PepsiCo is a world leader
History
PepsiCo is a world
leader in convenient snacks, foods and beverages, with revenues of more than$39
billion and over 185,000 employees. The company consists of PepsiCo Americas
Foods(PAF), PepsiCo Americas Beverages (PAB) and PepsiCo International (PI).
PAF includes Frito-Lay North America, Quaker Foods North America and all Latin
America food and snack businesses, including Sabritas and Gamesa businesses in
Mexico. PAB includes PepsiCo Beverages North America and all Latin American
beverage businesses. PI includes all PepsiCo businesses in the United Kingdom,
Europe, Asia, Middle East and Africa. PepsiCo brands are available in nearly
200 countries and generate sales at the retail level of more than $98billion.
Some of PepsiCo's brand names are more than 100-years-old, but the corporation is
relatively young. PepsiCo was founded in 1965 through the merger of Pepsi-Cola
and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with The
Quaker Oats Company, including Gatorade, in 2001.
PepsiCo offers product
choices to meet a broad variety of needs and preference -- from fun-for-you
items to product choices that contribute to healthier lifestyles. PepsiCo’s
mission is: “To be the world's premier consumer “Products Company” focused on
convenient foods and beverages. We seek to produce healthy financial rewards to
investors as we provide opportunities for growth and enrichment to our
employees, our business partners and the communities in which we operate. And
in everything we do, we strive for honesty, fairness and
integrity.”(www.pepsico.com)
PepsiCo Headquarters
PepsiCo World
Headquarters is located in Purchase, New York. The seven-building headquarters
complex was designed by
Edward Durrell Stone, one of America's foremost architects.
Haidiri Beverages
Private Limited, Pakistan
The Haidiri Beverages
Group was set up in 1979 and is Pepsi's sole selling agent for District Rawalpindi
and Islamabad. It is based in the CDA Industrial Triangle, Kahuta Road,
Islamabad. It manages the supply for several wholesalers, retailers,
restaurants, hotels and other such food outlets. In order to achieve the
projected sales targets effectively, the organization ensures a comprehensive
strategic alignment with the overall Pepsi Cola’s business strategy.
HaideriBeverages’ primary functions are to conduct a systematic manufacturing
and supply of the product without any tactical flaws. Backed by a powerful
competitive strategy and empowered by some effective supply chain strategies,
the group has been managing an effective supply chain through out the region.
It has set up a sophisticated manufacturing and storage plant in Rawalpindi
with multiple production units and huge production capacity. Haidiri Beverages
has different management departments dealing with specialized Marketing, Human
Resource, Information Technology and Supply Chain Processes. In this section we
conduct a brief analysis of the basic supply chain management functions of
Haidri beverages.
Understanding the Supply
Chain of Pepsi
The objective of every
supply chain should be to maximize the overall value generated. The value of a
supply chain generates is the difference between what the final product is
worth to the customer and the costs the supply chain incurs in filling the
customer’s request. (Chopra, Meindl2006)
Supply Chain Strategy or
Design:
During this phase a
company decides how to structure the supply chain over the next several years. The
company makes long term decisions in regards to location and capacities of production
and warehousing facilities, the products to be manufactured or stored at
various locations, the modes of transportation to be made, information systems
and so on. The supply chain design is very expensive to alter on short notice
and supports the company’s strategic objectives. In order to ensure a good
supply chain strategy, Haidri Beverages plans two years in advance. It has
several contracts with manufacturers, and receives raw material on a convenient
basis. The company also decides where production plants are to be placed.
Haidri has production plants at Peshawar and Islamabad. The production process
is 65% automated. The company has to provide and manage transport for the
delivery of products as well as the arrangement of third party services for the
procurement of products. The shipping department handles orders and the transport
department decides the vehicles for safe delivery.
Material planning and
sourcing is carried out as well. Sources of supply of raw material both local
and foreign are identified and terms and conditions are negotiated. Capacity
planning is also done at this stage. Sales forecasting and production planning
depends upon the capacity of the organization with respect to:
1.Production (180,000
converted 250 ML crates per day).
