Pepsi Americas Business Case

8/11/2019 Pepsi Americas Business Case

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MIT Sloan School of Management

MIT Sloan School Working Paper 4934-11

PepsiAmericas: Building anInformation Savvy Company

Cynthia M. Beath and Jeanne W. Ross


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CENTER FORINFORMATIONSYSTEMSRESEARCH

MassachusettsInstitute ofTechnology

Sloan Schoolof Management CambridgeMassachusetts

PepsiAmericas: Building an Information Savvy Company


February 2010

CISR WP No. 378

2010 Massachusetts Institute of Technology. All rights reserved.

Research Article: a completed research article drawing on one ormore CISR research projects that presents management frameworks,findings and recommendations.

Research Summary: a summary of a research project withpreliminary findings.

Research Briefings: a collection of short executive summaries of keyfindings from research projects.

Case Study: an in-depth description of a firms approach to an ITmanagement issue (intended for MBA and executive education).

Technical Research Report: a traditional academically rigorousresearch paper with detailed methodology, analysis, findings andreferences.


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CISR Working Paper No. 378

Title: PepsiAmericas: Building an Information Savvy Company

Authors: Cynthia M. Beath and Jeanne W. Ross

Date: February 2010

Abstract: In 2009 PepsiAmericas was learning how to leverage an information backbonedesigned to provide information to the firms decision makers at all levels of the organization.The firm had built this information backboneand the business capability to use it effectively over an 8-year period beginning in 2001. This case describes how business and IT leadersworked together to create an information savvy organization. It describes the stream of ITinvestments, organizational changes, and metrics that helped PepsiAmericas evolve from aregional business that shipped truckloads of Pepsi and Mountain Dew to an enterprise thatdelivered hundreds of SKUs as needed to powerful national retailers. PepsiAmericas IT-enabledcapabilities helped the firm respond to drastic market changes and enhance businesscompetitiveness. The question PepsiAmericas management faced going forward was how to

leverage its information-based business capabilities in a global market.17 Pages


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This case study was prepared by Cynthia M. Beath of the University of Texas, Austin and Jeanne W. Ross of the MIT SloanCenter for Information Systems Research. This case was written for the purposes of class discussion, rather than to illustrateeither effective or ineffective handling of a managerial situation. The authors would like to acknowledge and thank theexecutives at PepsiAmericas for their participation in the case study.

2010 MIT Sloan Center for Information Systems Research. All rights reserved to the authors.

Massachusetts Institute of TechnologySloan School of Management

Center for Information Systems Research

PepsiAmericas: Building an Information Savvy Company

In 2009, PepsiAmericas (PAS), the worlds sec-ond largest manufacturer, seller, and distributorof Pepsi beverages, faced the pressures of aglobal economic downturn. The recession, how-ever, was a less potent threat than two importantlong-term challenges: (1) a declining U.S. mar-ket for carbonated soft drinks; and (2) increas-ingly powerful retail customers.

Recognizing these challenges, PepsiAmericasmanagement team was transforming the bus-iness to address these challenges. In 2001,PepsiAmericas business results had dependedon the individual efforts of the firms truckdrivers. By 2009, PepsiAmericas relied on strongcentral oversight of the price-volume dynamicand nation-wide retailer relationships. To makethis shift, PepsiAmericas had converted from arelatively low-tech firm to one that was highlydependent on information and technology:

Ten years ago, if our IT systems blew up,we could still run our business with

manual backup processes. Today, wecant. All of these processes are so inte-grated that, literally, we could not oper-ate without them. Ken Keiser

President and COO

The systems and technology changes were ac-companied by major process changes:

If you want to be aroundand we wanttoyou have to learn how to adapt andchange... Were going through the adap-tation stage right now in a very, very bigway We basically have to reengineerour systems from a go to market per-spective, from plants, to how we ware-house, to how we produce, to how wesell, to how we deliver. Ken Keiser

PepsiAmericas was learning how to use technologynot only to automate processes but also to informdecision making. The company began buildingtechnology and data management capabilities and learning how to apply themin 2001:

Weve been doing change for nine years. Its been constant change. Ken Johnsen

SVP and CIO

The journey had not been easy, but the resultswere noteworthy.

