Executive Spotlight: Jon Christensen, Vice President of Distribution Services at Dairy Queen

Executive Spotlight: Jon Christensen, Vice President of Distribution Services, Dairy Queen

Interview conducted by Rachel Manthei, 2nd year MBA Student, TCU Neeley School of Business

October 4, 2018

Rachel Manthei: Can you tell me a little bit about your background and the roles you had prior to your current role?

Jon Christensen: I started in engineering in college, then decided that wasn’t something I was interested in as a profession. I went into business with a degree in marketing but focusing on operations. At the time, supply chain degrees were not very common. I started at Baxter International – a large pharmaceutical company – working in purchasing. I built my career in healthcare, before switching to food when I came to work at Pillsbury in Minneapolis. After a few years at Pillsbury, I moved to a startup called Caribou Coffee. There were some very smart people who had started this concept, and they needed a supply chain person. I was there for 23 years, building the supply chain piece of that company, before moving to Dairy Queen.

RM: Wow, so 23 years at Caribou, pretty much creating the different functions of the supply chain from scratch?

JC: Yes. The company had outsourced all of their supply chain to a 3rd party that went bankrupt. They were in a little bit of a crisis mode, and somehow made contact with me at Pillsbury. Knowing my background, they thought I could do what was needed there. We started with 3-4 people in the bottom of a warehouse to 28 in just warehousing, servicing 14 international countries and the US out of those facilities. We moved from a couple of stores in Minneapolis to a global company.

RM: And what was your primary role/title there?

JC: I was the Sr. Director of Distribution and Contract Services. I took care of all the business service activities in distribution and transportation.

RM: Can you talk a little bit about what your primary responsibilities and initiatives are in your current role?

JC: Yes, primary responsibilities are in the domestic distribution to all of the restaurants and stores in the 50 states. We have 31 different distributors that are supporting our independent franchisees across the country. Our primary responsibilities are to ensure we have correct supply of items and predictable/cost effective fulfillment of items in a fairly seasonal, volatile industry. Because this is a treat world, when it gets warm the product mix changes pretty quickly – like in about an hour.

RM: How do you account for that seasonality?

JC: We are very fortunate that Dairy Queen invested in some very good people, so they are forecasting regularly. We just have to plan for it, having a little more safety stock as we come into the summer season. What we are looking at now is trying to get faster at reacting to the changing dynamics of the marketplace?

RM: Is that primarily addressed through people or technology changes?

JC: A little bit in technology, but quite a bit in network redesign. We look at how we take our suppliers to be able to touch our distributors more consistently and more often. The matter of consistency is looking at getting there at the same time each week or the same time each month, and then how many times can we touch the distributor. We try to chase demand by having a quick response to whatever the marketplace is doing. As we know, the trucking and transportation world is changing very quickly. It is no longer a commodity, it is an asset that you have to manage and work with and optimize, just like you would with suppliers or distributors.

RM: Going back to seasonal and volatile demand, can you compare and contrast Caribou Coffee products versus Dairy Queen products?

JC: While we’re in the same space of a quick-serve restaurant, the footprints are a little bit smaller in the coffee shop/bagel world. But the coffee world is every bit as seasonal as the treat world. As soon as it gets cold, we jump into lattes and espresso-based beverages. We have the seasonal flip even in the coffee world. Obviously different curves at different times, but the volatility is still there. The difference is that we have many more distributors than we did at Caribou, so there are more touch points and more inventory. We have to be very careful where that inventory is and how we get it to the right spot.

RM: Moving a little bit away from that, can you talk a little bit about what the highlights are of your specific role?

JC: What I thoroughly love about supply chain is that every time you take one link and move it, other parts also move. You’re constantly trying to make decisions that may be suboptimal for the link, but the whole chain in the end is optimized. It gives you so many options for getting to your goal: getting the end goods to the operators and making it easiest for them to run their business. They are the ones with the cash registers, so at the end of the day we want to make it possible for them to enjoy doing their jobs. For instance, you may decide instead of always shipping in full truckload quantities you will ship with something smaller than that, which lowers inventory and allows for more touch points with the supplier and better fill rates and reaction times to the ultimate customer. There are always tradeoffs. This is where the whole industry of redistribution is coming into play, as another great tool to move products through the network.

