Balancing Core Activities and Growth Initiatives at AB InBev

An Insight from the 2018 Next Generation Operations Summit

Part of a Series

This Insight is a part of the 2018 Next Generation Operations Summit Report.

The complete report will be available soon.

Regardless of industry or discipline, leaders successfully driving enterprise-wide transformation must develop strategies to maintain core activities while incubating, evolving, and scaling innovations. At AB InBev, Peter Kraemer, the Chief Supply Officer, and Elito Siqueira, Global Vice President of Logistics and Operations, are developing a long-term vision to connect with customers and exploring how the future of supply chain can enable that. AB InBev’s Disruptive Growth Organization (DGO) tests new innovations and then determines how effective new approaches, strategies, tools, and techniques are brought back to the company through larger scale pilots. At the same time, they are tenaciously ensuring that their core activities remain strong and consistent.

“Our supply chain is changing just like everybody else's, and the beer market is changing - consumer's’ preferences, the types of beers, the amount of beers, where they're consuming them – and we have to adapt to that change. We've been adapting our business to the consumer.”
Peter Kraemer
Chief Supply Officer, AB InBev

Developing a Strategy for Innovation

AB InBev is the world’s largest brewer and a global, distributed organization. The company has almost 300 breweries worldwide making a combination of craft beer and large-scale brand name options. From those breweries, product flows into more than 600 distribution centers and then on to stores, bars and other venues throughout the world. AB InBev’s delivery fleet makes more than 350,000 deliveries a day of beer with an average shelf life of 180 days. In order to orchestrate all of this, AB InBev has had to develop a strategy for innovation that rests on four pillars:

For Kraemer and Siqueira, the supply chain should serve as the lifeblood of the organization bringing all the parts of the company together. In practice, this means using data-driven modeling to look at where resources are located as well as growth trends. This creates a connected environment to ensure consistent supplies are in place and that the organization will be able to plan for the future. Fostering connection throughout the enterprise enables the supply chain team to identify and plan for future growth. From there, the team can set internal benchmarks and work through strategies to bring all parts of the company up to standard. AB InBev’s Disruptive Growth Organization works on the fourth pillar by developing, experimenting with, and piloting new technologies and innovations for the future.

70/20/10

As AB InBev has worked through its transformation agenda, Kraemer and Siqueira set a formula that they call 70/20/10. This formula helps the company measure how each brewery is doing as well as identifying potential growth opportunities. It’s designed to balance core supply chain strategies and priorities, with transformation efforts.

The type of beer made by AB InBev’s brewers varies from operation to operation, location to location. Even so, the company has a certain level of quality assurance that has to be in place. Many of AB InBev’s brands have come under the company’s banner through acquisition, creating integration challenges. As such, they may have specific standards of taste or a specific culture and it’s up to the supply chain team to put ingredients and support in place to ensure that brands don’t suffer at scale. With global brands, the key is maintaining consistency of taste from region to region. Budweiser should taste the same in Shanghai as it does in St. Louis even if it was brewed in China.

The 70/20/10 formula represents the focus, attention, and approach AB InBev adopted to balance this consistency and the accompanying core supply chain activities, with efforts to spur disruptive innovation. 70 percent of the work focuses on making sure all parts of the organization are meeting the benchmark standards for taste, quality, and safety. 20 percent of attention goes towards incremental innovations. When supply chain entities have reached the benchmark, 20 percent of efforts are focused on opportunities they have to improve and reach new levels of excellence. As Siqueira shared, “it's doing more, but better. Doing the same, but better….” The final 10 percent represents efforts to create internal disruptions, ensuring that the whole organization is forced to keep thinking of innovation and value creation opportunities.

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Piloting Disruption

AB InBev’s Disruptive Growth Organization lives in the 10 percent of the 70/20/10 formula. As the company looks for new ways to evolve it will need to leverage technology smartly. This means implementing everything from automation to analytics to blockchain and even driverless cars. The team at AB InBev created a heatmap to keep track of where each new idea is in the development process so that it can ensure that innovations are truly ready for prime time before rolling them out to the global organization.

In one pilot project, the international logistics team worked through how to manage global production and shipping using distributed ledger, or blockchain, technology. Through the project, AB InBev was able to regionalize its operations, cutting down on import/export through differing and complex jurisdictions. The company’s headquarters in Belgium oversees the six regions and ensures that processes are running smoothly. By regionalizing, the company was able to do more effective benchmarking and identify areas for improvement. AB InBev also realized cost and time efficiencies through regionalization, which cut down on product waste. Now when new brands or new markets come online, they are incorporated into their respective region, allowing them to join the network in a faster and more consistent way.

Blockchain- backed regionalization also helped the company to enhance information sharing and deal with its myriad SKUs, labels and bottles across global brands. As Siqueira observed about their global operations, “the amount of information that we need to share, and the amount of people that need to connect with that same information, that’s what drove us to pilot blockchain.” Blockchain, or distributed ledger technology, allows for organizations to enter and verify information worldwide on a secure network. However, first the company had to centralize its paperwork, so that all of the necessary information was flowing to and from countries of origin, suppliers, carriers, customs at the receiving country and others, as appropriate. Blockchain has made that documentation much easier and quicker. In the first year their measure for compliance when a container arrived in a new country was below 70%, and last year they closed at 98%.

In addition to improving coordination, AB InBev has made great strides in strategically streamlining their processes. On the surface, a Corona bottle in Mexico may look the same as one in Helsinki, but each country has certain requirements about information that should be on labels, as well as materials that are used for bottling. Before the streamlining process that meant a bottle of Corona had hundreds of labels and SKUs to track, each with only slightly altered information in order to meet global regulatory requirements. The team set about finding commonalities and was eventually able to create a package of ten labels and SKUs that were regionalized and still compliant. Regionalization extended into the documents required for shipping - bills of lading - making it less likely that shipments would be held at borders because they were missing small bits of information as a result of human error and complexity. Brewers and Bottlers in the pilot were able to realize production efficiencies immediately and the system was soon rolled out to the whole organization.

“Once people are benchmarked the next step is to create or identify a gap. When you have that gap people can rise to a new level. Maybe they are doing the same thing but they are doing it better. Maybe they are doing more, but better. It’s all growth.”
Elito Siqueira
Global Vice President of Logistics and Operations, AB InBev

Conclusion

As AB InBev has grown into a global network of small craft breweries and massive internationally known brands, the supply chain team has led the way ensuring that the organization is connected and focused on growing smartly. As part of this connectivity, brewers throughout the company come together once a year to stay in touch, learn from each other, and identify new possibilities for growth. Kraemer and Siqueira have made sure that supply chain is leading these conversations and benchmarking the organization for quality, consistency, and safety.

The supply chain team is also spearheading disruption from within by dedicating resources to the research, development, and implementation of new technologies. An internal innovation team leads organizational pilot projects to ensure that innovation is implemented in a way that makes sense before rolling it out to the whole company. So far, these pilots have been successful at both levering nascent technologies and realizing cost and time efficiencies.

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