Velkommen til Lørn.Tech - en læringsdugnad om teknologi og samfunn med Silvija Seres og venner. 

Silvija Seres: Hello and welcome to this Lørn series with BI about sustainability and cooperative strategies. My name is Silvija Seres and today I host Lars Huemer from BI and Knut Øksby from Millum. The theme for this case is sustainability driven strategies and new supply networks. We will discuss, among other things, the success of Millum and also the challenges of building platforms with cooperative strategies and perhaps some ideas for solutions. Welcome to you as well, Knut and Lars.

Knut Øksby: Thank you.

Lars Huemer: Thank you. 

Silvija: So I will ask you to introduce yourselves in a second. But before we do that, Lars, could you say very briefly, why are we talking about cooperative strategies and sustainability?

Lars: We're talking about cooperative strategy and sustainability because I think they are very closely linked. If we want to succeed with being sustainable and the sustainability goals, cooperation, collaboration, working together will be key.

Silvija: I got very curious and fascinated actually with this series after our initial briefing Lars. And one of the things that keeps popping up in my mind is rethink strategy. You're a strategy guy and you have noticed how sustainability and sustainable business of the future requires a new way of thinking strategy. And so we are going to go through a very concrete case here of Millum with both its success so far and its challenges going forward. Would you please tell us a little bit about who are you? And we can start with Lars and then go to Knut.

Lars: I'm working as a professor at the Department of Strategy and Entrepreneurship at BI Norwegian Business School. I've been at BI for quite some time. My teaching is essentially based on the executive programs that we have. And in terms of research, the say quick and dirty answer would be it has been a focus on cooperative strategy and also trust. I wrote my PhD on trust and business relationships in 1998, so trying to understand and learn more about cooperative, collaborative arrangements and how to co-create value in various types of settings and have been with me all the time. And that has been my way into the sustainability world as well.

Silvija: Very cool. And you Knut?

Knut: My name is Knut. I have a master of law and I started working as a lawyer or somewhere in that field. And then I got into the entrepreneurial business and started up a company in early 2000 and have been working as an entrepreneur with startups ever since. And Millum is my first adoption. It has been 20 years of endurance. So it's my baby.

Silvija: Your longest or your biggest baby?

Knut: The longest, at least. And in all fairness, the only that has succeeded.

Silvija: But I think what I've learned about entrepreneurship through trying to be an entrepreneur with lørn, is that I had lots and lots of opinions while I was just an investor or a board member. But now being an entrepreneur, I see one of the biggest signs of a sustainable entrepreneurial endeavor is the ability to survive for long enough. So we'll get there.

Knut: Thanks. I do agree.

Silvija: Tell us about Millum. Let's start there. We like to have a picture and a scene for the abstract concepts we are going to discuss. What is your company?

Knut: So our company is an e-commerce platform that basically handles the procurement for the big chains on the buying side after they have gone through their negotiation and gotten all their frame agreements on board. We kind of publicize those frame agreements out to their different buyers or people that are in position to set orders on the already existing frame agreements. And we kind of surveil those frame agreements over a period of time like one to two years. So basically when Choice the hotel chain is doing a frame agreement, they normally do as they do in a lot of others in that type of food and beverage industry. They have a frame agreement which is from 12 to 24 months of age and then they have all these different price elements to surveil that. So that post contractual phase of a contract if you like, that's what we started off with.  So we kind of took and handled the gray material that starts after all the fun stuff is over, you know, where you have all the fancy negotiation and actually operationalized the procurement process. So you can actually move it from a theoretical savings to an actual savings. And that has been our starting point. Basically we have more than 90 different buying chains in Norway, Sweden and one in Denmark. And then about 400 to 450 wholesalers and producers. We trade about 35% of all the procurement in the Norwegian hospitality industry and significantly less in Sweden and then marginally in Denmark, but a total of about 10 billion NOK. And it kind of involves 15,000 simultaneous uses throughout that kind of segment or market, if you like.

Silvija: Just to understand, let's say Norgesgruppen needs to buy some more flour?

