International Business
BEST PRACTICES SERIES
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LESSONS LEARNED
Global Supply Chain Management
A conversation with Charlie Lang, CEO, Global Supply Chain Solutions. Formerly VP Worldwide Supply Chain Management with Coors Brewing Company.
Facilitated by: Julie Williamson
Developed by: International Business Circle
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| Charlie Lang |
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Listen more – talk less.
If you say to someone, “Do you understand what I’m getting at?” Most likely, they’ll say “Yes.” But if you ask them to repeat it back to you, chances are they’re not really there. They may be somewhere very, very different, particularly when dealing in foreign markets - and within the supply chain on issues around service expectations, quality and consistency of production. And, those types of things are really fundamental to putting out a good brand – and being profitable.
Knowing which market to pursue.
At Coors, we did a lot of research on how a Chinese consumer would view Coors Light, how they would view the American branding, and what was a reasonable assumption around pricing and the value statement. We discovered that the Chinese beer market is very fragmented. For example, you have the Tsingtaos and there’s a big market for that, but it’s not very profitable.
Rather than enter that mainstream market, we decided to position Coors Light as an “American trendy beer” for night bars with young people. That put it in a super-premium category, which meant a lot of marketing money upfront, and a lot of really important brand positioning work.
So Coors decided to start with only six markets in China, and within each, only Triple A accounts — night bars and very high end discos — and charge several U.S. dollars for a bottle of beer. To make it, we needed to make sure people got the “value statement”.
How long to break even?
It’s important to make sure that marketing, sales, operations are aligned on what you’re trying to accomplish, both near term and over a one- to three-year period. In the new market group I worked in, we had roughly three years to become profitable. We started from a concept that was built around the idea of “who is the consumer?”, “what path do we have to the marketplace?”, “how effective are the local manufacturers and distributors?”.
Is three years a good timeframe?
Yes. It puts a lot of pressure on profitability, so you really have to decide what your level of investment is, against when you expect to break even. If it’s much over three years, I think you’ve lost your way, or you certainly are going to have a difficult time. Scotland is an example of a market that I’ve been involved in that Coors actually withdrew from after two or three years. Coors did hugely well in Ireland, then went right across the Irish Sea and, in Scotland, they just could not get there. So after a few years, Coors withdrew from that market.
What if things aren’t working?
Decide how deep the pain is going to be and what you intend to achieve, then stick with those milestones and measures of success — and recalibrate from time to time. Maybe you’ll decide that you can, in fact, go a little deeper than you expected.
After you’ve lost money three years in a row, and things are not getting better, it might be time to get out. In my experience in Brazil, the sales group just got huge in an effort to drive incremental sales, and it was simply too costly for the volume that was being achieved.
LESSON: Make sure your plan has an exit strategy, metrics and milestones from the start.
Understanding their perspectives and expectations
It’s very tempting to bring your own business practices, your own morality and set of values into your relationships with foreign partners. Often, the other parties are on a completely different page. It’s important to understand what those expectations are. I have a couple stories about that sort of thing.
Example: Spain Exit.
Coors was exiting the Spanish market and we had to sell the brewery there. This involved environmental mitigation for some waste that was in the soil. It would have been tempting to apply our American standards and processes to this, rather than look into what Spanish law required and the local regulations. But, if we would have taken the American approach we would have spent about three times as much money on our exit.
We learned that it really wasn’t necessary to apply the American standard. The Spanish didn’t expect it. They were happy with our work and we passed with flying colors. By using their standards, we spent only about 30% of what we could have spent.
LESSON: It’s not always necessary or desirable to apply the American standard.
Example: China - 4 Manufacturers in 5 Years.
In China, I went through four manufacturers in five years, because people kept getting purchased by others. And each time the expectations changed. First, it was a Danish company that owned the brewery where we were producing Coors products. Then it was a Chinese company; then a New Zealand company; and finally another Chinese company. Each owner brought different perspectives, strategies and quality standards to the process. It was very, very challenging to revisit all of these things every 15 months.
They would also bring in their own management. Everyone would leave, except one or two technical people that they wanted to retain, and that was it. So, we lost our relationships and had to re-build relationships from scratch.
What about the people strategy?
It’s really important to have oversight from your headquarters, and collaborate with trusted people on the ground that interface with the distributors or manufacturers.
Are there extra challenges for small companies?
I think successful market entry is particularly challenging for smaller companies. Without the scale, it’s really not very feasible to consider a capital investment, or certainly not a significant one. So you rely on other people to produce things and distribute them for you. But you may not be a priority, unless you have the scale to support a pretty significant part of their P&L. That’s a real challenge, because if their priorities shift, you may get left behind. So you need a lot of local counsel, support and a lot of really effective communication.
Example: I developed an incentive system for the contractors around cost-effectiveness and quality improvement. If they hit certain milestones, they got an extra bonus. If it went the other way and costs increased, we reaped the benefit. So we tried to have both penalties and incentives, so people would keep the brand top of mind.
How do you deliver a consistent brand and enforce quality standards abroad?
