

to sell beer during the lockdowns. So, you can imagine what kindof impact it has to our company.

3:21

The Ukraine war and selling off ourRussian business, the Suez Canal,

3:26

shortage of containers, current consumerpricing issues, especially in Europe,

3:31

but also outside of Europe, we see alot more volatility in the market.

3:35

And in our case, we see that a lot inkey markets like Vietnam and Nigeria.

3:40

But yeah, the consumer behaviornext to that is also changing.

3:44

And that's not just based on pricing.

3:47

We also see that younger people arenot looking for a traditional beer.

3:52

We've seen a massive shift towardscraft beer in many markets, but we

3:57

also now see a big focus in what wecall low and no alcohol drinks, which

4:02

sometimes are beer and sometimes are not. So for us, that means that we'revery actively looking at our product

4:08

portfolio and we're looking at productinnovation within beer, but also beyond.

4:14

So, we're recently have acquireda company in South Africa, that is

4:18

very large in cider, which is nowa part of our broader portfolio.

4:22

So we see that we're makingmoves both in and outside of

4:26

the traditional beer industry. But all in all, if weadd all of that together.

4:30

What we see is volatility as the key word.

4:34

Whether it is in the economy, whether itis in consumer behavior, whether it is

4:39

geopolitical and for our supply chain,that impact is massive in each and every

4:44

step, whether it is in forecasting,how do you forecast on a moving base?

4:49

How do you then deal with that? From a production perspective to makesure that you brew the correct beers

4:56

to the consumer demand that mightchange by the time that you're brewing

4:59

it, to actually delivering it to ourcustomers and consumers after that.

5:03

So the integration across all ourOpcos for us is becoming more and more

5:08

critical and the end-to-end visibilityin the supply chain is one of the

5:13

key elements that we need to have toaddress those ongoing sets of changes.

5:18

As you just said, end-to-endvisibility, and we talked about

5:21

this in our preliminary discussion.

5:24

So, actually no one can deny anymorethat it is so important for companies

5:28

to have a holistic view in order tomake decisions, optimize promises,

5:34

mitigate risk, and also improve theoverall supply chain performance.

5:38

But how can companies actually achieve theholistic view and how can technology help?

5:45

Yeah, it's a very good question. And I'm not going to say thatI have a silver bullet for that

5:49

or that we have within Heineken. The key word for me is data.

5:55

We need to have more granularinsights into consumer

5:59

behavior and consumer patterns. We need to have more insight into thevarious channels and start to look at

6:05

that in a more integrated perspectivethan we have done in the past.

6:09

So it is really flowing through thedata, through the entire value chain,

6:14

and then building a tool set that allowsyou to run scenarios and analysis a

6:21

lot faster and a lot more granular thanwhat we've been able to do in the past.

6:26

So I think we're at a very fascinatingera in the technology space with the rise

6:32

of machine learning and the buzzword AIthat actually allows a lot more of that

6:38

analysis at a far higher pace so thatyou can actually utilize it a lot faster.

6:44

And we're moving from a lot moreresponsive to a lot more proactive

6:49

data analysis and planning of actions.

6:53

That for me is the big movethat we are in the middle of.

6:56

That's also why the digitalbackbone initiative within

7:00

Heineken is so critical for us. Because without that, we would nothave a standardized set of data

7:07

that we can actually benefit from. So, it's the overarchingbelief in data that for me is

7:14

the key element on end-to-endvisibility in your supply chain.

7:17

And I think that is not verydifferent from many other companies

7:22

in the consumer goods industry. But we have a long wayto go before we're there.

7:26

Yes, like most of the companies wherethey actually need to think where

7:31

they start and also when they start.

7:33

And because you have so many differentlocations around the world, it's actually

7:37

also the question in which location doyou want to start, or is it something

7:41

where you say first we start in theheadquarter and then roll it out to

7:46

others, I know it from our pre-discussion,but this is something that I really

7:50

want to touch again because it's sofascinating how Heineken is doing this.

7:55

Yeah. So if we look into Heineken,we are very, very proud on what

7:58

we call our Opco centric model. Have we've grown over the years throughmergers and acquisitions, and we're

8:03

very close to the customers in eachand every country that we operate in

8:07

and we want to maintain that model. So we believe we should not be a stronglyhierarchical top down model, we believe

8:14

in having actual operating companies. With that, what we're doing at the momenton the digital backbone is creating a far

8:21

stronger network of operating companieswhere the head office is facilitating

8:25

the interactions within the network.