Company BackgroundThe soft-drink bottling industry experienced sig-nificant consolidation starting in the seventiesand stretching to the early 21 st century. The


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Beath and Ross Page 2 CISR Working Paper No. 378

number of franchises declined from a high ofaround 400 to fewer than 100 in 2009. Re-flecting this consolidation trend, in 2000,PepsiAmericas, which itself had been created inmergers of existing Pepsi Cola bottlers, mergedwith the Whitman Corporation, which owned a

bottler serving 10 states in the USA and fourcountries in Central Europe. The new combinedentity served 17 states in the USA, four coun-tries in Central Europe, and several countries inthe Caribbean.

As of 2009, PepsiCo had a 44% ownership shareof PepsiAmericas. As most soft drink manu-facturers do for their bottlers, PepsiCo creatednew products, managed the brands, and developednational marketing campaigns. PepsiAmericasmanaged manufacturing, logistics, and retailer

relationships.1

By 2009, PepsiAmericas operated in 19 U.S.(mostly Midwestern) states (69% of sales),Central and Eastern Europe (26% of sales), andthe Caribbean (5%). (Figure 1 provides detailson operations.) With 2008 net sales of almost $5

billion, PepsiAmericas accounted for nearly20% of PepsiCo's total US beverage sales. 2 Despite economic and competitive challenges,PepsiAmericas revenues grew 10% while oper-ating income grew 9%.

Bottling industry competition was based on brand awareness, pricing and promotions, retailspace management, customer service, and prod-uct innovations. PepsiAmericas principal com-

petitor was Coca Cola Enterprises (CCE), Coca-Colas largest franchise bottler, but the firm alsocompeted with national and regional bottlers ofother beverages. From 20022008, PepsiAmericascommon stock significantly outperformed thatof its primary Coca-Cola bottler rival as well as

that of the Pepsi Bottling Group, PepsiCoslargest franchise bottler; it also outperformedthe S&P Bottling Group Index and the S&PMidCap 400.

1 PepsiAmericas also had franchise agreements with someother beverage firms.2 The largest Pepsi bottler, Pepsi Bottling Group, accountedfor around 55% of PepsiCos US beverage sales. Theremaining 25% of PepsiCos US beverage sales weredivided among almost a hundred small bottling companies.

PepsiAmericas global operations were the re-sponsibility of President and Chief OperatingOfficer Ken Keiser. The heads of worldwidesupply chain, information technology, humanresources, international operations, and U.S.operations all reported to Keiser. Keiser, in turn,reported to Chairman of the Board and ChiefExecutive Officer Robert Pohlad, as did EVPand CFO Alexander Ware. (See Figure 2 for a

partial organization chart.)

Addressing a Changing MarketWhen PepsiAmericas was formed, the firmserved its customers through conventional routesales. In this model, truck drivers were salesper-sons who estimated each days requirements andloaded product at a distribution center. Thedriver/salesperson then called on customers,writing and filling orders and stocking shelveswith the products from the truck. Conventionalroute sales had long met the needs of the softdrink industry:

Our industry was built on big megabrands. Pepsi and Mountain Dew were90% of the business. Marketing and ad-vertising were very basic. Network TV wasthe major medium, reaching 90% of house-holds, so it was effective in getting prod-

uct and promotion news to the consumer.The can package made up 70% of thevolume. Cans were very efficient to pro-duce, transport, warehouse and deliver.

Ken KeiserPresident and COO

By the time PepsiAmericas was formed in 1999,the conventional route sales approach was be-coming impractical. The companys product linequickly grew to include water, energy drinks,

juices, ready-to-drink coffees, teas, and a variety

of other drinks.Packaging was also more diverse. Water wasmostly sold in plastic bottles, which were bulk-ier than cans and a truck could carry only 1,000cases of water compared to 2,400 cases ofcanned soda. President and COO Ken Keiserestimated that the number of SKUs had grownfrom around 35 to 40 in the early nineties tonearly 400 15 years later. Truck drivers could no


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longer estimate the optimal mix of product thatneeded to be loaded on a truck for the days sales.

And the challenges were growing. Even as salesof bottled water were rising, consumers werevoicing concerns about the ecological effects ofthe proliferation of plastic water bottles. Execu-

tives at PepsiAmericas noted that constant inno-vation would become a trademark of the

bottling industry:

Consumers want and demand variety inthe flavor and package offerings of our

products. The ability to react to thesechanges quickly and without disruption tothe supply chain and the entire organi-

zation is critical to our success. Rich Frey

VP, Sales Operations

Reflecting its history of mergers, PepsiAmericaswas organized into 13 regional divisions respon-sible for production, distribution, and sales.Leaders within the regions designed their sys-tems and processes as they saw fit, and themission of PepsiAmericas centralized IT groupwas to address their individual needs. However,the regional structure was not efficient formanufacturing an increasingly diverse productline, nor was it effective in meeting the demandsof increasingly powerful national retailers. In2001, PepsiAmericas management initiated aseries of IT-enabled business changes to addresschanging market demands.