Knut: They would be on the selling side. So this is typically the hotel chains, the restaurant chain etcetera. Norges gruppen is definitely one of our biggest customers on the seller side, so they do have a lot of trade coming from our network. But what we achieved by putting Millum as a neutral and independent player in that supply chain was that we actually were able to give the buyer side the opportunity to have a technology that was not owned by the seller side or a group of sellers, making it much more easy than to actually change from one wholesaler to another. That would be a totally different picture if it was Norges gruppens solution. Then you would have a tech change in addition to a lot of other stuff when you changed to another wholesaler. It has a lot to do with making a safe, neutral and independent position in the supply chains to avoid tech coming as a part of the power game that we will definitely talk about during our session. Which is constantly and very much under the radar for a lot of the people that are on the buying side or on the selling side until they get into the mix where you can see it's a bit more rough than you would normally anticipate when you just go to a hotel.

Silvija: I have to paint a picture so that people can imagine basically your business. So I'm a little hotel, let's say I'm the Lampeland hotel where I slept last night. And I need to buy groceries for my kitchen. So I would go to Millum and on Millum, I would decide which wholesaler can give me the monthly package that I need at the moment. Is that the right picture?

Knut: It gets maybe a bit too detailed, but normally this solution will match the bigger entities on the buying side. Otherwise if Lampeland hotel called me I would maybe recommend them to go to a society or a procurement company or go to NHO, which has their own procurement team that you as a member of, we could piggyback on. And NHO is using our solution. So basically we are not negotiating any prices on products and we are not letting any on the seller  side come into our solution unless they already have an agreement with the buyer side.

Silvija: So I would then become a member of, let's say NHO tourism or whatever they are called. And then I would use their procurement access on your platform to get my goods from the chosen wholesaler.

Knut: From the chosen wholesaler who produces based on what NHO has achieved in their negotiation with those entities.

Silvija: Right. So this is sustainable or more sustainable than the preexisting solution because of what Lars? Where's the sustainability in this?

Lars: I think I would like to let Knut sort of slowly, if that's okay, come into that, because there's an interesting journey within Millum, where sustainability gradually has been embedded in that platform. Would you agree, Knut?

Knut: Yes, humbly. And that's why I started off with that kind of the gray material, but it's still a very cooperative achievement I would say. We were able to get all these competitors in the horeca segment, all the different personal restaurants, all the restaurant chains, all the different hotel chains, more or less all of them to be able to be on the same technology but with different frame agreements. Different terms in terms of pricing and stuff like that. We have both Choice and Scandic buying meat, beverages, flour or vegetables on our platform. But they have different frame agreements and they have different prices. I don't know the prices, but the point is that we were able, because it's not that controversial, to have a procurement platform that now has become a network for the segment. Now we have more than 50% of the subjects and more than 35% of the actual volumes of operational costs of procurement on that platform. And we were able to do that because we can cooperate on these things, but we will not go in and we will not trade on behalf of you or we will not go in and do the controversial stuff.

Lars: You managed to make competitors collaborate in certain parts of the segment.

Knut: Of course where it's not that critical. That's why I think Lars has a very good point when he says that co-operative strategies and sustainability are very linked together. Because the first thing that started is typically that all the hotel chains and restaurants chains went and tried to prevent the government making a new law in regards to the amount of salt, sugar and fat in the content. Especially they wanted to avoid that the government made a law against food waste, which they did in France. And then by doing that, they committed to do certain things. And one of the things that they agreed upon was that a good place to start is on that network where you already have that technology. There's hundreds of different small tech firms trying to come in and we can handle food waste, we can handle nutrition, or we can handle this and that. And they say, Oh God, can we put it in one system? And we can kind of turn the data from the procurement to the what's in the warehouses to what's thrown and kind of turn that all together in one system. And we did.

Lars: So I think back to your question, Silvia, what is sustainable about this? My take on it would be that Knut managed to identify a space where cooperation was possible and feasible. He joined that with a technical solution and therefore made natural competitors collaborate in parts of this. It doesn't by definition, imply that things will get more sustainable, but you're in a better position.

Silvija: Two things I'm thinking about. One is the sustainability goal number 17 about collaboration, which we've talked about previously at the heart of all the other, you can't get the other 16 SDGs or ESGs unless you actually manage to do this collaboration thing. So you make it smart and easy for people to collaborate. And then the other thing I'm thinking is eventually this leads to better quality products, less waste, and also a better competitiveness for the buyers, because you have kind of provided them with some pricing insights as well, which they wouldn't have otherwise.

