Danone’s strategy to maintain production

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Danone's strategy to maintain production





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The French group has had to manage problems in supply chains, changing consumer tastes and increased production, without neglecting its 105,000 workers.

Before the coronavirus hit, Cyril Blanc used to visit small shops and bakeries in the Grenoble area promoting Danone products like Evian water and Activia yogurt. But the closings, as a result of the pandemic, have forced the seller to rely on the phone and email. Desperate to get out of confinement, Blanc volunteered to work at a nearby Danone warehouse that has struggled to meet consumer demand.

Danone employs 8,500 workers in France in thirteen factories, eight logistics centers and five offices, near the fields where it collects milk from 2,000 farmers every few days. Since the virus hit Danone’s Chinese operations in January, the food maker has adapted its plants to social distancing, stocked face masks, and expanded teleworking. A central crisis committee has led the response, applying the lessons learned in China to new countries where the pandemic has spread.

Aside from problems with supply chains, changing consumer demands and increased production, you also have to manage a staff of 105,000 nervous workers who are fighting their own emotions. While some are overworked, the opposite is happening to others and their spirits have waned.

To overcome the crisis, CEO Emmanuel Faber asked the company’s executive committee to change its approach. “We will operate in a radically abnormal and often deteriorated situation while the confinements last,” he warned. “Forget the three-year plan. It no longer exists. You have to think about the next 10 days, then the next month, and so on.”

Danone’s origins go back to the 1920s when its Spanish founder popularized yogurt among the French as a healthy product sold in small ceramic jars. Today, its annual sales of € 25 billion place it slightly ahead of Kraft Heinz and Mondelez, and the French government declared it a national strategic asset in 2005.

Responsibility

But in business circles, Danone has also been known as an exponent of “responsible capitalism” since 1968, when the then CEO established a double commitment to business and social progress.

In mid-March, Faber announced that the group would guarantee the contracts and wages of all employees until June 30. Health care and child care programs would be expanded, and a € 250 million fund would be created to help fragile providers. Factory and warehouse workers would receive an extra 1,000 euros. “We cannot continue to supply our clients and our consumers if our personnel do not feel absolutely safe at work and have guarantees about their jobs,” he said.

The day after the announcement, and 10 after starting the confinement in France, Faber left his apartment in Paris at 7 am, and for the next 14 hours he traveled 600 kilometers to check the situation of employees and operations . “It is important to me that there are not two companies, one working from home and the other in the workplace,” he said. “I wanted to show that Danone stays together.”

Many factories were restructuring production to address the change in consumer demand. People were opting for larger formats and Danone had increased the production of yogurts in packs of 16 units and had reduced the production of the format of four.

The closure of cafes and bars caused sales of small water bottles to collapse. Demand for eight-liter jugs from Evian and Volvic had skyrocketed, and Danone donated the unsold 30-milliliter bottles to companies that made hand sanitizers to fight Covid-19.

Factory work had also been disrupted by measures of social distancing. The staff of each factory was divided into two teams with alternate shifts so that they never coincided. The dining rooms and locker rooms were rearranged to maintain at least two meters of distance between each person. And production lines that were too close together were closed.

No one from outside was allowed in, complicating the situation for truckers who picked up and dropped off goods and supplies. At some points, Danone installed temporary bungalows in the parking lots so that truckers could shower and have coffee without entering the factory.

Tensions

As confinements continued in France, tensions in Danone’s operations increased. Employees of a warehouse near Paris complained that they did not have enough masks.

Absenteeism grew to 20% in some places, according to unions. Half of the team responsible for maintenance in a factory had to be quarantined when one of them became ill, and a support team was dispatched from another location. At the Evian bottling plant in the French Alps, trains that normally picked up finished products stopped operating due to problems with the national rail operator. Danone had to hire trucks, which have higher costs.

In exchange for the guarantees and extras for the staff announced by Faber, the management team wanted to be able to relocate the workers, demand overtime and force people who did not have enough work to take vacation days during confinement.

Unions reacted, eventually convincing Danone to create online training programs for unemployed employees, to deprive them of fewer vacation days. But only two of the company’s four unions signed the agreement. Those who did not had asked Danone to suppress the dividend. If employees had to make sacrifices, so should shareholders.

Despite the adaptation measures taken in recent weeks, the end of the road is not seen. With the countries still under confinement, Danone postponed the decision on the payment of dividends last week and ruled out making profit forecasts.

Although last week he assured that the company had benefited from the increase in sales during the first quarter in Europe and North America, Danone acknowledged that it was “unable to predict” how Covid-19 will affect its ability to supply the products and meet demand.

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