Next Gen: Defining a Common PlatformThe first business change initiative, called NextGen, involved redesigning the sales anddistribution process. Next Gen replaced theconventional route sales process with a pre-sell

process that involved taking orders from re-tailers prior to loading the truck.

Pre-sell divided what had been the truck driversresponsibilities among three specialists: a salesrepresentative who worked with customers to

place orders; a driver who picked up the orderedgoods at a distribution center and deliveredthem to stores; and a merchandiser who stockedshelves and built product displays. To enablethese new roles, PepsiAmericas introduced a

common systems and technology platformacross its 13 regions:

We had at least four different suites ofback office, selling, and supply chainsystems across the combined company.

None of them could support the move to

pre-sell, so we had to build that. Weleveraged our PeopleSoft ERP to theextent we could, and we used a combi-nation of custom and best of breed

package solutions for the call center,selling, delivery, and order managementtype systems. That was a three-and-a-half year initiative. Ken Johnsen

SVP and CIO

The new platform provided both salespeopleand drivers with handheld devices. The hand-

held captured order data that could then be usedto plan the truckloads, and to plan and executethe picking and loading of trucks. PepsiAmericasdrivers had been using handheld devices forsome time, but their prior equipment couldnt domuch more than print an invoice.

The implementation of the handheld was chal-lenging. IT managers were unable to find anyhandheld devices on the market in 2001 that couldmeet the firms expanded needs. Instead the ITunit developed a handheld device for pre-sell:

All the components had problems. Thehandheld ran out of battery, the wire tothe handheld was not ruggedized, so itwould break, and then it went to a

Motorola cell phone where the con-nection to that would break. So we wereconstantly fixing it. But that was the onlychoice we had. There was no integrateddevice back in 2001. John Kreul

VP, Applications and Customer Service

Because of these technology issues, businessleaders tended to think of Next Gen as thehandheld project, but the technology problemsrepresented the tip of the iceberg. In addition tointroducing the handheld device, Next Genimplemented new processes; redesigned roles;and built a call center to take customer ordersand provide customer service. Senior managers


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later acknowledged that they had underesti-mated the impact of the change:

We didnt realize how much work itwould create from an IT and a business

process standpoint, how much changewas associated with the innovation.

Rich FreyVP, Sales Operations

Because PepsiAmericas was formed from merg-ers of small businesses, the company had a strongentrepreneurial culture. Thus, despite the poten-tial for pre-sell to eliminate the guesswork aboutwhat products to load onto a truck, managementwas reluctant to dictate a change that woulddiminish the autonomy of the regional heads.Eventually, management agreed to the singlecall center, but regional leaders retained a greatdeal of discretion on how to implement NextGen systems and processes:

We had a lot of deviation between the di-visions on when they would send theorders, when their cutoffs would be, howtheir processes would work. John Kreul


When Next Gen was completed, PepsiAmericashad a common technology platform. This plat-form enabled the rapid integration of an inde-

pendent bottler, Central Investment Corporation,which the company acquired in 2005. However,deviations in local processes limited both effi-ciency gains and the ability to meet customerneeds. Most of PepsiAmericas managers con-sidered Next Gens success to be mixed and theexperience to be painful:

But Next Gen was still a great thing forour company, because there was no waywe could have kept up with the increasingnumber of SKUs or the demands of thecustomers. We had to do it. Its just thatour process maturity was growing andthe technology maturity was growing atthe same time, so we were all kind ofgoing through it together. John Kreul

Customer Alignment:Centralizing to Meet Customer NeedsOver time, senior leaders came to believe thatthe firm needed to reorganize to accommodatethe firms national customers:

We were organized around ourselves ver-sus around our customers and the way weshould be going to market. Mike Durkin

EVP, U.S. Operations

The power of national retailers was growing andthe inconsistencies in PepsiAmericas business

processes and duplication of effort from regionto region limited the companys ability to servethose retailers consistently:

We would have multiple people callingcustomers who said, You know what? I

want one call. I want one person to cometo my headquarters, not to the divisionoffices or the store. The retailers hadstarted to consolidate, but we hadntadapted. Ken Johnsen

SVP and CIO

PepsiAmericas Customer Alignment initiativereorganized the firm around centralized func-tions. Regional sales and distribution structureswere abandoned in favor of an organization

based on customer segmentation. One segmentaddressed the needs of large customers whomandated shipments to company warehouses. Asecond segment served the needs of large cus-tomers accepting direct store delivery (DSD),while a third segment focused on smaller DSDcustomers. A fourth segment focused on theunique needs of foodservice customers, such asrestaurants and facilities with vending machines.