Knut: I think that if we are able to kind of move sustainability from a corporate advantage, to say this has to be placed on a higher shelf, there has to be an understanding that the industry as such needs commonly to address a thing. They did with food waste. They committed to reduce salt, sugar and fat on their guests. And there's all of these kinds of settlements where the only way we can measure it and we can also put into the quotation here that we can mark different products with different symbols. Like we are here in  Arendalsuka now together with fact lines, with the new transparency law. And the point then is that we have been addressing that issue for four years in the solution by putting up symbols on the product line or the produce that they're actually doing the surveys needed to be transparent. And it's been a stalemate for four years, of course with COVID as well. But we have the technology and we can fit that directly on one specific order line that will go into your basket and then will be a procurement. And at the same time, we have CO2 equivalent calculation in the menu bank. So you can know this is what this menu will cost, this is what the allergies are aggregated, this is what the nutrition's are aggregated and this is the CO2 equivalent aggregated. And then of course on top of that you can then take out animal protein or you can change red meat to white meat and then you will see initially that you have optimized that dish. And by doing that, you truly create CR. And you do that on behalf of not one and one, but you do it on behalf of a segment. And of course the cost of actually operationalized CR then will be a fragment of what you normally would have.

Silvija: So what I understand you say then is that the same way as MasterCard has a unique window into insights about our financial transactions or Miljødirektoratet is working very much on their miljødata platform to understand everything from the situation of our forests and satellite pictures to the importance of endangered species, etc. You have the opportunity to aggregate data on both pricing but also contents and quality of fast moving consumer goods related to the horeca market. And therefore you can optimize that market in very sustainable ways.

Knut: Yeah, of course. And it's quite interesting to see that all our customers on the buyer side feel a corporate responsibility. And it's getting harder and tougher all the time, but it has been a competitive advantage and they want to look good, but it has also been a lot paired with their businesses that they have less hot water, less cleaning, smaller plates. It has been hammering a bit on the customer experience. And at the same time they have the millennials coming in demanding and asking questions regarding where is this meat coming from etc. I mean, all those different things. And our intention is not to be anything but a facilitator, by using tech we can address all this. We are facilitating. But what we can do is that we can operationalize not only the trade, but also operationalize to a large extent the regulations as we've done, for instance, with food information that came in 2014. We actually operationalized Article nine in the food regulation and put that into our system as system data. So you can actually do, as I said earlier, aggregate information. When you go from buying something in a shop where you have a declaration on the package, to a new meal which maybe consists of 25 or 30 different items, which has become a new product, which is a meal, and then you can actually have that information follow all the way through.

Silvija: You can be the authoritative certifier or guarantee body for both the regulatory aspects, but also quality aspects.

Knut: I wouldn't take that hat on. I would say that I will facilitate the transportation of regulated information through the process. We will never go in and do any editing, we will never take on anything like that. But we will facilitate so you can actually come in not being a customer from earlier, come into our system and you will have a tick on a lot of these boxes by using the system.

Lars: Knut I've got two claims and I'm curious about how you will react to them. One would be that I suggest that the reason for your success is something you mentioned earlier, the neutral technology with an emphasis on being neutral, and then your work on transparency. So neutral technology and transparency has, I would guess, greatly influenced the success. And the other claim would be that; if you look at the way you work, I think a good combination is a supply chain manager who understands strategy or a strategist to understand the supply chain. When you combine these, you see the bigger picture.

Knut: Yeah, you do. But my experience is that we see the big picture, we see the facility effects, the external network effects, but it's a lot of porters. But you need more mentality in our client base as well.

Lars: That takes us to some of the challenges that you also have experienced.

Knut: I think one of the biggest challenges that you normally will have in any startup and in any business, is that you're never fully able to understand the counterforce that will come as a consequence of you having a minor success. You will have setbacks and you will have new activities posted against you to try to take you out. And paradoxically, I have examples. I went to Australia and wanted to reinvent the supply chain of the wine industry there, on invitation from the biggest winemaker. Which were massive and significant in volume. We had the actual cost for these different, big types of 5000 employees companies etc. And we kind of wanted to merge their value chains into one supply chain where we can utilize the assets on behalf of them. So you said that everybody had a rest capacity in the warehouse of 30 or 40%, that we can actually utilize all of that and we can make them all more prosperous. We would save or create massive amounts of value on behalf of a significant amount of winemakers and still the founding entities said no, because there was a change of hearts that would change the management and their mentality was back to the jungle. I bleed, you bleed more. We have now been able to build the coolest supply chain by the Norwegian experts, and we can now use that as a weapon to actually kill our neighbors. Because I have a bit of an Australian accent as well.

