00:00:07 Introduction and Olivier Jonard’s background.
00:01:31 Complexity of food supply chains and perishability.
00:03:19 Uncertainty in production and prices in the food industry.
00:05:01 Balancing price competition and product quality.
00:07:26 Offering multiple choices to manage the trade-off between price and quality.
00:08:35 Challenges of local sourcing in big cities.
00:11:57 Predictability and uncertainty in the food industry.
00:13:32 Impact of promotions and substitutions on market volatility.
00:15:36 Stability and predictability of food demand.
00:16:02 Seasonal factors and regional differences in promotion strategies.
00:18:55 Challenges in the food industry supply chain and mainstream approaches.
00:21:22 Improving supply chain forecasts and the need for a smarter approach.
00:22:30 Future trends and the concept of one-stop shopping.
00:23:01 The importance of communication in supply chain management and forecasting.
00:24:00 The importance of basic tools and knowledge in supply chain management.
00:25:35 The role of technology and artificial intelligence in supply chains.
00:26:36 Future of the food industry: cost and trends.
00:27:45 Evolution of technology in the food business.
00:28:53 Augmented intelligence and capitalizing on expertise in the food industry.
Summary
In an interview, Joannes Vermorel, Lokad founder, and Olivier Jonard, Supply Chain and Logistics Director at Agromousquetaires, discuss the complex food supply chain and technology’s role. Food supply chains face challenges due to perishable products, temperature control, contamination prevention, demand and production uncertainties, and global market fluctuations. The panelists address balancing price and perceived quality, emphasizing multiple choices for varying customer preferences. They note a trend towards locally sourced products and the need for rethinking production and distribution strategies. Vermorel and Jonard agree that mainstream supply chain tools are insufficient for the food industry, stressing the importance of adapting technology to the sector’s needs and leveraging human expertise for optimization.
Extended Summary
In this interview, Kieran Chandler speaks with Joannes Vermorel, the founder of Lokad, and Olivier Jonard, the Supply Chain and Logistics Director at Agromousquetaires, a major French food producer. They discuss the complexities of the food supply chain and the role of technology in the industry.
Joannes explains that the food supply chain is complex because of the perishable nature of products, the need for temperature control, contamination prevention, and uncertainties on both the demand and production sides. Additionally, global markets and price fluctuations complicate matters further, resulting in products that are more challenging to manage. The food industry had to establish modern supply chain solutions long before the advent of computers, and digitization now presents another set of challenges.
Olivier shares his experience in the food industry, having worked for Nestlé and other companies before joining Agromousquetaires in 2019. He agrees that price is still the primary factor customers consider when choosing a supermarket, but other factors such as quality, origin, and fair compensation for farmers are also important. Despite mature markets, competition remains intense with new products and entrants, making it difficult for companies to compete and launch new products. Companies must be strategic in sourcing, production, distribution, and anticipation in order to maintain low prices.
Joannes adds that supermarkets, including Agromousquetaires, play a delicate balancing act between price and quality. By offering a range of trade-offs, such as first-price items, supermarket brands, and private brands, companies can cater to customers seeking different price-quality combinations. The unique aspect of Agromousquetaires is that their private brands are somewhat hidden within the stores, but customers are aware of their presence.
They address the challenges in balancing price and perceived quality in food products, highlighting the importance of offering multiple choices to cater to varying customer preferences. This, however, complicates supply chain management due to the increased number of options.
The panelists note that a significant portion of the French population ends each month with a small financial surplus, making food expenses a critical factor in their budgets. They also observe a growing trend towards locally sourced products, particularly in the wake of the COVID-19 crisis, which exposed the fragility of global supply chains. Cities in France are already analyzing the proportion of food consumed by citizens that comes from nearby regions.
The interviewees acknowledge that the current supply chain models, built on economies of scale and globalization, are not well-suited to meet the demand for locally sourced products. They discuss the need to rethink production and distribution strategies, potentially transitioning from a few large factories to multiple smaller ones.