2.Storage: Raw and packing (80,000 Sq Ft)
3.Storage: Finished goods(120,000 Sq Ft)
2.Storage: Raw and packing (80,000 Sq Ft)
3.Storage: Finished goods(120,000 Sq Ft)
Haidri has a procurement
budget of Rs 2.9 billion. Approved suppliers cannot go beyond this budget. The
supplier is audited by the most cost efficient quality control department.
Distributors are also decided by the company, keeping in mind past
performances. The company has increased its distribution capacity from one to
six filling lines during the last few years lending it competitive edge over
Coca Cola.
Supply Chain Planning
As the above
configurations have been set, planning must be done within the above stated constraints.
The goal of planning is to maximize the supply chain surplus. Planning establishes
parameters within which a supply chain will function over a period of time.
Companies start the planning phase with a forecast for the coming year of
demand. Pepsi carries out sales forecasting for local demand as well as for
export purposes to countries such as Afghanistan. The annual sales target is
conveyed to the supply chain department of Haidri Beverages. Planning is carried
out on a monthly, weekly and daily basis at Haidri.
Supply Chain Operation:
Company makes decision
regarding individual customer orders. The goal of supply chain operations is to
handle incoming customer orders in the best possible manner. During this phase,
firms allocate inventory or production to individual orders, set a date that an
order is to be filled, generate pick lists at a warehouse, allocate to
shipping, set delivery and so on. There is less uncertainty about demand. At
Haidri, the production, sales and supply chain departments get-together to
decide the inventory usually on a weekly basis.
Process views of a
supply chain:
The processes in a
supply chain are divided into a series of cycles each performed at the
interface
between two successive
stages of a supply chain.
Cycle View of Supply
Chain: There are five
stages in a supply chain (Supplier Manufacturer
Distributor Retailer
Customer) and four supply chain process cycles (customer order,
replenishment,
manufacturing, procurement cycle).
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Push/Pull View of Supply
Chain:
With push process
execution is initiated in anticipation to a customer order. Pepsi has a seasonal
demand. Just in time concept is applicable in non-seasonal period and not
applicable in seasonal period. All processes that are part of the procurement
cycle, manufacturing cycle, replenishment cycle, and customer order cycle are
push processes.
Pepsi Sales order and
processing: The Shipping Manager receives sales order from Sales Team,
distributors through telephone, fax & email one day before dispatch. The
sales are made to base distributors on advance payment against orders then
shipping manager plans according to the demand of distributors on daily basis.
Competitive
and Supply Chain Strategies
There are three major
sustainable advantages that give PepsiCo a competitive edge as they
Operate in the global marketplace:
1.Big, muscular brands,
2.Proven ability to innovate and create differentiated products and
3.Powerful go-to-market systems.
1.Big, muscular brands,
2.Proven ability to innovate and create differentiated products and
3.Powerful go-to-market systems.
PepsiCo's overall
mission is to increase the value of shareholder's investment. They
do this through sales growth, cost controls and wise
investment of resources. They believe their commercial success depends upon
offering quality and value to their consumers and customers;
providing products that are safe, wholesome, economically efficient and
environmentally sound; and providing a fair return to
their investors while adhering to the highest standards of integrity. A
customer while purchasing a bottle of Pepsi will consider product quality,
price and availability of the product. Thus, Pepsi in Pakistan particularly
focuses its competitive strategy as to producing sufficient
variety, reasonable prices, and the availability of the
product.
Marketing and Sales
Strategies:
PepsiCo has developed
the national marketing, promotion and advertising programs that support its
many brands and brand image; oversees the quality of the products; develops new
products and packaging, and coordinates selling efforts (PepsiCo 2000 Annual
Report).
Supply Chain Strategy
Step 1: The Customer and Supply Chain
Uncertainty
a)Identifying
customer needs:
Haidri needs to
understand the customer needs for each targeted segment and the uncertainty the
supply chain faces in satisfying these needs. As Haidri deals with beverages,
which are a fast-moving consumer good, it knows the requirements of consumers.