Lars: My understanding of what happened in Australia which also partly happened in the Nordics was that, what you wanted to do was better resource utilization, which is about sustainability, better utilization of warehouses, better utilization of trucks and so forth and so on.

Knut: I have to address it. We measured Swedish line haul transport and in capacity booked or capacity spoken they seemingly had three times more transport than the capacity. And the actual measurement showed that they transported about 50% air. And everybody would say; what? What's happening? If you go into any transport company today, you will say that I would like to have one pallet transported and then you would like to have two or three pallets  transported and suddenly they say to you that it would be better for you to buy a whole lorry because three pallets equals to a full lorry. Okay, I have a full lorry, but you only use 35% of that capacity and that was filled with additional pallets. But at the same time they are not efficient enough and they compete with the other transport companies. So it's just a nightmare and it's just absurd.

Silvija: Again, going back to the picture. So this for me is a very good picture of an area where it's very natural for these competitors to collaborate. So we are going into this compete, collaborate, compete, collaborate, dance that Lars is talking about.

Lars: In theory, it should be like that. Then there's a nice article in Harvard Business Review, I think it's from 1997 by Fisher, and the title of that article is; What is the best supply chain for your product? If we carefully analyze that title, we can see that the focus is on a physical product, so the product owner or the retailer. And then we have designed our thinking around the physical product. And you think about that I want the supply chain that is best for my product. That's a reasonable opinion from a production point of view. You build a supply chain and you try to create trust within that supply chain. What Knut has been trying to do is to build trust between supply chains, creating a supply network. And that's basically what logistics service providers do. They  try to consolidate a number of flows into a network setting. But then, as you mentioned, Silvija, then you need to have some space, some area in that supply system where you can find a collaborative mindset. But if you're too competitively oriented, you will maybe destroy that network ambition and just focus on what's best for your system. And then you end up under utilizing lots of logistical resources.

Silvija:  Can I just back up one second? Lars I need some help, what is the difference between the supply chain and the supply network? Can you please help us with that?

Lars: So in this way, a supply chain would be, say one importer of wine. And how this importer sources its wine from a producer somewhere in the world and ends up at the retailer, vinmonopolet. And if you want to have full control, you will make sure that your products are transported in a very sort of embedded, predictable way. And that you have control of all these phases. Now, if you want to make a supply network. Then you will try to make many importers join so that they will fill the trucks, they will utilize the warehouses in a better way. So the importers will see their own supply chain, but Knut will see the entire network and try to sort of provide synergies between these chains.

Knut: As you are well aware of and have been kind of haunting the fast moving consumer goods arenas around the world for the last two or three decades, started off maybe with WalMart. But basically it's importer value chain logic that you kind of move from your power situation. You build a power base and then you move up or down streams and you kind of take as much as you can. And the point is that that type of logic also exists in parts, for instance, of logistics. So in terms of shipping, you had 20 or 30 years ago, the Norwegian shipping lines had offices in Melbourne, but then the freight forwarders came in and the freight forwarders, they went around to each of these winemakers and said could you give us your mandate? And I will consolidate that into a massive buying power towards the shipping lines and we will get a better deal. And the point then came that they pushed the shipping lines out, absolutely out, pressed the margins out and stood with DHL and DB Schenker and those entities owning Manchester United and sponsoring Formula One. They made heaps and tons of money by going in and using that consolidated power, to some extent to the benefit of the winemakers. Only as long as there's multiple networks. Then they get to go over the burden of being an actual oligopoly, and then they start to increase the prices. And that's where we came in as a transparent, neutral and independent structure. Even though a freight forwarder is not owning their own ship they have the shipping lines by the neck and are dictating to all practicality so that they actually own the supply chain. Because they've made the shipping line slaves. And then by kind of disrupting that and that of course needs tech and some mandates. That's why we kind of cried in our bed for a week when that kind of imploded. But the potential of unwinding those power structures by using tech, using the same technique, if you like, but then base it on transparency and trust. I give you a reduced price, but you don't actually know the price I'm buying it for, which is the fact for the freight forwarder. They give you one dollar less than the market price for a 40 foot container and you will take it. But you have actually given away your biggest assets and that is your buying power, which is not big enough, isolated. But if you consolidate it in another way, you would have a much better position. And of course then you will live with the market fluctuations and stuff like that. But you wouldn't have the biggest container ship going belly up four years ago, you wouldn't have that instability. And I think I still think it's and we've shown it. It's a massive saving and increase in income of the actual value maker in the value chain. So it's itching in my fingers to readdress that actually.