Customer Alignment triggered very little ITwork. For the most part, the people in the newlycentralized functions had been using, and con-tinued to use, the technology platform devel-oped for Next Gen. However, Customer Align-ment drove considerable process centralization.Eleven hundred account sales managers went tolarge and small format stores to take pre-sellorders. Another 225 call center workers cap-tured orders for 60,000 small customers. This

process rationalization improved control and en-hanced decision making data:


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With Customer Alignment, we really wantmore of a command and control environ-ment. Decisions are made at the top andtheyre executed locally. Before, you couldhave two customers one block apart andtheir pricing might be different, dependingon who interacted with that customer.Customer Alignment means more stand-ardized pricing, more standardized activ-ities with the customers. Tim Gorman

SVP and Controller

Pricing was a particularly important process forPepsiAmericas because of its impact on the firms

bottom line. While PepsiAmericas attempted toclosely manage both volume and price, the bot-tom line impact of a 1% increase in pricesequaled the impact of a 3% change in volume.

In redesigning the firm around customers,PepsiAmericas empowered account sales man-agers to address the needs of their most powerfulcustomers. One executive recounted a meetingwith Wal-Mart and representatives from otherPepsiCo companies. Wal-Mart proposed a pro-motion offering a discount on a basket ofPepsiCo products.

We were the only one at the table thatsaid. Yeah, we like that idea and we'rein. Everybody else said, That's interest-ing but I'm going to have to go back andcheck. At PepsiAmericas, the person atthat meeting owned that account; he had

full accountability. And he oversaw all oflarge format accounts, so he understoodhow this program was going to fit withinthe context of all his other customers.

Alex Ware EVP and CFO

By 2007, Customer Alignment had createdsavings of US$1517 million through increasedsales and distribution efficiencies. More impor-tantly, by aggregating data and realigning respon-sibilities, PepsiAmericas had begun to expose theopportunities that improved data could createfor the business.

[Customer Alignment] opened our eyes, particularly on the data management side,to how many opportunities there were. We

didnt know what we didnt know, right?Then we said, Holy Cow, thank God wedid what we did! And that led to a wholeset of projects that weve embarked on.

Mike Durkin EVP, U.S. Operations

Building an IT-Business PartnershipThe Next Gen initiative convinced senior execu-tives that they needed to drive value from tech-nology initiatives. They agreed that the diffi-culties associated with implementing Next Genhad stemmed, in part, from a misunderstandingof the capabilities and limitations of IT:

I have emphasized that IT initiatives areequally about people, process, and tech-nology. But if anything goes wrong, it

usually looks like a technology problem. Ken JohnsenSVP and CIO

At one point during Next Gen, IT managersfielded complaints that the new handhelds weremaking pricing mistakes. Subsequent analysisrevealed that the equipment was fine, but new

prices were often submitted after the scheduledtime for downloading prices onto the handhelds.

Early on, when PepsiAmericas was managed as13 distinct regions, the IT unit had served as anorder taker from the 13 regional heads. As tech-nology provided a common platform for stand-ardized business processes, IT began to take onmore of a leadership role. Between 2001 and2004, CIO Johnsen had initiated a number ofmanagement changes to enhance the leadershipcapabilities of the IT unit. (See Figure 3 for atimeline of the firms major business initiativesand related IT capabilities.)

Johnsens first initiative created an IT gover-

nance board that included the CEO RobertPohlad, the COO Ken Keiser, and most members of the senior executive team. Members ofthe board regularly attended meetings, but, indeference to the firms entrepreneurial culture,were reluctant to centralize decision rights.Thus, they shied away from allocating IT funds

based on enterprise priorities. As a result, until


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around 2006, IT projects mostly supported func-tional and tactical business goals.

When management defined the Customer Align-ment initiative, senior executives started to rec-ognize the need to establish IT investment prior-ities. Eventually, Ken Keiser assigned a subset

of his world-wide leadership team to a councilthat made decisions on project prioritization:

Every request for IT resourcesandthere could be hundreds of themgoesthrough this council. Ken Keiser

President and COO

Projects were evaluated based on their internalrate of return (IRR), and expected cost cuts were

baked into the next years expense budget. Butthe council was particularly guided by the firms

strategic priorities: Revenue management, pricing projectsare going to be the highest priority.