Joannes Vermorel highlights the predictability of food consumption, noting that despite macro-level stability, uncertainties still persist in forecasting for individual actors within the food industry. The conversation emphasizes the importance of optimizing and focusing on key decisions to address these challenges and improve supply chain performance in the food sector.
The conversation revolves around the challenges and opportunities in the food supply chain industry.
Vermorel explains that the food industry has relatively thin margins and that price matters a lot. This leads to frequent promotions, which cause demand to shift and make the market unpredictable. Additionally, the vast potential for substitution in the food industry contributes to significant volatility, making it very challenging for supply chain management.
Jonard, on the other hand, argues that food demand is generally quite stable and predictable. He provides examples of certain seasonal behaviors, such as increased consumption of smoked salmon during Christmas or water and juices when temperatures rise. Despite this predictability, the freshness of products and the need to anticipate consumer demand for items like sausages for grilling during sunny weekends require careful stock management.
Jonard also agrees with Vermorel on the prevalence of promotions in Europe, stating that consumers are addicted to them. Different countries and categories have their own promotion patterns, which can contribute to market fluctuations. The combination of promotions, weather, and production issues can cause the supply chain to be messy and unpredictable.
Jonard shares that in his company, some factories have been operating without much reliance on forecasting, instead using budgets and stock as their primary tools. However, he believes that the importance of forecasting for profitability is increasing and there’s room for improvement.
Finally, Vermorel identifies potential areas for exploitation in the supply chain by examining mainstream supply chain technologies. He argues that many current solutions are geared towards naïve fast-moving consumer goods (FMCG) situations, with no uncertainty in production, price, or promotions. Vermorel suggests that there is an opportunity for new approaches that better accommodate the unique challenges of the food supply chain industry.
The discussion revolves around supply chain optimization in the food industry, the effectiveness of mainstream tools, embracing uncertainty, and the role of artificial intelligence.
Vermorel explains that mainstream supply chain tools are not well-suited for the food industry, and few companies adequately address substitution, cannibalization, and uncertainty. He suggests that a combination of smart statistical tools tailored to the specific trade would be more effective. He acknowledges that Lokad is still working towards conquering food supply chain challenges.
Jonard discusses the importance of using forecasts to support business decisions and emphasizes the benefits of the Sales and Operations Planning (SNOP) approach. He believes that basic simulation tools and regular communication among stakeholders are more valuable than sophisticated tools. Jonard also supports automating basic decisions to eliminate the need for manual spreadsheet management. He urges caution when applying artificial intelligence in supply chains and emphasizes the need to understand and properly utilize technology.
When asked about the future of the food industry, Vermorel does not see a limit to human ingenuity and believes that technology can continue to drive down costs while improving job performance. He cites the example of modern vineyards and how technology has changed winemaking for the better.
Addressing artificial intelligence, Vermorel suggests focusing on better utilizing natural intelligence rather than pursuing advanced AI. He proposes augmenting intelligence by retaining insights and capitalizing on existing expertise, which he sees as a driving force for reducing costs and improving quality and execution in the food industry over the next decade.
The discussion concludes with both guests emphasizing the importance of adapting technology to the specific needs of the food industry and leveraging human expertise to optimize supply chains.
Full Transcript
Kieran Chandler: Today on lokad TV, we’re delighted to be joined by Olivier Jonard, who’s going to discuss with us some of the complexities for the supply chain in the food industry and also how technology can help us keep our stomachs full. So, Olivier, thanks very much for joining us today. And as always, we’d like to know a little bit more about our guests before we get into it. Perhaps you could tell us a little bit more about yourself.
Olivier Jonard: Yes, sure. I’m happy to join. Thank you very much for this opportunity. I’ve been in supply chain for almost 25 years already, and about 20 years in the food industry. I started with Nestlé just after 2000, and then I joined another producer of juices in Germany. Since 2019, I’ve been working for Agromousquetaires, the industrial part of the famous retailer Les Mousquetaires Intermarché. It’s famous in France because it’s one of the biggest, also present a little bit in Poland, Portugal, and Belgium.
Kieran Chandler: Brilliant. And today, Joannes, we’re going to be discussing some of the supply chain challenges in the food industry, an industry that’s been around since the time of cavemen. Why is it so complex?
