Diageo Australia – benchmarking itself against the best

Increasingly, Australian manufacturing operations are going to have to compete globally. For Diageo Australia this is not a problem, because when it compares itself with the rest of the world it ranks very well. Matt McDonald reports.

When optimists look decades into the future they see Australia with a solid manufacturing sector. They see effective, innovative businesses that use their expertise to make products that the world wants.

So what needs to be done to make this glass half full vision a reality?

“I think one thing that’s really important is to benchmark ourselves globally as a country,” David Cutter, President, Global Supply & Procurement at global beverage alcohol maker Diageo told Manufacturers’ Monthly.

Diageo produces several well-known brands, including Johnnie Walker, Smirnoff, Guinness, and Bundaberg Rum.

Cutter (pictured below at right) has a worthwhile perspective on this country’s manufacturing sector. An Australian, he has spent the last ten years working overseas and is now based in Edinburgh with Diageo.

And he comes across as one of those optimists.

“If I think of the business here [Diageo] or any of the previous other Australian organisations I’ve worked for, when you have a mindset that operations or manufacturing is a privilege not a right that then allows you to make sure you focus and deliver on a global scale,” Cutter added.

He said if Australian businesses drive themselves against global KPIs they have a good chance to be successful.

“When they don’t I think that opens up the opportunity to move local operations and manufacturing out to other parts of the world.”

So that’s what Diageo does. It measures its Australian operations against global KPIs. And when it does, Cutter said, it ranks in the top ten sites globally in terms of overall performance.

“[Diageo Australia] is very strong in what we would call our planning environment – sales and operations planning. It runs a very efficient process here,” he said.

“It’s a highly integrated, highly effective logistics organisation.”

He added that the Australian business is also strong in the area of innovation.

“Australia would be one of the benchmarks particularly around ready to drink launches and ready to drink development,” he said.

Given these strengths, Cutter predicted that the Australian business could do better than the top ten. It could move into Diageo’s top five or even top three sites globally.

Cutter was recently back in Australia to open Diageo Australia’s new warehouse in Sydney’s western suburbs.

The facility, which sits alongside Diageo Australia’s primary manufacturing site in Huntingwood, has the capacity to store 26,000 pallets of Diageo’s products – the equivalent of 22 million bottles of Australia’s favourite Bundaberg Rum.

It is hoped the warehouse will improve the company’s efficiency. Diageo wants to consolidate the number of warehouse facilities it has around the country. The aim is to go from five to three and possibly even down to two in the future.

“The opportunity I see for this facility is to continue to drive down costs, continue to utilise the facility the team has put in here, which may open up the opportunity for exports as well as further growth out of the Australian market,” said Cutter.

He pointed out that Asia could become a significant export market. It is a region in which the emergence of the middle classes, particularly in China and India, “will see over 600 million legal drinking age consumers over the next ten years”.

“My view is the Australian market can play a role because it’s very cost competitive,” Cutter said.

“Clearly the logistics cost of shipping out of Australia is tough but if you can be a highly performing organisation here you can source materials locally and competitively, you can have competitive labour rates I think Australia has an opportunity to satisfy the growth within China and India…as well as other Asian countries.”

Environmental responsibility is also a key focus for Diageo.

Prior to building the new warehouse, Diageo stored most of its inventory at a third party facility.

With the new warehouse now collocated with its manufacturing facility, Diageo Australia will reduce its carbon emissions by 110 metric tonnes of carbon dioxide annually – the equivalent of taking 35 standard passenger vehicles off the road every year.

This carbon reduction will contribute to Diageo’s 2020 target of reducing absolute greenhouse gas emissions from direct operations by 50 per cent, plus 30 per cent across its total supply chain.

“We think we have a huge opportunity to have a positive impact from an environmental perspective,” said Cutter.

He pointed out that, globally, Diageo has also worked on improving other aspects of its environmental performance. Water is one example.

He said that when he left Australia ten years ago the Diageo site was water stressed, (as was the state of NSW). “And a lot of great work was done at this site in terms of reducing water usage,” he said.

Tying it back to the all-important global KPIs he added that Diageo Australia’s performance on water efficiency and environmental impact are now “right up there as some of the best we have globally”.