Margin improvement is going to be thenext highest priority project for us. Cus-tomer requirements, customer flexibility,and customer wants and needs will bethe next priority. Volume would be thenext priority... So we take all the projectsand assign these different value driversto the projects. Then from that grouping

we can go back and say, all right now,how do we deploy our limited resourcesagainst these projects to get them done.

Alex Ware EVP and CFO

Another IT management change was the forma-tion of a project management organization(PMO). The PMO helped to implement a moredisciplined project management and systemsdevelopment methodology. To support the newmethodology, PepsiAmericas assigned executive

business sponsors to each project. These spon-sors took high-level responsibility for implemen-tation and business benefits. In addition, busi-ness leads were paired with IT leads to manage

projects on a day to day basis. For major projects, PepsiAmericas created execution teams:

[Execution teams] are all people that cameout of the business. None of them have ITbackgrounds. They are all ex-dispatchers

or ex-warehouse people or ex-ASMs thatwanted to learn something new, how to dochange management. So they come intothe PMO and they go deploy all these newsolutions. John Kreul


Gradually, the more disciplined project life-cycle, the increased role of senior executives inIT governance, and the involvement of businesssponsors and execution teams led to a strongerIT-business partnership:

Our partnership with IT has probablybeen the biggest change for us as anorganization. We truly are partnering in a

proactive, not reactive, way. There is an IT representative at my staff meetings, andour people go to the IT staff meetings, to

make sure that were in sync and workingtogether I think we recognize that asbusiness leads, we are dependent on thiscollaboration. IT is not just this supportdepartment off to the side. They have to be

part of our strategy as we move forward. Rich Frey


Rich Freys IT partner, John Kreul, noted thatthe partnership was a two-way street:

Were partners. And we work very welltogether. I think you need that type of partnership for success. So, theyre work-ing on the processes and were workingon the technologies, but we flip back and

forth. I mean, were constantly recom-mending process changes, and if the tech-nology is not working the way it needs towork, theyre constantly collaboratingon that. John Kreul

Competitive Edge: Building ITInfrastructure for Business AgilityIn 2006 PepsiAmericas IT unit worked with anoutside consulting firm to develop an IT strategy.They identified eight critical future business ca-

pabilities: customer and partner connectivity; ac-curate planning and forecasting; metrics drivenexecution; workforce mobilization; flexible dis-tribution; selling/revenue management; and asset


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management. These capabilities aligned with thefirms stated strategic planks (See Figure 4):

Once we defined the future business capabilities, we looked at our IT systems.They were all already on a common

platform, but we needed to better central-

ize our data... And we needed to build amobile platform where we could plug indifferent devices, a handheld or a cell

phone or something else [to capture andaccess operating data]. Irina Raff

VP, Architecture and Infrastructure

The Competitive Edge initiative developed the ITinfrastructure needed to support PepsiAmericascritical business capabilities. Competitive Edgehad two major components: (a) an information

backbone; and (b) a mobile platform.

Information BackboneThe Customer Alignment initiative improved

performance through reorganization and busi-ness process standardization. However, the new

processes exposed inconsistencies in data defi-nitions. For example, there were idiosyncrasiesin customer naming conventions that made itimpossible to roll up data from the individualregions and provide consolidated data for anational chain:

Customer Alignment threw the rug backand all the dirt was there. And so nowwere sweeping it up. Tim Gorman

SVP and Controller

PepsiAmericas wanted accessible data for bothoperational decision making and business analy-sis. Based on these business needs, the IT unitcreated two important data assets (see Figure 5):

1. A central data repository (CDR), that is, aset of master files and transaction files fromwhich core applications could obtain or storedata; and

2. A data warehouse (DW), which extracted andorganized historicaland some external data for subsequent analysis (see Figure 6).

