Arla procurement with focus on the company

Arla Foods Procurement handles procurement totalling 3.6 billion Euro, across 1.600 supplier agreements. Quality, volume, Code of Conduct, and certifications are key when entering into new procurement agreements, Steen Hedegaard Madsen says , Senior Vice President.

Arla Foods is the world’s seventh largest dairy with an annual turnover of just under 10.7 billion Euro. As a cooperative, the bulk of the turnover lands in the farmers’ pockets, with around one third being spent on procurement of energy, packaging, ingredients, mechanical equipment, logistics, and other services – basically, distributed by one fifth in each category.

Spearheading these procurement activities is Steen Hedegaard Madsen, Senior Vice President Procurement, with his 120 employees. About half of the staff are based at the group headquarters at Sønderhøj, Viby, close to Aarhus, 20 employees handle various back-up functions are in Poland – and the remainder of the staff are distributed over the countries where Arla Foods has production, i.e., the majority in Sweden, the UK, and Germany. Add to this, five employees located at the Hong Kong office which handles large proportions of the procurement in China. In fact, Arla Procurement has the primary responsibility for the 1.600 procurement contracts currently existing in Arla Foods.

Procurement must match vendor requirements

The boss holds a dairy engineer degree from 1993. This means that he has had hands-on experience relative to both cheese vats and most piping and mechanical equipment of the primary production. And although he has primarily worked with logistics and procurement in his Arla Foods career, it remains a relevant prerequisite for functioning optimally in procurement that you are professionally well-equipped when entering into multimillion-Euro contracts. Therefore, it applies to everyone with procurement responsibility that you must be either directly trained within a field or have relevant hands-on experience. - We are negotiating with professional vendors. Therefore, it is important that we can match their knowledge and mindset when attempting to obtain the best quality for as little of the farmers’ money as possible, Steen Hedegaard Madsen explains. At the same time, he underscores that Arla Foods’ procurement is more complex than just price and quality. In fact, quite a few requirements need to be met to be the perfect Arla Foods business partner.

Size and certification are key

- Of course, size and volume are always important. Being a large company, we must obtain the economies of scale, and we expect the same from our suppliers. They must be able to scale up deliveries and preferably fit into an international setup, thereby facilitating that we can relocate our production to the optimal production site. If possible, we try to streamline all procurement applying joint standardizations, the Procurement Manager reiterates. Furthermore, several certification requirements must be satisfied in order that Arla Foods can be assured that all technical and food safety requirements are met. It is vitally important that the consumers feel totally safe when purchasing an Arla Foods product. - Add to this, all the soft and ethical values such as sustainability, social responsibility, and fair and equal working conditions – aspects we require documented in a ‘Code of Conduct’ contract. When it comes to packaging and ingredients, we are responsible for performing audits, whereas other factors require external certification, Steen Hedegaard Madsen underlines. Finally, Arla Foods also expects suppliers to be able to document that they are in the forefront when it comes to development and innovative solutions – indicating that the Arla Foods group of companies continues to be at the cutting edge of modern food production.

Local versus global focus

With 60 production sites distributed across many countries, Procurement often experiences that local desires deviate from core requirements. Or in other words – the issue may be that a dairy manager is of the opinion that he has a better local offer than the one that was centrally negotiated. - When this happens, we naturally take it up with the relevant dairy to see whether the advantages connected with the specific product are bigger than the disadvantages involved in welcoming another supplier into the fold. Because this implies additional costs every time, we have to establish a new supplier, we must target the interests of the Arla Foods group of companies rather than those of the individual dairy. At the same time, it is vital to know and understand the requirements of the individual dairy. Therefore, Arla Foods has established both formal and informal fora with the objective of discussing requirements and new products across different product categories. - Fortunately, I experience a high degree of mutual respect between Procurement and the local dairies. This contributes to us reaching the solutions that are best for the entire Arla Foods group of companies and for the individual dairy, he reiterates.

Space allowed for the small players

Although the head of procurement acknowledges that, in line with increased international business, the Arla Foods group of companies has moved towards a tighter centralization of procurement with comparable large-scale business partners, he is still of the opinion that small-scale suppliers have the possibility of coming into play. - However, this is often the case with subcontractors to our main partners, he continues. It requires a lot of work to enter into the good graces of Arla Foods, the reason being that turnover is scarce among the core suppliers of which about 90 percent have remained stable partners over many years.

To the question of whom to contact in Arla Foods, in case a fictitious pump producer had developed a brilliant product, Steen Hedegaard Madsen replies, - Procurement has a category manager to contact in that case; furthermore, our Innovation Centre has specific focus on new suppliers and novel technologies, the manager says at the end of the interview.

CV - Steen Hedegaard Madsen, Senior Vice President, Arla Foods

2007 Senior Vice President – Procurement, Arla Foods 2004 Logistics Director, Arla Foods, Global Milk Supply and Technical Services, Viby 2000 Logistics Manager, Arla Foods, Division Denmark, Vejle 1999 Logistics and Transport Manager, Arla Foods, Division Denmark, Vejle 1999 Project Manager, MD Foods Domestic Division, Aarhus 1997 Production Manager, Kløver Mælk, Fredericia 1994 Dairy Manager, Enigheden A/S, Aarhus 1993 Laboratory Manager, Kløver Mælk Arinco Dept., Videbæk

Procurement is categorized and organizationally embedded in Supply Chain, where Steen Hedegaard Madsen refers to David Boulanger, Executive Vice President, Chief Supply Chain Officer (CSO)