8:28

So we are doing the entire worldon our digital backbone initiative.

8:34

We are starting at this momentin a few of our smaller Opcos to

8:38

test the end-to-end setup, and wewill be growing over the next five

8:42

years to cover the entire world.

8:44

All our Opcos will be thenon that same backbone.

8:48

And with that, the role of the headoffice, as I said is on strategy,

8:53

but it's also we're creating hubsthat are covering activities for

8:57

multiple Opcos so that we are closeenough to where the action happens.

9:03

But also benefit from the skillthat we have, but we're not

9:06

bringing that all to global hubs. We see a distributed set of callit center of excellence or center

9:11

of expertise, or sometimes it isa hub that does actual activities.

9:15

In Europe, we see, for example,a transport management hub that

9:18

works perfectly in Europe giventhe setup of the European Union.

9:23

But in Africa, that might work differentlybecause you have a complete different

9:27

logistical challenge in that region. So we see changes indifferent parts of the world.

9:32

We see changes in different Opcos. But we will be offering a integrated toolset with a menu of options for an Opco.

9:40

So not every Opco needsthe same advanced platform.

9:44

Sometimes it can be a simplified version.

9:46

So we give an Opco what they need, butwe want to talk all the same language

9:51

across Heineken so that we can benefitfrom our scale and allow the Opcos to

9:54

be as close to the consumer and thecustomer whilst we get benefits of

9:59

our scale, which you can also see, forexample, in our procurements that we see

10:03

that coming back at the back end of it. So, it's a quite a balanced approach.

10:08

We're not going for the one size fitsall solution that I've experienced in

10:13

previous companies that I've worked at. It's also not the easiest to achieve.

10:17

It's a massive transformationthat we do and I believe in that.

10:21

It's a lot of effort, but the outcomeof this is looking to be really

10:24

good and something different thanthe standard solution might be.

10:28

So, can someone actually say that youhave changed or that you are adapting

10:32

this kind of hybrid supply chainstrategy or how would you describe this?

10:37

I mean, as you described, thedifferent locations work differently

10:40

and you don't have one size fits all.

10:43

So if you want to be agile,you need to implement this

10:46

kind of agile process, right? But still you need to cover allthe costs and reduce that cost.

10:50

So, is this the combinationof lean and agile?

10:53

Yeah, well, of course, because it'salways a location and the lean agile

10:58

continuum, certain parts of your supplychain must be as lean as possible.

11:03

And of course, we're under a massivepressure in terms of product costs, in

11:07

terms of energy utilization, et cetera.

11:10

So lean is massively helping in thoseareas, but at the same end, you need

11:14

to have agility into your process. And if you look at lean andagile, they are in essence

11:19

part of the same methodology. And for us that centers aroundTPM in our supply chain.

11:25

On the digital side, of course, weapply agile principles and how we

11:28

bring technologies into the Opcos. We also apply lean methodologies when youtalk about service provisioning processes.

11:35

So these are in an absolute continuumand they allow us to be more specific

11:41

into the various parts of our supplychain, what we need, because even your

11:44

procurement cannot be 100 % lean, becauseyou need to have a certain agility into

11:50

the various materials that you will need. So that will always be dependent onthe consumer and the customer demand

11:57

whilst we try to balance that withas lean as possible a supply chain.

12:02

I firmly believe that our supplychain should be what I call lights

12:06

out and no touch, which means. Zero or minimize at leastunplanned manual interventions.

12:13

So we have a big initiatives aroundour connected brewery, which brings

12:18

digital and automation into theactual production sites with the

12:22

ambition of stopping minor stops andreducing losses and reducing waste.

12:27

So you want to achieve lights out,which actually means the light is

12:32

on where you need to take an action. So you do your plant actions.

12:35

You want to see no touch. Why would you have people doingplanning if the system can do it better?

12:41

But reverse also is there. You will still need people to coachthe planning systems and adjust

12:48

them because of that volatility. So you want to be lean whereyou can so that you can focus

12:52

on agile where you need to be. We talk about agile and lean and also costreduction and being agile as possible to

13:01

adapt to new market trends, to scale, tomeet also the customer expectation and

13:06

also to meet the sustainability goals.