The CDR served as a gateway to shared trans-action data, isolating data from existing and newapplications. Thus, once a customer record was

stored, any application that needed the customerdata would interface directly with the CDRrather than its own customer records. Thisallowed data sharing across applications, whichreduced data redundancy and increased dataintegrity (see Figures 7 and 8). The CDR alsoallowed PepsiAmericas to rapidly develop theireCommerce capability and to interact with ex-ternal customers. It also reduced developmenttime, because developers were writing to stan-dard data interfaces rather than creating newdata sources or linking multiple existing datasources:

We got our [new] pre-sell application upin months, and that was a year projectbefore. If its a CDR enabled applica-tion, I think the time to deliver is cut in

half. John KreulVP, Applications and Customer Service

The CDR permanently stored master data, likecustomer records. Transaction data, like ordersand invoices, were stored in the CDR only untilthey were processed. Long-term they werestored in the DW, where all the transactionsassociated with a single customer (for example)could be matched for purposes of reporting,analysis, or history:

In the data warehouse, were building a360-degree view of our business. So foreach customer, now youll be able to seewhat was ordered, what was delivered,what was forecasted, what was paid,what were the CDAs [customer develop-ment agreements], the special discounts,what was accrued, whats going to be

paid, what types of displays and ads from the syndicated data, the demo-graphics of the customers market, fore-casts of sales, and demand forecasts. Bycentralizing that, you can start analyzing,well, are we giving the right price to ourcustomers for us? Irina Raff

The IT unit designed the CDR and DW basedon its strategy work. The idea was to create datathat would be used across the enterprise, ratherthan ask individual business leaders what datathey wanted. The IT unit formatted the data tomeet PepsiAmericas-specific enterprise data needs:


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The format defines how we want to usethat data throughout our enterprise.That way, we become vendor-independ-ent, which was very important in ourconcepts. So its not the PeopleSoftdesign, its what we think is the best wayto design our data stores. That took along time to figure out. John Kreul


Following initial design of core master andtransaction data and selection of tools to accessthe data, the information backbone was intro-duced to business users to stimulate thinkingabout how to use the new data:

We built a showcase that I took on amarketing tour, to different functional staffmeetings. To do that, we needed to

anticipate the information that no one wasreceiving, but would like to have, and a

few business people helped us with that.From our strategy work, we knew theywere starved for the right information.When we knocked on some doors to gethelp developing our showcase, we said,Were really close to finishing, and thisis what we think we can offer you. Whatdo you think? Lets build something jointlyto see. Their responses were like, Wow!

How far along are you? When can I getit? My team can help! Irina RaffVP, Architecture and Infrastructure

IT was able to build the core of the CDR andDW capability with $2.5 million in seed fund-ing. Going forward, the IT unit would build outthe information backbone on an as-needed basis.For example, in 2008, neither merchandisingnor field service were connected to the CDR.Both were old systems that would connect whenthey were eventually replaced.

Business Leadership of Value Extraction from the CDRCompetitive Edge, an IT-owned project, led totwo initiatives focused on driving value fromthe information backbone. Both initiatives wereheaded by business leaders in Finance. TimGorman, SVP and Controller, was responsiblefor driving value from the central data repository

through Enterprise Data Management. He fo-cused on workflow, to ensure that data was inthe right place at the right time and that it wasentered and maintained by the right person:

With Customer Alignment, we changedthe organization, but the information

doesnt necessarily track with the neworganization. We need to redesign theinformation so that it actually flows theway the organization is set up, so that ifwe set up a new customer, they go intothe correct customer group, the correctmarket area, and theyre under the sales

person that theyre supposed to be under. Tim Gorman

SVP and Controller

Tim Gorman established a cross-functional gov-

ernance council to oversee data standardizationand to be the permanent owner of the data dic-tionary. People rotated into the council from thefunctions, so that many people would have theexperience of making decisions about data:

The governance council decides, do wemove data attributes directly into theCDR and then feed them to all the appli-cations so that you know its consistentwithin all the applications, or not? Theseshould be the critical data attributes thatwere really going to maintain, define,measure, and ensure that theyre accurate.

Tim Gorman

Gormans team was not only looking at data,they were also looking at the processes thatcreated and maintained the data. They were alsoidentifying data owners who defined their dataand determine how it should be captured and

processed. The team started with pricing data.The process of cleaning the pricing data revealed

instances where a deal was not entered or wasentered twice. This kind of error caused pricesto default to full wholesale:

Before, the number of cases a week thatwent out at full wholesale was in the70,000 range. After putting in this proc-ess, were now down to around 11,000cases a week. Tim Gorman


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Sandy Mathias was responsible for the EnterpriseReporting and Analytics project. This projectleveraged the data warehouse and took advan-tage of a new business intelligence tool fromCognos. Its goal was to encourage a more ana-lytical approach to the business:

getting away from the analysis happening in a small group of brainiac people, to everybody knowing what they aredoing, being smart enough to look atwhats happening and having some ideasabout whats wrong or what needs to be

fixed. Sandy MathiasVP, U.S. Finance

Sandy Mathias emphasized that this was not justa data management or business intelligence en-deavor, it was a major change management effort:

For these initiatives to affect the entireorganization or big pieces of it, you needto have a serious change managementelement to the project team. And thatinvolves communication and educationand training, and training after the fact.