Pepsi is considered as a drink which is refreshing during summer, and taken
regularly during winter, with demand hiking around festivals such as Eid and
occasions such as weddings. Haidri caters to both cities and rural areas. It
understands the needs of both. As demand for beverages is seasonal, the
quantity of product needed for each lot is taken care of with past demand in
mind. Consumers generally require a small response time, high service level,
reasonable price and some variety (for example health conscious people favor
diet versions of sodas).
b) Demand uncertainty
and implied demand uncertainty:
Demand for Pepsi varies
by product. For example there is a greater demand for “Pepsi” as compared to “Miranda
Apple,” which is new. Hence, Pepsi has a low demand uncertainty as compared to
“Miranda Apple.” The product “Pepsi” is approaching its maturity stage in the
PLC where as “Miranda Apple” is in the introductory stage.
Pepsi’s implied demand
uncertainty varies with the product type as well as the customer needs. Due to
decreased lead time (the customer may purchase its competitor’s product if
Pepsi is not available at that time), need for greater variety and higher level
of service, implied demand uncertainty increases. This is true for cities where
unmet demand by Pepsi is met by Coca Cola, Amrat Cola and other such
competitors.
Supply uncertainty is
also affected by new products. New products have higher supply
uncertainty.
c) Uncertainty for the
capability of the supply chain:
After determining the
demand uncertainty it is important to take a look at the uncertainty resulting from
the supply chain. “Pepsi” is not a new product and its market is going towards
maturation. The company does not have many difficulties in delivering a product
and has a fixed delivery schedule (on daily basis). “Pepsi” hence has a
predictable supply and somewhat uncertain demand depending on market
conditions.
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Step 2: Understanding
the Supply Chain Capabilities
The efficiency and
responsiveness varies according to the consumer needs, implied demand
uncertainty, product type and market segments. In remote areas the company
focuses on being somewhat efficient as other modes of transportation could turn
the product to be highly expensive. According to the company it does not deal
with distributors who do not have 20 to 25vehicles, therefore as the company
has focus on cost reduction, uses slow and inexpensive modes of transportation,
the demand is certain, and uses economies of scale in production, the product
Pepsi is more inclined towards being somewhat efficient. In cities, the company
focuses its attention on being highly responsive as Pepsi has to meet short
lead time, meet a high service level, handle a large variety of products and
respond to wide ranges of quantity demanded especially at the retail
stage.
Step 3: Achieving
the Strategic Fit
Making one stage more
responsive allows the other stage to focus on being more efficient. The Pepsi
supply chain assign different roles to its different stages, the company has to
decide either to transfer the responsiveness to the manufacture stage or to the
retailer stage. While discussing the Pepsi’s supply capability it is seen that
Pepsi tends to be more responsive in the cities and abet less in towns.
Therefore, transferring the responsiveness to the retailer and distributor,
allowing them to face the higher implied demand uncertainty. This in return
allows the manufacturer and supplier to be more efficient. At the same time,
multiple beverage types contribute to a broader product portfolio causing
Haidri to adjust its strategies accordingly; tailoring the supply chain to best
meet the needs of each beverage demand.
Expanding Strategic
Scope of Pepsi:
In Pepsi the agile
inter-company scope of strategic fit is essential because the competitive
playing field has shifted from company-versus-company to supply
chain-versus-supply chain. Strategic scope must cover all boxes, at least at
the supply chain end. The agile inter-company scope of strategic fit requires
the company to evaluate every action in the context of the entire supply chain.
As competition increases, Pepsi is expanding their strategic scope as they are
increasing their product line by adding “Pepsi Max,” “Mountain Dew” and “Miranda
Apple” toothier beverage line.