13:11

On your website, you are writing thatyou are constantly improving your

13:14

performance, data quality and reportingfor more transparency that you are

13:18

applying the Stakeholder CapitalismMetrics of the World Economic Forum

13:22

and the recommendations of the TaskForce on Climate Related Financial

13:27

Disclosures to support this goal. Can you explain a little bit about howyou want to achieve this and how also

13:33

data helps you to become more sustainable?

13:36

Yeah, it's a very, very good question.

13:38

And yes, sustainability isa massively important topic.

13:43

And in 2022, we set out what we callour brew a better world strategy.

13:48

And a few components of that is that weplan to reach net zero carbon in scope

13:53

one and two by 2030 and actually net zeroacross the entire value chain by 2040.

13:59

So it's a massive, massive target on that.

14:01

But you also see items like zerowaste to landfill by 2030 for

14:05

our production sites in there. And another element that especiallyin our industry has a lot of attention

14:12

is of course water usage becausebeer for the largest part is water.

14:17

And more so because many times we operatein water stressed area, I think about

14:22

Mexico, think about parts of Italy, Spainand we've put a lot of targets to reduce

14:28

water usage in all our sites and evenmore so than in water stressed area.

14:32

So for us sustainability is somethingthat goes along quite broad set of

14:37

actions, whether it is specificallyabout net zero, but also how we

14:42

operate further into our organization. The one thing again, that collects allthese targets is in the end is data.

14:49

How do we collect that data fromeither source systems or many cases

14:55

at the moment it is still manual andwith the growing scope and importance

15:01

we just need to make sure that all ofthe data collection becomes automated.

15:04

And again that for me is a link backto why that digital backbone is so

15:08

crucial for us because it allowsus to tap into more source systems.

15:14

As I mentioned our connected breweryallows us to connect directly into our

15:19

machine lines and with that collect datathat we get and use for multiple purposes.

15:26

In parallel with that sustainability thenbecomes a growing part in your decision

15:30

making models in your various system.

15:33

Think of planning systems, thesustainability play a role in where

15:37

you source certain products from.

15:39

Think of transport managementas you know, logistics, of

15:42

course, is a massive contributor. How do you optimize routes?

15:45

Where does electrification of your fleetstart to contribute and how do you then

15:51

do your more dynamic routing so thatactually the battery in the truck is

15:55

full enough to reach its destination. Think of the managementof packaging lines.

16:00

How do we need to optimizeperformance for sustainability

16:03

might be different than for speed. So in all of these areas withinour breweries, sustainability

16:08

will become a growing metric. And we need all the right data forthat to become more sustainable.

16:14

And you have similar conversationsaround financial disclosures,

16:18

around this and around that. All of it centers around, we needto ensure that we have our data

16:24

in a lot more standardized way. Otherwise, it will remain manualefforts and we can do that.

16:29

It's just a lot of work to get it done.

16:32

Right. As you said, sustainability is soimportant now and to use different

16:37

data to link everything togetherwill help to reach your goals.

16:42

So that leads me actuallyto the next question.

16:45

Heineken uses the SAP S/4HANA systemand the SAP BTP for the core program.

16:51

Would you like to tell us about thechallenges you faced and how the use

16:56

of SAP solutions help you to improve?

17:00

If we look into our current landscape,I think we have top of mind 43 ERP

17:04

systems across the globe at the momentand name any flavor, we probably

17:09

have it at the moment, varyingfrom SAP to Navision to JD Edwards.

17:14

And this is a critical part of thatdigital backbone is having a lean S/4HANA

17:20

at the core of everything that we do.

17:23

So that becomes our single sourceof truth and around that we have

17:27

a variety of business platforms,a menu, sometimes of options.

17:32

Sometimes there is one option. If I think about warehouse management.

17:37

You can do it very simple in doinginventory management, but you can

17:40

also create more options around moreadvanced warehouse management systems.

17:44

And we see the same in some ofour planning systems, sometimes

17:47

foundational, sometimes more advanced.

17:49

All of that goes in a standardized wayback to our core and those business

17:54

platforms sometimes are SAP platformswhereas management as I mentioned,

17:58

this is one of those key examples. And there's quite a few more.

18:01

Sometimes and those areplatforms from other partners.

18:05

And I think the beauty of it ishaving that S/4HANA at the core

18:09

allows us to connect to differentplatforms, allows us to talk in a

18:14

single way, and we have a structuredenterprise data model around that.

18:19

That allows us more plug andplay of platforms in future

18:23

when we see the need to change.