Joannes Vermorel: It’s complex, first, because it’s perishable. It’s way easier to store car parts; you don’t have to control temperature, look for contamination, or worry about dirty hands when they manipulate the parts. But in the food industry, it is a big deal. You have all those complexities, plus uncertainty on the demand side, as usual in any supply chain, but you also have uncertainty on the production side. You have uncertain yields, whether you’re looking at how much cereal you’re going to get out of the harvest or how much fish you’re going to get if you send a boat to the sea. There is a degree of randomness on the production side, and that complicates the domain. Due to the fact that this industry is heavily commoditized on many products, you also have global markets, and so you have another uncertainty, which is fluctuating prices. You end up with products that are more complicated to move around, more susceptible to get lost or damaged or spoiled or contaminated, and you’re unsure about how much you’re going to have and the price point you’re going to get. All of that makes it quite challenging. This industry figured out solutions to operate modern supply chain solutions almost a century ago, in a time where there were no computers, which presents another set of challenges – digitization because it was an industry that was firmly established well before the advent of computers and the internet.
Kieran Chandler: Olivier, what are your thoughts on that? I know that Intermarché is definitely a supermarket.
Kieran Chandler: So, supermarkets tend to pride themselves on having very low prices. How does that emphasis on cost impact things, maybe for a demand planner?
Olivier Jonard: Yes, price is still the first criteria for a customer when choosing a supermarket to buy their daily or weekly products to cook at home. Price is definitely a critical factor, even though in the last few years, quality has grown in value, and the origin of products is a factor as well. Customers are considering whether farmers are being fairly compensated when they purchase a product. All these factors play a role, but price is still the biggest criteria. Of course, there is huge competition in this market. Even though most markets are mature, you still have new products coming, new competition, and new entrants. The competition is quite harsh, and product diversity is huge, which also makes it complex for a company to compete and to launch products. When you want to stay in the game, you need to launch new products. How much money you can invest in launching a product is always tricky because you usually cannot sustain this type of investment for a long time. You need to have success quite fast; otherwise, you need to delist the product. So, this makes the supply chain complex. One of the key factors that makes the supply chain complex is really the price, which demands attention in everything you do. You need to be clever in how you source, produce, distribute, and anticipate things.
Kieran Chandler: And Joannes, one of the other things many supermarkets compete on is quality and how good the produce is, which often goes in the opposite direction of price. What are your thoughts on that balance between price and quality?
Joannes Vermorel: First, most supermarkets, including Intermarché, play this game quite well by having a whole series of trade-offs. You have the first price, and typically, you have the supermarket brand or the private brands. At Intermarché, the specificity is that the private brands are kind of hidden in the stores. Obviously, it’s not a secret, but they’re not branded like Intermarché or like the Carrefour brand. Instead, they are brands that stand on their own, and they’re typically the intermediate option. Then, you have the more expensive, typically national brands, the ones that can spend money on TV ads, for example. The first solution to the trade-off between price and quality, or perceived quality, is that you need to have multiple choices, which also makes the supply chain even more complicated because you have more options to manage. That’s one part of the answer. Then, indeed, in many countries, I think the balance between price and quality is something that supermarkets have to carefully consider to meet the diverse needs of their customers.
Kieran Chandler: In France, we have something like, I’m not sure if my statistics are correct, but I think it’s something like one-third of the people in France end up their month with only 50 euros or less of surplus at the end of the month. So, it’s not that they are poor, it’s just that when you look at all that they spend or that they earn, the delta is less than 50 euros. So indeed, when you’re on a shoestring budget, it means that food is going to make a difference. If you spend one or two euros a day more for your food, it’s going to make a difference. I very much agree with what Olivier just said, food is still a big part of the spending budget, especially for people who are not particularly rich, not particularly poor, but just not even particularly rich. It remains a very important aspect.