Drivers of Supply Chain
Performance
Connecting the drivers
with PLC Supply chain strategy:
Within the twin cities
of Islamabad and Rawalpindi, Pepsi mainly follows a combined cost-effective
responsive supply chain strategy. The intensive supply of the product is being ensured
throughout the twin cities’ market with the help of several distributors. Pepsi
has been able to reach out to all market segments without any delays because of
its business maturity and comparative business strength. It has the highest
beverages sales volumes as compared to any other beverage in Rawalpindi and
Islamabad. Although there is an overwhelming stability in the product market
yet there are some remote areas where there are conditions for a possible stock
out due to their remoteness. For addressing this risk Pepsi has financed
different whole sellers in those areas to respond immediately. Pepsi in
Islamabad and Rawalpindi and in most parts of Pakistan can be rightly placed into
the category of an “ever growing mature business.”
Responsiveness:
In case of Fast Moving Consumer Goods (FMCGs) that target a huge segment of
market, responsiveness is a deciding factor for the organizational success. In
a typical Pakistani market, quick response enables supply chains to meet the
customer demands for ever-shorter lead times, and to synchronize the supply to
meet the peaks and troughs of demand. Pepsi’s supply chain has been able to
reinforce a greater response to the uncertain and unpredictable market behavior
only because it has multisided processing facilities and corresponds to a
systematic production network with both dedicated and multi-product facilities.
The major focus is to determine the processes that are to be integrated in the
supply chain network with their corresponding suppliers, distribution centers
and the associated transport links between them. The major considerations in
the design are the supply chain responsiveness and profitability
Framework for Structuring Drivers:
The framework is based
on a motive to create strategic fit between the competitive and supply chain
strategy. Pepsi Competitive strategy stands to provide a large variety of
products very quickly; simultaneously the supply chain strategy stands to
materialize the availability of that variety of products. Pepsi mainly follows
a responsive supply chain strategy. Alignment of Pepsi’s business strategy to a
corresponding supply chain strategy is achieved through proper deployment of
supply chain drivers. Pepsi has to deal with different set of market segments
simultaneously. Most of the time the approach needs to be responsive enough to grow
substantially to be able to compete with uncertain demand, while in many areas
demand is certain and very much predictable, so there it incorporates an
efficient supply chain strategy.
The Inventory Driver:
Haidri has established a comprehensive plan to ensure the
sufficient inventory levels to keep up with the market demand effectively. For
this purpose the main inventory storage has been established within the main
plant area Kahuta road, Rawalpindi. It has the storage capacity of120,000 Sq Ft
and the area is being utilized both horizontally and vertically. The shipping
department is in charge for storage and subsequent displacement of the product
orders. The inventory capacity is being utilized and maintained in coordination
with the production department and is based on the term production estimates.
Apart from the main storage house, Haidri has established more than 10 storage
facilities nearer to the market in Rawalpindi and Islamabad. Increasing
inventory makes the supply more responsive to the customers. At Haidri
Beverages, managers bear a high inventory cost to ensure maximum levels of
inventory and to reduce the production and transportation costs.
The Transportation
Driver:
Transportation driver has a large impact on the responsiveness of
the business. Faster transportation of the products allows Haidri to maintain
sufficient levels of stock on the shelves. Haidri’s transportation network is
the collection of routes, modes and locations along which the product can be
shipped. With the help of several distributors the product is being supplied to
the market. There are multiple supply and demand points within the twin cities
which cater to the market demand. Haidri decides and selects different modes of
transportation having different
characteristics with
respect to the speed and size of shipment. The transportation network has been
designed with a view to ensure responsiveness and boost the availability of the
product. For Haidri using fast mode of transport increases responsiveness as
well as the transportation cost but lowers the inventory holding cost.
The Information Driver
Connects all the supply chain stages effectively allowing them to
coordinate and maximize total supply chain profitability. It is also crucial to
the daily operations of each stage in the supply chain. The unit manager
utilizes the production scheduling system that is based on information on
demand to create a schedule that allows Haidri Beverages to produce the right
amount of product. The warehouse in charge uses this information to create
visibility of the warehouse’s inventory items. Information sharing helps this
firm improve its responsiveness within the market. It helps to accurately
forecast demand and realize frequency of updates, measurements of the effects
of seasonal factors influencing the production, measurements of variances from
the plan and the ratio of demand variability to order variability. Timely and
accurate information enables the distribution managers to fix potential stock
out or oversupply problems.