Sandy Mathias

Senior executives felt that change managementrelated to business intelligence would be wellworth the effort. As reliable data and metrics

became available, executives envisioned a moreinformed workforce responding quickly to valu-able information:

In our low growth domestic business, tome the perfect state would be where wewould have performance measures suchthat a person could look at their scorecard at the end of every day and see howthey've done. That would be nirvana forme. Alex Ware

EVP and CFO

Mobile PlatformTo build a foundation for mobile applications,PepsiAmericas focused on handheld devices:

We use handhelds in three processes,and we have a thousand people that use

them to take orders for our large formatand retail accounts. John Kreul


IT managers could not find a reputable softwarevendor able to meet the firms needs, soPepsiAmericas did much of the work in-house:

To be tied to a vendor that has 20 employees and is on the verge of goingunder at any given time is not a goodidea. So we made a strategic decision tobring mobile custom development in-house. Mobile is so important to our busi-ness that weve invested. John Kreul

The decision to bring the handheld in-housemeant that PepsiAmericas IT unit neededstrong technology capabilities at a time whenmany cost-conscious firms were outsourcing IT.PepsiAmericas expected to drive benefits fromits technology expertise by reusing technology,data, and business process components:

We upgraded the handhelds in such away that we can reuse parts for invent-tory handhelds, for merchandising, forreplacing our delivery handhelds. Build-ing it so that you can reuse it takeslonger, but then once you build it, youcan leverage it quickly. Irina Raff

VP, Architecture and InfrastructureReuse was expected to reduce the cost ofdeveloping and maintaining IT systems, whileenhancing business agility. The IT unit intro-duced a new design stage (between plan and

build) into the system development life cycle.During this stage, IT architects had an oppor-tunity to identify opportunities for reuse or torecognize opportunities to create newor alterexistingreusable components.

Customer Optimization3: Reaping the Benefits

The Competitive Edge initiative had provided atechnology foundation for a more informed andresponsive business. But management foundthat it took time and experience to learn how toapply the capabilities provided by the infor-mation backbone and mobile platform. Initiated


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in 2007, Customer Optimization 3 (CO 3)3 was aseries of projects focused on driving businessvalue from the business capabilities the com-

pany had been building. In particular, CO 3 intended to use data to improve the performanceof cross-functional processes linking sales and sup-

ply chain activities. CO 3 had three components.

Demand PlanningIn PepsiAmericas traditional regional model,demand planning had been based on field-basedforecasts of demand for each SKU. FollowingCustomer Alignment, PepsiAmericas decided tocentralize demand planning. CO 3 used sophisti-cated algorithms to calculate demand, drawingon historical sales and expected retail prices.Management anticipated that centralized de-mand planning would increase the accuracy ofsales forecasts and improve warehouse inven-tory management:

So weve gone from 4050% accuracyon a one-week-out basis to now were at71% accuracy two weeks out. We havethat deployed across the whole company.

And we are definitely seeing drops inout-of-stock percentages at the ware-house, which had been 35%. We are at2.48% and our target was to get ware-

house out-of-stocks down to 2.5%. John KreulVP, Applications and Customer Service

With demand planning, PepsiAmericas couldavoid under-producing (leading to out of stocks)without over-producing (leading to excessinventory).

Power Pre-sellExpanding on the capability provided by the

Next Gen handheld device, Power Pre-sell intro-duced a new handheld device for the firms 1100frontline selling people. A statistical forecastingalgorithm was used to produce a suggestedorder, that took into account current inventory,two years of sales history, seasonality, external

3 CO 3 stood for Customer Optimization to the 3 rd power Planning + Selling + Delivery. CO 3 was a programintended to reduce out-of-stocks, increase productivity,and improve customer service.

data, and retail price points. The suggested orderwas automatically downloaded to the handheld.Although account sales managers could overridethe suggested order during a sales call, theywere unlikely to do so:

One of our more experienced Account

Sales Managers said, You know, I wasreally skeptical at first and then I justkept finding that the handheld was doinga better job than I was generating anaccurate order. Rich Frey


Using cell-phone technology, the handheld imme-diately transferred final orders to the warehouse.

While demand planning reduced out of stocks inthe warehouses, Power Pre-sell and the sug-

gested order it generated reduced out of stocksin the stores. By mid-2009, out of stocks instores had decreased from 14% to 3.7%. Theseimprovements were realized while back roominventory in stores dropped 52%.