RM: Can you give a little more information on redistribution and how it works?

JC: Sure. Redistribution in the classic sense is aggregating your demand across the country and buy truckload quantities into a redistributor, who will then take pallets of a number of products and send full truckloads to the distributor. So, you are going truckload to truckload, with the redistributor aggregating that. It is a way to keep everything running in truckload rates, while allowing smaller quantities to go into the distribution centers. The distributors don’t want to take a full truckload which may be 8, 10, or 12 weeks of supply. And in our world, 12 weeks of supply could be 2 weeks of supply or 20 weeks of supply, depending upon where it’s going. Whereas, if you use a redistributor, you can have one source of safety stock, and then combine multiple products on those resupplied to the distributor. Obviously it costs something to do that, but oftentimes can be less expensive than very high inventories or less than truckload shipments for fulfillment.

RM: Are redistributors used primarily in the food industry or across all industries?
JC: The best that I know it is primarily used in the food industry. But, even there it is fairly challenging. In our business, we have truly four temperature zones: dry inventory, temperature-protected inventory (should not freeze or get overheated), refrigerated, and frozen. With all these temperature requirements and all the suppliers, we have to look at building a network that allows us to manage all of those in a very safe way.

RM: With redistributors, how is extra time not added to how long things are in transit?

JC: It doesn’t add time to the distributor or operator because we will put the safety stock at the single hub, if you will. It’s like a hub-and-spoke. We will put inventory at the big hub and bring truckloads in from 20 suppliers. That distributor will take pallets and partial pallets from the 20 suppliers and send another truckload to the distributor with all those products on it, but not a full truckload of any given item. That can be very quick, even on a weekly basis or more (if you can consolidate enough product). That’s part of the challenge. Can you build a network where you have enough scale to have truckloads-in and truckloads-out and are touching the distributors frequently enough to react to changes in the marketplace?

RM: That is very interesting. Thank you for explaining that.

JC: Yes. It’s not necessarily intuitive until you start doing, and then realize that it makes sense. In the shoes of the distributor planner or buyer, you have 300 items that you have to have in stock to the run the business, you have some products you can order a full truckload of because you use that much a week, but most of the items you need a pallet or two a week. Using an LTL, the lead times can be from a few days to a few weeks. So then how much safety stock do you have to carry to cover that volatility? Or how much do you spend to recover because you run out? All of these cost tradeoffs exist, versus if a huge number of the items you need are from one source, and you can buy all of it from one source. It makes their job a lot easier and a lot more predictable. We only have to have safety stock at that one hub, versus safety stock at every DC. Usually demand doesn’t spike nationally at the same time, so while one area might go up a bit, another area might be flat still. You can smooth out that volatility with scale.

RM: What are some primary skills you look for in the people you hire?

JC: The one skill that we really look at that is hard to find is strong analytical skills. Being able to understand the value chain and being able to break it down. Being able to describe and comfortably talk about how something goes from a raw material to a product to a distributor to a store and talk in the language of value chain and value analysis is a huge skill on the distribution side. On the acquisition side, it is important to understand commodities and how the commodity market works. As you get larger, there are marketplaces out there that help protect and make costs more predictable, a necessity when you have 4,000 restaurants and don’t want to change menu prices all the time. Being able to protect and stabilize pricing to the consumer is a very important part of the value proposition.

RM: How did you develop these skills during your career?

JC: Going through three years of engineering before changing to business meant I had Physics, Chemistry, Biology, and Calculus, which really laid a foundational understanding for me of how chemicals work together. All of these classes really helped me be able to understand why things work the way they do, and then move from there to apply them.

RM: So being able to get outside of the business side to get deeper and understand the foundation is really important?

JC: Right. Understanding why things work and not just how they work. It makes us adaptive and able to look at things differently on a regular basis. It’s amazing how much our industry is changing all the time.

RM: Thank you so much for sharing your career history with us.