Pepsi Supply Chain by kaizerium

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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 $98
billion. 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. Haideri
Beverages’ 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.




                                                                                                1
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, Meindl
2006)
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)
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
a 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.




                                                                                                    2
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).



       Supplier              Manufacturer             Distributor         Retailer            Customer




Figure 1


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.




                                                                                                    3
Competitive and Supply Chain Strategies




Figure 2


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.


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).




                                                                                                   4
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 “Mirinda Apple,” which is new. Hence, Pepsi has a low demand uncertainty as
compared to “Mirinda Apple.” The product “Pepsi” is approaching its maturity stage in the PLC
whereas “Mirinda Apple” is in the introductory stage.
Pepsi’s implied demand uncertainty varies with the product
								
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