Olivier Jonard: Yes, I guess for the next 10 years, we will have to think about how to make food even more lokad than it is today. You’re absolutely right, in the last 30 years, you have seen a lot of examples of food going 20,000 kilometers around the planet to be prepared, packed, repacked, and then distributed to the final consumer. Now the trend is more, especially with the COVID crisis, that put some highlights on the supply chain and also highlighted how fragile the supply chain can be. But it’s not only this. Definitely, we see a trend of consumers making sure the product they are consuming is coming from their region. So, you see already some cities in France trying to calculate how much of the food that the citizens in the city consume is actually coming from, let’s say, 50 kilometers around or 100 kilometers around. And definitely, the models that have been built in the last two or three decades are not able to answer this type of request because it’s already difficult to measure. And then, the trend has always been to be cheap, to bring economies of scale. So, you need to build products in a big factory. And that’s also a good point for supply chain: does it really make sense to have one big factory or two small factories, etc? So, you can see, for just one example, if you look at baby diapers, there are only a handful of factories that are still operating in France, and one of them is from Agromousquetaires, but I will not mention it. But that’s just this example that shows the supply chain of the past has definitely been more focused on economies of scale and sharing across borders, especially in Europe where it seems.
Kieran Chandler: You know smaller distances, but uh, so one or two factories for Europe to produce everything, and definitely we see a trend it’s not going to change overnight because in the food in general things are not changing overnight, but we see some trends in this direction so we have to be to start thinking how can we relokadize what we produce and how does it impact or in the way we distribute because it’s not necessarily easy to distribute from let’s say 10 small factories to 20 big cities, then from, you know, big factories, big distribution centers that can spread all over the countries. Okay, Joannes, let’s look at things maybe now from maybe a forecasting perspective. Um, what is it that we should be optimizing, and what are the kind of the decisions you should be focusing on in the food industry?
Joannes Vermorel: And the thing is in a way, it’s highly predictable. You know, we are, it’s just, I would say, sometimes we say the uncertainty is irreducible, etc. Yes, but when it comes to food, I mean, literally, people have to eat, so there is not that much uncertainty on, on this as far, you know, those patterns are very stable overall, overall I say, because then the problem is that you can still have a lot of uncertainty despite the fact that people eat, you know, there is very little variation in how much people eat, you know, and day after day, and what sort of budget that do they have. So those macro values are very stable. I mean, they are changing, you know, depending on the time slightly but, but, um, I would even say that even a year like 2020, 20 that was very exceptional, you know, from many perspectives, um, with the pandemic, I’m pretty sure that in term of food spending it’s probably one of the area that was the least impacted by those massive variations compared to let’s say, fashion or soft luxury, you know, that can be much more dramatically impacted. Then but then you, you can still have a lot of factors that makes it very difficult to forecast in practice when you happen to be one of the actor playing this game.
Olivier Jonard: Why it’s because again if we go back to this idea that, um, that price matters a lot it means that people will respond strongly to prices and guess what this is one of those industries where people do enormous promotions all the time so although the overall consumption is very steady if you have promotions, you know, you’re going to shift the demand right and left and you as a player in the market you can see a relatively bumpy you know reaction of the market just because I would say some of the time you are yourself doing a promotion, the rest of the time it’s one of your competitors doing one on their own and and so you see a lot of variations and then um you have another aspect is that you have enormous potential for substitution you know, um, I mean yes obviously vegans will probably not go for a meat promo uh but uh obviously you have tons by design you know, you can you have tons of uh of substitutions that are possible when you’re looking at fresh fruits, you know, you can pick any of the uh of the 15 or 20 you know, fresh fruits, fresh fruits that are on display and and all of them are you know an option there is no such thing as you know hard constraints on what you want you’re about to consume so um the if you combine price sensitivity plus the fact that uh that you have like very very upper you know substitution possibilities uh that that creates I would say very significant
Kieran Chandler: So, in food, the challenge is that you’re facing those viabilities on things that are very sizable in terms of mass, just in terms of the sheer scale of the supply chain within margin. And you have to cope with that, which makes it very, very challenging. Okay, Olivia, would you kind of agree with that? Would you say things are fairly predictable at your end or could you do with maybe a better appreciation of demand and that would be something that was nice to have?
