Danish biotechnology company Novozymes is a leader in the research, development and production of industrial enzymes, microorganisms and biopharmaceutical ingredients.
With operations all over the world, and sourcing offices in Denmark, North America and China, its supply chain is exposed to a huge scope of complex challenges, across categories of spend including agriculture, chemicals, and enzymes, among others.
Here, Procurement Leaders speaks to CPO Lene Aabo-Bjerregaard about some of those complexities, and what she and her team are doing to manage them.
PL: We are in the middle of a period of rampant inflation, what are you doing differently to manage this environment?
LA-B: Many things. We are proactively communicating with top management to provide a heads-up in terms of financial target planning and support for action planning – both in terms of macro updates and raw-material price impacts.
We collaborate closely with our commercial sales and marketing teams to provide insight and justification for potential price adjustments to customers.
We are working cross-functionally, in terms of productivity and cost-optimisation opportunities – this can include substituting materials, alternative formulations, lowering dosages, regional arbitrage, reducing inventories and shifting production to less affected regions, where applicable and possible.
We are also doing more cost breakdowns of material prices, which although usual in negotiations, are even more important in the current environment to verify and understand what drives price impact and what optimiation/negotiations levers are available.
Finally, we work extremely closely with suppliers to reduce the impact of inflation.
What methods are you using to ensure security of supply?
Since 2019, we have been using an in-house material-risk categorisation tool, where we run all our direct materials through the model twice a year to identify high-risk materials. The models are based on seven different parameters, with different weights depending on the classification of risk level.
The parameters can be adjusted to reflect what drives a risk of supply, for example:
- Impact on turnover
- Number of approved suppliers for the given material
- Availability of suppliers in the market
- Contract coverage
- Planned lead time
- Process complexity
- Supply/demand situation
- Regulatory-compliance complexity
- Financial stability of supplier
- Whether a supplier contingency plan is in place
- Risk assessments beyond tier 1
- Sub-tier risk level
- Supplier partnership level
In addition to the tool, we are putting in place risk mitigation plans for high-risk materials that are reviewed upon each run of the risk identification; we are sourcing regionally (nearsourcing) rather than globally for some critical materials and employing methods such as holding safety-stock levels, alternative formulations, approval of alternate suppliers, alternate production plants, material substitution, and so on.
How important are supplier relationships to you achieving your goals, especially during times of crisis? And why?
Supplier relationship management has been key for Novozymes in terms of securing continuous supply. Developing strategic relationships and ensuring partnerships with key suppliers was, to a large extent the most efficient mitigation lever, during Covid, and, to a large extent, this allowed Novozymes to be a preferred supplier. These partnerships are key whether we are talking about security of supply, supplier innovation for growth or supplier collaboration for cost optimization or delivering on our sustainability ambition.
What new capabilities are you looking to develop in your team to help you navigate this period of volatility?
First, we have been focused on strengthening the market understanding and commodity insight and analytics expertise of our teams over recent years. Digital capabilities, in terms of ensuring agility and speed in creating transparency on impact and insight, are also key.
Finally, communication skills – how we convey and target our story to the individual stakeholder groups based on their needs – are critical, as are more traditional project management capabilities.