Implementing a procurement function for Foodiq, a fast-growing start-up
Foodiq was founded in 2015, with a vision of transforming the global food system. Passionate about the power of plants and believing that plant-based food and local production are better for people and the environment, this Nordic start-up focused on building low-cost “mini-mills” (compact machining centers) and factories close to customer markets.
“There is not enough production capacity for plant-based products in the world. That means we can build a lot of factories,” says Jonas Palm, COO. After 25 years working in the consumer goods market, he is now preparing Foodiq for its next stage of growth. The start-up has one factory up-and-running in Finland and will have five more in multiple countries in the coming 24 months.
We talked to Jonas about leading a start-up, how procurement is an important part of growth, and how he’s overcoming current shortages on the supply market.
You are both an investor in Foodiq and its COO. What are the main challenges you are facing currently?
“My biggest challenge is to make things work today and tomorrow. Everyone wants start-ups and new innovation, but few want to change, to lead change, or to be flexible. And while many players want to be part of the global food system transformation, most of them cannot support us. For example, if I order 1,000 liters of enzymes, I get answers like, “You didn’t order that fifteen months ago.” No, I didn’t, because I didn’t exist fifteen months ago! Our suppliers are large companies, and their systems don’t always enable them to collaborate with us as a small, fast-growing company.
Other primary internal challenges include getting our operational systems working and retaining all our employees. We don’t yet have platforms installed that I feel really secure with. We have operational systems that are functioning but, so far, they are not running across multiple countries, although we are putting them in place right now. I also have to make sure that our people stay with us, because we depend heavily on the collective efforts of all of our employees.”
Efficio has supported Foodiq since last spring. What was your initial situation, and why did you seek external assistance of a procurement consultancy and service provider?
“Many people think about the glamourous side of start-ups – the opportunity and the cool products that they can generate. I need to think about everything that needs to be in place when we have five factories across multiple countries on two continents. I know that we have to apply a new ERP-system and start coordinating our purchases. However, because of our current small volumes, we won’t have much buying power in the near future. We are not in a position to dictate anything, so our company needs to be a professional partner and purchaser. That’s where Efficio comes in. Before we started working with Efficio, procurement was one person doing a little Excel and managing a few phone lists. So, what should I do? If I hire a senior purchasing officer to implement procurement on a large scale, I would be depending on one individual. Instead, I made a structural change and decided to seek expertise from the outside.”
As you said, Foodiq had no procurement department. What did you expect from Efficio?
“The goal is to create a proven platform based on Efficio’s extensive experience and methodology that gives us a full view over our suppliers and a strategy for procurement. This includes a strategy for primary and secondary suppliers with frame agreements on “A” suppliers. I think Efficio had to adopt a much more flexible model with us than with a more established company. Our business is travelling at warp speed, and there was no distinction between current state and future state, so we are very happy having Efficio to help us reach future state capabilities.”
Foodiq emphasizes a sustainable and, as far as possible, local supply chain. What does that mean for procurement?
“For certain items we purchase, there is just a single producer in China, meaning there is no way to get those items locally. However, we create other products for which we can buy ingredients globally and then distribute them regionally. For example, we depend on enzymes purchased from a company called IFF that makes them in three different locations around the world. When we need these enzymes for Sweden and Finland, they come from one branch, for the UK it is another, and in the US it is a third branch. But the three branches are owned by IFF, so we get a global frame agreement, and we do it locally in three different markets.
On the other hand, the oat-based products that we use will always be purchased from individual farmers and cooperatives, as close to each manufacturing facility as possible. Most of our beverages are comprised of water, oat, enzymes, salt, linseed fiber, and rapeseed oil. Other than the commonly used enzymes, the sourcing is very local.”
The global pandemic and the war in Ukraine had led to some supply chain crises. Do you have to deal with shortages?