Olivier Jonard: Food is generally quite stable and quite easy, I would say, to predict. People will buy smoked salmon for Christmas. We can already, I can already tell you this with a high level of certitude. When the sun comes out or when the temperature goes below above 20 degrees, people start drinking more water, more juices. If it goes above 25, people will drink only water or more a bit of beer, etc. So, you have all these factors that are well known in the industry, and we know this is easy to anticipate. Now, yes, in addition to the freshness of the product that you cannot keep, you know sausages for too long, and we cannot wait for the sun to come out to decide or to be able to sell them when people want to grill. So, you need really to be really careful on how much stock of these sausages you have and when you want to build it so that you can react to the first weekend where people will take their grill out of the garage and start barbecuing. So, that’s one thing.
Olivier Jonard: And I fully agree with Johannes that in Europe, we are still addicted to promotions. Consumers are totally addicted to promotions. Promotions have different aspects in different countries. They can be stronger in some categories in Germany, stronger in the UK, a little bit less in France for some categories. They will play a different pattern in the UK. They like this “buy one, get one free.” In France, just the pure, okay, let’s get 60% cheaper on the second article you buy, this type of thing. And, as I said, it’s a huge competition. So, one player is doing one promo one week, is it playing well in combination with the weather? With another player having a problem on his production line, these things can be a bit messy from one week to the next. And we all have our own examples of ones totally surprising effect that nobody has anticipated one week or another. So, this is definitely tricky. But I would say in my company, some of the factories that have been operating almost without any forecasting at all, they are just using their budget. It’s okay in October, we know we are doing more or less this. This is how many per week we need to produce, and then they are just based on stock. And of course, it’s easier for some categories where you can actually have some stock and for others, but you know in many factories, forecasting has not been seen as a critical aspect of profitability. This is changing, and we can always improve, but to see how stable some productions can be.
Kieran Chandler: Okay, I won’t get into that kind of rabbit hole of the differences attitudes towards food in the UK compared to here in France because I think in France they got some fairly strong views on it. Johannes, maybe let’s have a look at some of the…
Kieran Chandler: What are some supply chain challenges that are still unsolved? Is there anything out there that hasn’t yet been attempted that you can see as being an area to really exploit?
Joannes Vermorel: A lot of things have been attempted, not necessarily with success. What I can see is that clearly this idea, if you look at mainstream supply chains and the mainstream enterprise software servicing supply chains, most of it is really geared towards naive FMCG situations where you have no uncertainty on production, no uncertainty on price, and where cannibalization and promotions are mostly non-existent. I’m only half-joking. Look at the leader in the market of ERP, SAP, which emerged servicing primarily the automotive industry in Germany. You have a supply chain that is completely straightforward. Car manufacturers have cars of different sizes, so there is no substitution between a small car and a large car, as they have different budgets and prices. There is very little uncertainty on the production side. I would say the mainstream tools for supply chains are not really a good fit for the food industry.
In terms of analytics, there are very few companies, besides Lokad, that really care about substitution and cannibalization. There are very few companies that really care about embracing uncertainty, embracing the idea that, for example, a promotion is going to vastly increase the uncertainty that you have on your supply chain. It’s going to increase the volume, yes, but it’s also going to increase the amount of uncertainties that you have on your supply chain. I believe that there is still a lot to be done, but most of the naive approaches have already been tried and tested, and they don’t work really well. That’s one of the reasons why, for example, Agromousquetaires can be one of the top players, being super competitive without forecasts, because the naive way of doing forecasts, where you ignore uncertainty entirely, works kind of poorly. People who are smart on the actual trade tend to outperform people who are smart on the statistical tooling if the statistical tooling is inadequate.
My belief is that we need a combination of both: something that is smart in terms of statistics but also fits the business vision, and that’s difficult. It’s certainly one of the things that we are strongly pushing at Lokad, but I would not say that we have conquered the world of food supply chains yet.
Kieran Chandler: Olivier, looking forward towards the future, what do you see as the new trends that might emerge? You recently spoke about this idea of one-stop shopping. What’s the idea behind that, and what can you see for the future?