The Facility Driver
In order to ensure the
responsive strategy implementation, the role of facilities is of prime
importance in the supply chain of Haidri Beverages. Pepsi has established a
flexible and product-focused production facility in order to respond
effectively to the variability in demand. The storage facilities are designed
in order to provide maximum possible capacity for the inventory. The large
amount of excess capacity allows the facility to be very flexible and to
respond to wide surges in demands placed on it. In alignment with the
responsive supply chain strategy the facilities have been geographically
located close to the market.
Distribution Channels
Direct distribution:
Delivery of post mix
cylinders & handling of key accounts: The key accounts are different
wholesalers, restaurants and hotels like Pizza Hut, KFC, Metro which serve as a
place for key sale. These are known as national key accounts and are very
important in terms of competition.
Export Parties
Indirect distribution:
Through Base market
distributors
Through Outstation
distributors
Before delivering the
product some certain guiding principles are followed for the assessment of distributor’s
capability by Haidri:
Applicant must have 20 to 25 vehicles (depending on the area)
Applicant must have 20,000 cases of empty bottles.
Applicant must deposit Rs.1, 000,000 as a security.
Haidri uses light and
heavy vehicles for safe delivery of goods to the distributors for timely
delivery. It follows the just in time concept which is applicable in
Non-seasonal period and not applicable in the seasonal period.
Review and Revise
Distribution:
This is usually done
through taking over key revenue areas. If the distributor does not achieve its
sales target, the distribution is taken back and an addition of new distributor
is done. Therefore Pepsi’s supply is low supply uncertainty. Some of its supply
source capabilities are:
Less breakdowns
High quality
Flexible supply capacity
Mature production process
High quality
Flexible supply capacity
Mature production process
Factors Influencing
Distribution Network Design
At the highest level,
performance of a distribution network should be evaluated along two
dimensions:
1.Customer needs that are met
2.Cost of meeting customer needs
1.Customer needs that are met
2.Cost of meeting customer needs
The customer needs that
are met influence the company’s revenues, which along with cost decide the
profitability of the delivery network. While customer service consists of many components
we will consider those measures that are influenced by the structure of the
distribution network for Pepsi.
Response Time for Pepsi is minimal as the direct
customers for Pepsi are the retailers and then the consumers. So with over 30
delivery trucks in Islamabad, Pepsi is readily available to every retailer
within 30 minutes. Rawalpindi has 6 warehouses from where the supply to the
market is done through Shehzore or small cars.
Product Variety in Pepsi is large. They have made their
place in the market with their unique product line ranging from chips to water.
As we are dealing with Haidri, the product variety includes beverages ranging
from the water Aquafina to Mountain Dew, Pepsi, Pepsi Max, 7 Up, Miranda, Miranda
Apple & Fountain Fresh.
Customers Desire Pepsi and Mountain Dew the most; Mountain
Dew has the highest
consumption in Gujranwala.
Recently, the sales for 250 ml bottles has decreased but they are trying to
increase it as it gives the company higher profits.
Availability of Pepsi is very high and the product is
always available in stock whenever an order arrives. Whenever the distributors
feel that after one loading there could be a stock out they place an order to
Haidri Beverages in advance just to keep the floor with enough stock in hand. The
Distributors have 3 days stock as back up with them in order of any
malfunctioning of the plant or other such external factors.
Customer Experience for Pepsi has always been positive as they
receive the product with ease and on time. The retailers are the direct
customers as they place an order to the distributors. There has never been a
shortage or a delay for Pepsi in Metro or Pizza Hut which are the key accounts
for the company.
Order Visibility in Pepsi is not really an electronic
phenomenon where you can track your order through computer. It is more of
person-to-person contact and one can easily track down their orders through the
designated staff in each sector of Islamabad and RawalPindi or for that sake
all over Pakistan.