“None of our suppliers have issues providing us with the volumes we need. But most of them cannot give us the priority to get them. Many of our key ingredients are affected by global shortages. In one instance, a potential supplier delivers according to order forecasts from twelve months ago, and they split the rest up – but they don’t take new customers. We didn’t place any orders twelve months ago, but we require volumes that are significant for us and our business.
The biggest challenge on the procurement side is potential shortages and how suppliers might react. In short, they react according to their books, and what I am seeking for my business means an exception to their methodologies to manage shortages. Logistics people do not like exceptions, and they generally don’t care about my small business. This summer, I communicated frequently on a global level with a large supplier to make sure that we become a top priority in the Nordic countries for purchasing its ingredients.”
What are the reasons for the shortages? Is it COVID-19, the war in Ukraine, or the boom of plant products?
“It is a bit of everything. It is a bit of COVID-19, and it’s also problems with certain components. We have important machines in our factories missing one electronic component that is not being currently shipped from Taiwan. So, the machines are installed, but they don’t run because that little chip has not arrived.
Sometimes, people cause shortages. Some more complex ingredients like enzymes have consistent multiples of other ingredients, and when components might be in short supply, people take precautions. If almost everyone is shifting from “just in time” to “just in case” at the same time, then there is an acting shortage. But then there is a massive over-supply the following quarter. It can feel like nobody is looking at the next quarter, they just see the here-and-now.”
How did you overcome these shortages?
“I am not sure if we have. Regarding the ingredients, we sometimes find new suppliers that produce almost the same or similar enough ones. We change the part of the ingredients that don’t have an impact on the final product. As for sourcing the enzymes, I started to influence colleagues and decision-makers at large suppliers by describing the background of Foodiq. I call them, e-mail them, and talk to them a lot. I am 99.9% sure that all ingredients' suppliers in the world have some kind of sustainability target supporting the food transformation. Where are they going to put it? They should support us. You may not actually make the decisions, but you are influencing suppliers to make the decision to become part of the global food transformation.”
Most companies also announce saving targets for procurement. Do you have a focus on savings?
“No, it is not a goal to increase my savings targets at this point in time. My targets are such that I am a trusted customer to my priority suppliers to get the right ingredients, at the right time, so that I can produce. If I can get lower prices in the future because of my size and the way we are working, I will be happy to take them. Actually, if I know that I could lower prices, that would be enough for me, because for the time being I don’t have to have the savings. I already have a structured profitability in what I am doing. Furthermore, I know that I have percentage points to gain by starting to negotiate prices, and that is a structural improvement that I – or someone who buys the company in the future – can implement to retain the value. But I will not risk the loyalty of the suppliers treating me fairly by starting to negotiate lower prices at this point.”
What is the position of procurement within the company? How is procurement seen by other functions?
“Until a few months ago, I did not have anyone in charge of procurement – just a couple of people running the day-to-day operations. However, I knew we had to build a program to get to where we want to be seven months from now. Since then, we have assigned a procurement manager with extensive Foodiq operations experience, having worked in our factories. He is now receiving training and best practice knowledge from Efficio and will be working closely with the Efficio consultants to build an effective, sustainable procurement framework that will expand with us. Through this partnership and close collaboration, we are able to develop fast a state-of-the-art procurement set-up for Foodiq.”
You are expecting a lot of growth in the upcoming two years. How does this expansion affect procurement?
“The procurement system that we are building and implementing is now much more advanced than we need today, but we’re creating one that will be effective as we grow to 20+ factories within next few years. One reason is that we will be seeking new investors that will want to ensure that our business is scalable as we expand to more global locations. When we have this discussion with potential investors in spring 2023, this functionality will be in place, and I will be able to demonstrate an operations platform for Foodiq that can expand into new markets with confidence, supported by Efficio’s procurement and supply chain expertise and credentials.”
How does the journey with Efficio continue?
“It’s very much ongoing. We are still implementing the system but, after that, we will then need to execute over a long period of time. I see this as a lasting partnership, and I trust Efficio to demonstrate the ongoing value-add provided to Foodiq as we execute our strategy together.”