Olivier Jonard: I will speak a little bit about what Joannes said because I think, not on everything, but on how to use forecasts to support…
Kieran Chandler: the decision we make for the business, and you know, of course, after 25 years in supply chain, I’ve been through all this SNOP approach which I think brings a lot in terms of process because it forces people to discuss on a regular basis to see and agree on how they see the future. And when I say the future, not necessarily the next decade, but at least the next two weeks, the next two or three months, maybe the season. Having all parties sitting down together at the same time and discussing, okay, how do you see the season going for beverages? When should we start building up stock? What if the summer is coming earlier or there’s a heat wave in May? Are we ready for this?
Olivier Jonard: Just having this discipline of talking to each other on a regular basis and thinking about the future is really helpful. So yes, you need some sort of tool to help you visualize how much that does it mean for the 1.5 liter or the one liter. You need to have some sort of base for discussion. Does it go through the production lines in the south or the north? What if people are going out of France for vacation? So, these types of challenges and scenarios you can build don’t necessarily need super sophisticated tools to do it. But at least some basic simulation, basic tools, basic numbers to discuss, and having people sitting together, this is already a benefit.
And also, I agree with Joannes that supply chains are so different that you never have a one-size-fits-all tool that can solve all your problems. You can’t just adjust a few parameters and then you’re set. It doesn’t work. The knowledge, I mean, it’s much more important to rely on the knowledge of people that can tell you the limits of these lines, the risks on suppliers, the risk with storage locations. Gathering information from people who really know what they are doing on a daily basis is really critical, more than sophisticated tools that, from my experience, never really work at the same level.
So, where I also agree with what I’ve seen from Lokad is the automation of some of the basic decisions. This can bring a lot of value because then you don’t have people who are struggling with Excel spreadsheets to decide what they need to produce next week or tomorrow. We have this type of automation. My stock is this, I expect to sell more like that. Okay, let’s produce this and let’s distribute that to my customers. This is working super well.
Joannes Vermorel: Yeah, I really believe that we still need to adjust or understand how technology can help us, and it’s not coming from what we have seen or heard even from artificial intelligence, which is in all the supply chains. We have to be super careful about how we understand and how we can apply these new types of tools.
Kieran Chandler: Okay, and Joannes, what are your thoughts for the future? I mean, the food industry is one that’s been so centered on cost for such a long time, but obviously there are subjects like animal welfare, how many chemicals we’re using in our farming, and things like that. Can you still see the food industry continuing to drive prices down, or is this trend something that’s going to change?
Kieran Chandler: To start off, can you tell me your thoughts on whether there are any limits to how low prices can go and how well jobs can be done with technological advancements?
Joannes Vermorel: I don’t think there is any particular limit to human ingenuity. Things that were considered almost impossible one century ago are now done routinely. So, I’m not too worried. Obviously, this is a slow process, but technology is changing. For example, my parents have vineyards, and I can see that you’re not doing wine nowadays the way it was done two decades ago. Things have changed quite a lot for the better.
Olivier Jonard: Just to add to what Joannes said, I think that in the next decade, especially in trades like the food business, we don’t need more artificial intelligence. We just need to make better use of the natural intelligence that we already have. Right now, companies don’t capitalize on the intelligence that they have. They consume it, and everything is kind of discarded and rinse and repeat. If you can have technology that capitalized a little bit every single day on this intelligence, that will already do a lot. So, my take is more like the counterpoint on artificial intelligence would be just augmented intelligence. Augmented not naturally in making people a lot smarter, but just in retaining some of the previous insights so that you capitalize. It’s a more modest objective, but I’m not talking for the next century, just for the next decade. And my perception for food would be, if we can just bring the technology where we can capitalize on the expertise that people have, on technologies that play well with people that are in place and have expertise, that will already be like probably one of the driving forces to further reduce the costs, further improve quality, and execution.
Kieran Chandler: Thank you both for your time. That’s everything for this week. Thanks very much for tuning in, and we’ll see you again in the next episode. Thanks for watching.
