The company Jacobs Douwe Egberts(JDE) is a global agribusiness group specializing in coffee and tea. Founded in 1753, JDE develops and markets a range of coffees in over 80 countries, generates annual sales of more than €5 billion, and employs more than 12,000 people. The Group has a No.1 or No.2 market position in 18 countries in Europe, South America, and Australia.
Jacobs Douwe Egberts (JDE) has delivered coffee and tea loved by people around the world since 1753. Its iconic brands include Jacobs, Tassimo, Moccona, Senseo, L’OR, Douwe Egberts, Kenco, Pilao & Gevalia.
As the market developed JDE became a leading global supplier. JDE’s production facilities expanded from 4 factory sites to four 14 factory sites globally. The main focus for JDE became sustainability and new product development in the area of flexible packaging (Flexibles) and ensuring that it maintained the quality and reliability synonymous with its brand.
The supply base
There are high switching costs for cylinders, trials, etc. Government regulations may arise around plastic packaging – currently only focused on retailer bags but may extend in the further future.
Amcor currently represents 88% of JDE Flexibles spend – Volume shift to different supplier and then back to Amcor that year has given Amcor high supplier power. Long delivery lead time of supplier’s influence time-to-market of new products. Flexibility have a strong impact on efficiency of the factory, which makes change difficult.
Slow European market with weaker demand and increased raw materials price leads to less stability and financial insecurity for Flexibles suppliers – market is consolidating. Private equity firms are playing a dominant role e.g., San Capital formed Exopack holdings by acquiring a range of European and North American players. The market is highly fragmented with many local and relatively smaller players in developing regions like Asia. Consolidation activities by key players is increasing, growing competition in the market. Rivalry among smaller players is not too high as many players focus on limited set of materials and packaging types thus limiting competition. Growing efforts by packaging companies to demonstrate their commitment to sustainability will lead to some degree of renewed interest in paper, which possesses such qualities as renewability, recyclability and composability, however, specific combination of application and performance characteristics make Flexibles difficult to replace.
Current generation of flexible packaging can produce a wide range of shapes and styles; important to FMCGs to enable product “look and feel” differentiation on the shelf. Protection can be customized with respect to product – wide range of barrier requirements can be meet.
JDE brands regarded as valuable to supply for by packaging firms. Using innovative packaging developments to respond to changing customer needs and behaviors.
Sourcing from low cost countries
In the last decade new low-cost competitors have entered the market and are starting to reduce JDE’s market share. JDE needs to concentrate on costs if it is going to sustain its market share leadership. The key internal stakeholders insist that it must maintain its brand image but achieve the same quality product at a lower cost. This may involve the use of low-cost country sourcing.
Areas of concern for low-cost country sourcing are as follows:
• Poor quality product
• Initial prices increasing once a commitment to supply has been made
• Orders not shipping on time and ‘premium’ transport arrangements have to be made
• Low-cost country suppliers subcontracting work and JDE not being aware that they have done this. This may result in poor quality.
Moving towards production in a low-cost country – light weight and compactness of the material makes shipping from e.g. Asia feasible.
Jay Janes is one of JDE’s Procurement Managers and is responsible for the procurement of the flexible packaging. The current supplier base for JDE is mainly European. Jay realizes that if she is to reduce costs, she needs to expand his supply base, introduce competition and consider procurement from lower cost countries. One of its first sourcing activities under this new approach was to carry out the largest tender for the supply of flexible packaging for 5 coffee brands. JDE has a set timeframe of 6 months for the launch of its new product and needs to ensure no risk of failing to meet this deadline.
Previously each country has sourced independently, and now Jay wants to implement a new sourcing process to organize the structured strategic sourcing of flexible packaging, shifting the power from seller to buyer. The process focused on reducing the market dominance of individual manufacturers and flexible packaging suppliers. Long-term contracts resulting from the new sourcing process would improve visibility, production, capacity planning and pricing. Another aim of the sourcing exercise was to generate overall value by ordering more packaging of a standard size and simplifying manufacturing processes to cut costs. Previously the number of flexible packaging specifications was very wide. Through standardization and reduced prices, a third more packaging could be bought within the same budget. By using large-scale purchasing power, the new process would provide better value for money, providing savings and the reduction of supply chain bottlenecks and shortages.
The new sourcing process was also meant to achieve a balanced sustainable supply chain. Contracts would be spread among a number of suppliers and this would instigate innovation,
optimize capacity, support sustainability goals and reduce risk in JDE’s supply chain. Jay and entire sourcing team has introduced a strategic review of its approach to sourcing and is trying to gain a better understanding of market dynamics.
The strategic review process aims to promote capability development throughout the supply chain, including better coordination and cooperation. Expected outcomes of the strategic review process include the better understanding of stakeholder needs, comprehensive supply market intelligence, a common sourcing process, reduced costs, and improved innovation. This is a collaborative approach which should help JDE to achieve common objectives and eliminate duplication of effort.
Sources:
www.supplychainmanagemnt.com
www.cips.org
www.kidv.nl
www.jacobsdouweegberts.com