You need very clear mutual understanding of all your expectations around quality. Example: In the beer business you get into certain environments in which there are huge seasonal spikes. It’s extremely hot in Central and Eastern China in the summertime, so there’s a lot of beer consumed. If you’re using a contract manufacturer and you’re only 15 or 20% of their volume, and there’s this huge spike in demand and they can’t build capacity, they may either drive a lot of inventory before the season, or they may say, “Sorry, can’t make any beer for you right now.” And what are you going to do about that? You need a very clear understanding of expectations to avoid that sort of a pitfall.
LESSON: You have to be very diligent around the commitment of the people you work with and that you’re giving your brand to, to assure that they will comply with your needs and expectations.
Q: It makes the relationships all that much more important, doesn’t it?
A: Hugely important.
Does the local counsel really help to enforce contracts?
Yes. They also help you understand the local regulations. You might have legal staff here in the States with international experience, but things abroad change very quickly. Example: In China we changed legal counsel about every year, or added people, because regulations were changing so rapidly — and if you weren’t really dotting the i’s and crossing the t’s you could be at risk. And if you didn’t do it, the manufacturers that you were dealing with absolutely knew what the rules were.
Maybe they were creating the rules?
That can certainly be the case. And they would sometimes just say, “Sorry, you’re not in compliance anymore”. And if you’re not savvy enough to stay on top of it, that could be a BIG problem. This is a painful lesson, by the way, because we weren’t that good at it at first. We had to learn as we went.
How important is having a plan?
There’s an old adage that says “a great plan leads to great execution”. Planning really needs to be a huge part of a successful execution — more like 80/20 — and a lot of people tend to put more on the execution side. You really need to be tremendously prepared and spend the money upfront to know what you’re dealing with or things can fall down rapidly. A lot of very big companies with tremendous resources have lost a great deal of money in places like China, Brazil, Malaysia — all sorts of places.
What’s your favorite story about working internationally?
When I was engaged in a negotiation for a new producer we toured with the plant manager, the site they were going to produce at, and the conditions were some of the most deplorable that I’ve ever seen. The workers were not protected; there was no sense of security or sanctity about them. So I asked him, “What happens if one of your workers gets hurt?” And he said, “I get rid of them. I get another one.”
There was no OSHA, no sort of moral outrage; it was just a simple matter of this is what happens.
So over the next six months and several meetings, as we went through the process of building our contract, I was able to convince him, from an economic standpoint, that it made little sense to just get a new worker and it made a lot more sense, from an economic standpoint, to properly protect people from being hurt — to provide safety shoes and eye protection and hearing protection, gloves, and things of that nature. Really basic things that we would expect here in the U.S. Because it cost him more to train new people to replace the ones who had been hurt, rather than actually protecting them in the first place. And he loved that.
He was ready to go forward, but had I approached him from a “Oh no, we don’t do it this way in the U.S. You know, this is morally wrong.” He would have just said “We don’t want to do business with you, you’re a pain in the neck.” Or, we would have had to deal with this tremendous difficulty in trying to marry the two cultural views together over time. But luckily, the economic thing worked well for him. Once he realized he could make more money by sustaining and training and protecting those people.
LESSON: If I had done more talking than listening, and had arrived at this in a more forceful way, I doubt that he would have done business with us.
Any final thoughts on working internationally?
It’s great fun. There’s just so much to learn. People’s intentions are good most of the time, and they trust and believe. But you also need to be really diligent and scrupulous about what it is you’re trying to accomplish. You know, the starry-eyed thing is kind of dangerous. If it sounds too good, it probably is.
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| About Charlie Lang
Charles Lang is Founder & CEO of GLOBAL SUPPLY CHAIN SOLUTIONS. Most recently Lang was Vice President, Coors Brewing Worldwide Supply Chain for Coors Brewing Company, operating in 50 countries with annual revenues of $7B. At Coors, he was responsible for product supply, quality, customer service and cost for the $600M Worldwide division.
Lang has more than 23 years experience in the beverage, automotive and transportation industries, and has extensive experience in key aspects of leadership, global supply chain, financial management, cost savings, logistics, distribution, manufacturing, transportation, and employee development. He has worked with global beer companies such as Carlsberg, Lion-Nathan, FEMSA, Heineken and Palm.
Charles is experience in Mergers & Acquisitions, as well as large scale projects in China, Mexico, Brazil and throughout Europe. Previously, he served as an Operations Manager for Toyota Motor Corporation, where he gained familiarity with Kaizen.
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| Julie Williamson |
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| ABOUT JULIE WILLIAMSON
Julie has over 15 years of consulting experience, working both internationally and domestically to help clients in IT, business expansion, product development, and M&A activity.
Her international experience includes delivering work for clients in Europe, Australia, Japan, and Canada. She has been involved in launching new companies, mergers and acquisitions, and major IT systems implementations with a global reach. Julie works for the North Highland Company in Denver.
Julie Williamson is a Founding Member and a Board Member of the International Business Circle.
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DISCLAIMER
Because of the generality of this conversation, the information provided herein may not be applicable in all situations and should not be acted upon without specific advice based on particular situations.
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