Lars: It's very hard to make others see the bigger picture. And you have really different business models, different logics of how and where value is created, that need to be sort of synthesized.

Knut: But I think it's quite interesting when we talk about sustainability or if we talk about corporate strategies. I think that the lack of understanding of that power game in the supply chains, it's total. I mean, if you go to the Norwegian competitive authorities or if you go to the average man in the street wondering why groceries go up and down, and you can see that those consolidations have been ongoing for so many years that they have become oligopolies. And when they are oligopolies, they can start to address the market and define what you're getting, to what quality and to what price. It's common knowledge. They've done that by consolidating the supply chain, not by being a retailer, wholesaler and a producer. Which are common now for all the grocery players in the whole wide world. If you go to Wall-Mart, the biggest cola sales are Wall-Mart Cola. And if you go to Aldis in the UK, the biggest red wine is Aldis' best. And if you go to Norway, I'm sure that you will find some interesting calculations on jam and different types of products. It's been a bloodbath for the last 20 years and they've just been good enough to see that the end customers are not getting an increase at least. And then the competitive authority says, well, it's good for the citizens and everybody shopping for food in Norway knows that's not a fact. It sucks if I am allowed to say that.

Silvija: So I have noted a few phrases that I think I would like to repeat for the students, because I think they capture what we are talking about really well. Knut, you talked about unwinding power structures and the established incumbents in supply chains and supply networks. That has consolidated very much of their control over those supply networks and thereby become sort of oligopolies that can then be market makers. This doesn't really lead to efficient competition or efficient pricing for the end users.

Knut: Can I give you one example of that? I know I talk a lot, but we in Millum,  together with Innovation Norway and UK Chamber of Commerce and the Norwegian German Trade Chamber, have done surveys in different countries. And it's quite interesting if you look to Finland for instance, because in Norway we've been here for 20 years, you will see none of the big players on the seller side, like the wholesalers owning much of the hotel or restaurant or catering industry. They have some pizza shops and they have kiosks and petrol station shops like Deli De Luca etc. You can find them there. Reitan gruppen and Norges gruppen they are taking that. But they haven't established themselves in the horeca segment. But if you look to Finland, then you will see that the biggest wholesaler, the biggest retailer for groceries, also the biggest hotel franchise and all of that. And it's kind of because they have moved up in the value chain and they kind of moved all different directions. And what's interesting maybe in Norway, which not too many know either, is that the biggest wholesaler has a procurement pool like NHO has, like Noris has that is trading on behalf of the buy side in the horeca segment, but it's owned by Norges gruppen. It is in competition with different other independent NHO and Noris and it's called Konsum gruppen. And it's quite interesting to say that that's maybe a way that they have broken through and gone up in the value chain. So they're not owning the entities, but they're owning their procurement or getting their procurement. And of course, they can create quite good competitive pricing structures in that structure. I'm just saying that this is the economic law that moves. It's not illegal and it's good for business and stuff like that. But neutral and independent kind of creates something that these entities not necessarily do, but they do a lot of great  things as well. So I wouldn't hammer Norgesgruppen for doing those things. But it's interesting. They own it first 40% and now they own 100%, but they move in that. They are extremely strategic when it comes to moving up and down in the value chain, which they should until they're not allowed anymore.

Silvija: In the interests of our format and time, I need to ask Lars to do a strategic summary. So if you would like your students, Lars, to pick up a couple of ideas from what we talked about, what would you like them to think back on?