18:25

So it allows us the standardizationthat you want, but it also allows us

18:30

the agility going forward to move up incapability or switch capabilities or add

18:37

on different capabilities in differentOpcos based on the need that we have.

18:42

Because the one thing we know forsure is what we're going to put in

18:45

place now in 2023, 2024 will not beexactly what our Opcos need in 27, 28.

18:53

The need will evolve and with S/4HANAat the core and the business platforms

18:58

around it, we believe we have a setupthat we can adjust to our adjusting

19:03

environments in a lot easier way. So it's very pragmatic what we do,hard to achieve, but in the long run,

19:10

it will get us a lot closer to ourdream of becoming the most, or the

19:15

best connected brewery in the world. That's great to hear.

19:18

So, as you're working in thesupply chain and brewery industry.

19:21

You might know that in the 1960s the MITdeveloped the so-called beer distribution

19:26

game as a management simulation. So participants have to take on theroles of a retailer or a wholesaler

19:33

distribution center or brewery. And the aim is to get crates ofbeer from brewery to the customer

19:40

as cost effectively as possible. And they have to deal with a lotof different problems like we've

19:45

seen it also in the real world. As said, as you're working inthe brewery industry, how

19:51

realistic is this simulation game? And are there some kind of parallelitieswhere you say, okay, this is something

19:58

that happens in the game and also in thereal world that we can just like take

20:04

the learnings from that simulation game?

20:07

Yeah, it's actually quite shockingas you go back more than 60 years

20:11

and you see something that's today'sreality is as relevant as it was then.

20:17

Going back to one of the earlierquestions, the volatility in the supply

20:20

chain has gone up so much that I thinkthat the beer distribution game is now

20:25

more realistic than ever because youwant to find your bottlenecks faster.

20:31

You will defined your problems faster. So you can actually create more of thatlean supply chain and that your throughput

20:37

is ongoing whilst your customers andconsumers change their minds and change

20:43

their behaviors in a lot faster way.

20:45

So I think every single elementof the game is still relevant

20:50

and even more relevant thanit was maybe 10, 20 years ago.

20:54

And this is for me is if youlook into technology that is

20:58

helping us to address that. Current systems are a lot moreadvanced than they were in the past.

21:04

They are able to forecast this iswhere ML, but also at one moment,

21:11

AI, I think it's too early for that,but that will start to play a role.

21:15

Some of our planning systems, we willbe implementing ML and AI models.

21:19

So we're doing that as we speak toaddress a number of these challenges

21:23

in your end-to-end value chain. So yeah, the game is relevant.

21:28

And with the current technology, I thinkwe can address the same challenges and

21:33

different challenges, but mainly a lotfaster than we could in the 1960s when you

21:38

would have a big mainframe that would, atone moment in time, churn out an outcome.

21:44

I think you can now do millionsof those outcomes a lot faster.

21:47

Which will lead to many, many scenariosthat you can then pick from, so you can

21:52

do a lot of that parallel calculation.

21:55

And then based on the end to end scenariosthat are calculated, you can actually

21:58

choose the best scenario at that momentin time from an end-to-end perspective.

22:04

Which is different what you would seein the 60s because you always end up

22:08

with a lot of manual effort, a littlebit of sub optimizing because it is so

22:12

hard to connect the entire value chain.

22:15

That for me is where technologymakes the biggest difference.

22:19

It's that rapid calculation of multiplescenarios pretty much in parallel.

22:24

We're not really yet at quantum computing,when that will be even more advanced.

22:28

But yeah, let's wait for anotherdecade for that to become mainstream.

22:31

I would be very happy to see what today'stechnologies can bring us already.

22:35

Yeah, that's great. Do you also see that using technologylike AI or GenAI will not just help

22:43

us, but maybe also, well, let's sayreduce some kind of work or make some

22:48

work obsolete in the supply chain area?

22:51

Without a doubt, it willhave a massive impact.

22:53

And, I think we don't know yetwhat the exact impact will be.

22:57

Jobs like mine, the amount of time Ispent on answering emails or creating

23:02

PowerPoint slides, you know, this iswhere co-pilot can already help on that.

23:07

Does that make my job better? I hope so.

23:10

Does it mean my job is no longer required?

23:13

I hope not. But yeah, you can see theseimpacts will be there.

23:17

Of course it will impact certainjobs that might no longer be needed.