Return ability of Pepsi has always been very strong in a
sense that unsatisfactory items can be returned and changed on the spot. This
is true for both the consumers and the retailers. Pepsi has laid down a system
through which they can effectively manage this requirement. The retailers are
told to take down the comments and the address or phone numbers from the person
who is returning the bottle. It seems at fist that a customer always wants the
highest level of performance along all these dimensions, in practice however
this is not always the case.
Distributor Storage with
Carrier Delivery:
In Pepsi inventory is
not held by the manufacturers at the factories but is held by
distributors/retailers in intermediate warehouses and package carriers are used
to transport the products from the intermediate location to the final customer.
This requires distributor storage to keep high levels of inventory because
distributor/retailer aggregates demand uncertainty to a lower level than the
manufacturer. Transportation costs for Pepsi are somewhat lower because an economic
mode of transportation (e.g. truckload) can be employed for inbound shipments
to the warehouse, which is closer to the customer. Facility cost is high
because of a loss of aggregation and often end up with higher processing costs.
The information structure needed is not that complex. The distribution
warehouse serves as a buffer between manufacturer and customer. Real time
visibility between customers and warehouse is needed whereas as visibility
between customer and manufacturer is not required. Response time is also
reduced. Customer convenience is high and order visibility with manufacturer
storage becomes easier. Distributor storage is well suited for medium to fast
moving goods and it can also handle higher level of variety than retail stores.
Value of Distribution
System:
There are basically two
components of distribution:
•
Storage
•
Distribution
The storage facilities
of Haidiri Beverages are designed in order to boost the timely availability of
the product. For this purpose the distributors are fully equipped with
facilities that are needed to ensure intensive supply of the product. The
storage facilities are designed to contain the maximum possible inventory items
that are needed at any given time.
Haidiri Beverages has
established several storage units nearer to the market in order to boost
availability. Transportation conducts inventory movement from point to point in
supply chain of Haideri Beverages. It incorporates a combination of modes and
routes at different stages. Transportation choices have a large impact on the
responsiveness strategy of the business. Haidiri has several contracts with
several distributors with multiple transport facility that ensure the maximum
possible transport of inventory within a short period of time. The distribution
does not work between specific supply chain components but it performs a basic
function of integration amongst all supply chain components. In case of FMCG
like Pepsi, the value of systematic distribution process can not be undermined.
The Pepsi distribution system linked the entire supply chain for all product
categories. The distribution centers and its information network play a key
role in that regard. The major object is to carefully track sales of items and offer
short replenishment cycle times. The distributors offer stored deliveries too
many retail outlets in the twin cities. Different products are being delivered
conveniently on pre-orders. The distribution system is flexible enough to alter
delivery schedule depending on customer demand. The Territory Distributor
Managers maintain a contact with the retailers in order to book and place the
orders. Whenever a store places an order it is immediately transmitted to the supplier
through the distribution manager.
Now Haidiri receives
orders from all distribution centers and the shipment department delivers the
orders. At the distribution centre, products from the manufacturer are
delivered into different trucks and each truck makes deliveries to multiple
retail stores. The number of stores depends upon the sales volume. The system
works on trust and does not require the delivery person to be present when
store personnel scan the delivery. This reduces the delivery time at each
store.
Haidiri have nine
distributors in Islamabad and Rawalpindi, namely: Shan distributors, Awan distributors
and Arbab Distributors. To support this distribution network they have a transport
department which consists of more than 30 ten wheeler trucks in Islamabad
alone. Each truck has a capacity of 1572 Pepsi cans. Rawalpindi distribution is
made possible through Shehzore and Suzuki because of the narrow and congested
roads. The distribution department is in direct contact with the manufacturers
and keeps updating inventory levels. They keep in stock spare three days stock
to combat external uncertainty. The distribution department is responsible for
all the variety of the products in their portfolio. PepsiCo’s overall
distribution network spreads throughout Pakistan connecting the remotest of
places and providing great customer service. Globalization has increased the
competition that Pepsi is constantly coming up with new projects, campaigns and
distribution. Pepsi with more than 180% of profits this year and with the
annual review of their rates (last revised on 14th November 2007) is
looking more and more competitive and as the logo says: “Ye Dil Maangay Aur!
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