Lars: I would like them to think back on the illustration that Knut has been kind enough to give us in terms of the link between cooperation, collaboration and sustainability. To identify the scope for not only creating a competitive advantage, but also a cooperative advantage. Where you can co-create value with someone else. And this is important in terms of sustainability because in the settings that Knut has informed us about, the utilization of resources, sharing resources, not wasting space, be that in a warehouse or in a truck or other type of informational resources is massively important. So try to identify the scope for collaboration. It might always be there. It's not easy, it's very hard. And we might talk more about that later on about building these networks. When you try to build a platform, build a network, the most important resource is, of course, the network itself. And if you don't have one, how do you go about it? How do you become interesting in mediating these services? And this is something we also have looked upon earlier.

Silvija: Digitalization, I think very often, is about creating new ways of mediation. And Millum is a great example of that, in a focused area applies to horeca. If I understood correctly. And I think it's really interesting to see how we might also have some national advantages. There are issues with doing this in Norway as well, as Knut has very well explained. But from what I've heard from you Knut, it's even harder in Australia.

Knut: Yes. But I think we have to bear in mind that what we talked about, what we started off with was size and competition in Norway where we got critical mass of that order execution post contract. Which is not very controversial. What we did in Australia was that we took the logistic part. The movement of goods  from cellar doors to retailers in 48 countries. That is the heart and soul of any winemaker, to have control over that. And I think that is something about where you can start off creating cooperative strategies. It might be that you would not start off with sales, marketing and logistics based on my experience, because then you have to have a very convincing and we had a very convincing scope. We  have proven scope of multimillion dollar savings and it didn't fly. Because there are people going out from universities every year, learning to be in competition, not in cooperation.

Lars: Millum went for more, say, low hanging cooperative fruits in that sense.

Knut: But the interesting thing about the Millum case is that we can then add on more, because it's now super efficient for them to be able to get sustainability like CO2 equivalent measuring, food waste, transparency law. And we can then put that on the already existing flow of more than 10 billion sold goods. They're in our system and we can aggregate on that as well. And that is just maybe pure luck. We started off very early in the Internet phase and as a B2B, in e-commerce it's kind of unheard of being 21 years. Which Millum is. We were lucky and we were quite aware of the fact that we would be vertical. We kind of addressed a very specific market. We didn't go all flat or horizontal. We kind of went into a specific market and then got entanglements that created a competitive advantage on the ones that were on board. So that kind of drew more on board and it was an open bazaar. Everybody was welcome.

Silvija: I think these are very important points you are making Knut. I think in the digital space trust and the relationships are maybe even more important than in the physical space because that's all you can work on when you don't have the physical interactions. It's really, really interesting to see how in this case of yours, sustainability is a part of your strategy. You're not doing it because you want to sound good. You're doing it because it both makes strategic sense, but also is a necessary driver for where we're going.

Knut: Yeah, and it's a necessary driver and it's driven by the guests of our clients on the buyer side. We're talking about how we have some hard law that actually demands that you need to do this and that to be in compliance. Which then of course our clients are extremely law abiding in general. And then of course, you have the more soft values that come from all these guests asking questions on how are you handling food waste or how are you handling your people? And they all communicate with the market also indirectly. And of course, when you do a hotel conference and the public of Norway is asking for that. They demand that you have ecological food. They demand that you have a CO2 measurement. They have all these demands when they go out and create bids. So you need to kind of comply with that. And of course, the big cantinas that go outsourced into  the Norwegian bank or whatever, they get a specification of what is demanded of them as a restaurant to be able to operate. And of course, the demand from the guests or the ones asking for the bids are often very high. That's because they don't have to do that themselves. They can just demand, which is beautiful in this CR space. There's a lot of talk down here in Arendal and it's fascinating. We are only into the operational part of it and it's nearly not here.

Silvija: Operationalizing sustainability is super important, and I think that's probably going to be the trend for next year. And then in addition to that, I think, thinking new about strategies that create this sustainability is super important. Which is why I'm so excited about learning about this from Lars. I would like to thank you both very much and thank you to our listeners as well.

Lars: Thank you.

Knut: Thank you.

Du har nå lyttet til en podcast fra Lørn.Tech - en læringsdugnad om teknologi og samfunn. Nå kan du også få et læring sertifikat for å ha lyttet til denne podcasten på vårt online universitet Lørn.University