23:21

It will also create other jobs.

23:24

It will also create jobs that we can sayare more meaningful, are challenging,

23:30

or more focusing on topics that areharder to achieve through technology.

23:34

But it is a game changer that Ithink we all don't know yet and that

23:39

for me is also the flip side of AIand same as on Generative AI is the

23:46

ethics around that because if youdon't watch out you will have one AI

23:50

answering my email sending that to myboss whose AI will answer his email.

23:55

You have two AIs talking to each otherand the conversation goes out of control.

23:59

Well, that's within the same company. But what if we deal with our customers?

24:03

What if we deal with our suppliers?

24:05

So where do we draw the line and how dowe make sure that we have a certain level

24:09

of control or maybe vetting of your AIs?

24:13

So there's a big debate,of course on that.

24:16

So I expect AI and everything withit, like it has done in the last

24:20

10, 20, 30, 40 years, the impactof technology has been massive.

24:25

We've always felt threatened by,Oh, now I'm no longer required.

24:29

But look at that, we have a massiveshortage in the marketplace of labor.

24:33

So we are short of people. So, so far, technology has never led to asituation that technology has taken over.

24:41

I don't think that with AI thatsuddenly will change, but it will be

24:46

a big challenge on how we're going toincorporated into the broader marketplace

24:52

and how do we make sure that we benefitfrom a global scale that not just AI

24:57

is highly relevant in parts of Europeor parts of North America, whilst in

25:03

other parts of the world that doesn'tapply because that is a situation that I

25:07

think would not be good for the planet. Exactly.

25:11

Hugo, well, believe it or not, we arealready coming to the end of the podcast

25:16

and the title is the future supply chain. Could you summarize in one or twosentences what the future supply

25:22

chain might look like and whatwe can expect in this new year?

25:27

If I would be able to predict the future,I think I would buy a lottery ticket

25:30

and go to a sunny beach somewhere,but let me give it a, an effort.

25:33

I think next year and also beyond, Ithink we will see a continuation and maybe

25:38

an acceleration of what we've seen so far. So volatility will remain highin different parts of the world.

25:44

Be it based on issues like we see inUkraine and Israel, but also potential

25:49

impact of elections in the UnitedStates, for example whatever the outcome

25:53

is that might impact a big part ofeconomies and political stability.

25:58

At the same end consumerswill continuously want

26:02

more and more innovations. Sustainability will continuouslybecome more important.

26:08

And AI will continuously becomemore of an opportunity and more of a

26:14

potential threat as we just discussed. So yeah, if we look into that for me, theend-to-end visibility of our value chain.

26:21

So not just the supply chain, theend-to-end value chain, that next

26:24

year will become absolutely critical.

26:27

And for that, we need to make sure that wehave the data and we have the technologies

26:32

to rapidly address all the issues thatcome from a consumer, a customer, or

26:39

a political and economical nature. That is, in a nutshell,what I expect into 2024.

26:45

And from a Heineken perspective, I thinkwe are taking massive steps towards

26:50

that, still have a long road to go. And with a lot of our great partners,I think we're in a pretty good state,

26:56

but yeah, it's always going to bea big question mark on what exactly

26:59

is going to happen in the future. Yes, it's like lookingthrough a crystal ball, right?

27:04

But at least you have the feelingfor it that you think, okay, this is

27:09

something that could happen or thatwill be, you can actually push something

27:14

into certain directions, right? Yeah, you can, uh, but you canonly prepare for the unknown.

27:22

So that is why I believe youneed to start to think in, hey.

27:25

What could impacts be so that you'reready for it whilst you don't know,

27:30

take the consumer as an example. We don't know the exactdevelopment of consumer demand.

27:36

Something completely disruptivemight happen into our industry.

27:41

How are we then going to makesure that we rapidly are ready

27:45

for that unknown disruption? I think that is the key elementthat's for us at Heineken, but I

27:51

think also for many other companies. Is the key into next year and years afteris getting ready for that unknown so that

27:58

you're able to counter it a lot better.

28:01

Yes. Well, Hugo, thank you somuch again for joining me.

28:06

It was super great to talk to youand to get more insights into also

28:10

Heineken and also digital transformationbackbone that you are doing right now.

28:15

And thank you all for listening. Please mark us as a favorite andyou can get regular updates and

28:20

information about the future episodes. Until next time from Hugo and I, thank youfor discussing the Future of Supply Chain.