Perfect PalletTraditionally, PepsiAmericas had hundreds ofloaders using load sheets to pick products, putthem on a pallet, and load the trucks. For DirectStore Delivery (DSD) customers, drivers were

responsible for the accuracy of the loads, but theloads were checked at the gate each morning asthe trucks departed. At large warehouse loca-tions, checking out 100+ trucks in the morningcould take hours. To eliminate the bottleneck,the initial CO 3 plan would have inserted qualityassurance staff to check pallets and verify accu-racy at the point of the pick. However, this planwould increase headcount by about 200 people.

IT leaders became convinced that technologysupport could eliminate the need for additional

quality assurance staff. The Perfect Pallet ini-tiative called for a standard warehouse layoutwith loaders wearing Voicepick headsets that

prompted them as they made their way throughthe warehouse. With the help of voice recog-nition technology, the Voicepick automaticallyidentified any out of stock items and adjustedthe customer invoice. This process also trig-gered replenishment of the SKU.


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By ensuring accuracy at the time of pick,PepsiAmericas avoided additional QA head-count, while also eliminating the gate checks,thus saving drivers time. Random audits en-sured that Voicepick processes were working.PepsiAmericas target was for the invoice to be100% correct at delivery 99.8% of the time:

In terms of invoice accuracy, lets saythat we were in the low 90s. Thats

probably generous. We are now 99.81%accurate. We can measure it, and we cando picker productivity, we can tell each

picker how many cases per hour theyredoing, how many of their pallets havebeen QCd, how many of their QC palletswere accurate. And now were puttingscorecards within the warehouses.

John KreulVP, Applications and Customer Service

All three CO 3 initiatives used PepsiAmericas ITcapabilities to continuously improve the firms

business processes. Business executives notedthat effective use of IT involved ongoing experi-ments and assessment:

Theres this notion of, Hey, lets get itout and get 80% of what we need. Wemight think we know what the next 10%should be, but wed be guessing aboutthat. I might think its one thing and youmight think its something different. Solets get it out and use it, and then wellhave a better understanding of what weneed. We need a sustained effort. Wehave to keep making enhancements.Thats a core part of moving this thing

forward. Jay Hulbert EVP, Worldwide Supply Chain

Pursuing Business Growth

While PepsiAmericas was attempting to opti-mize business process efficiencies in the U.S.,the firms goals in Central and Eastern Europefocused on business growth. The economies oftheir CEE countries were growing (See Figure9) and per capita consumption of beverages wasincreasing. Moreover, the CEE populationswere largePepsiAmericas US market made

up only one quarter of the total consumer popu-lation the firm served world-wide (see Figure 10):

These economies, while just emerging,are bringing unbelievable growth. TheGDPs are growing 6%, 7%, 8%, so con-sumers are getting more income and

more money to spend on beverages. Ken KeiserPresident and COO

The structure of the European business reflectedthe series of acquisitions that had characterizedPepsiAmericas expansion. Poland, Slovakia,Czech Republic, and Hungary became part ofPepsiAmericas with the Whitman merger in2000. A single management team led those fourcountries and some functions were centralized.Subsequently, PepsiAmericas acquired Romaniaand the Ukraine, each of which had a separatemanagement team.

CEE was the most profitable segment ofPepsiAmericas business. Labor and other costswere lower there. In addition, the dollar had beencomparatively weak, and the CEE product mixyielded higher margins. While PepsiAmericaswanted to reuse some of the IT and business

process capabilities it had developed in theUnited States (e.g., the Central Data Repository),it was clear that the structure and architecture ofthe CEE was different from the States. In fact,the businesses in the CEE were different fromone another.

PepsiAmericas strategy for IT in Europereflected the fact that the CEE businesses werefocused on revenue growth while the U.S. busi-ness was focused on securing efficiencies:

The IT strategy for the European busi-nesses, including Ukraine and Romania,is to get them all on a common SAPbackbone. And when I say backbone, its

primarily accounting, inventory manage-ment, HR, and finance. And then welluse a best of breed approach for thingslike demand planning, selling, delivery,those types of things. Ideally those bestof breed solutions would be the sameacross all of our geographies, but to the


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extent that it isnt beneficial, the solutionscould vary. Ken Johnsen

SVP and CIO

Johnsen noted that the reasons for establishingcentralized and standard services were differentfor CEE than for the United States:

Shared services might be to fill acapability void, not necessarily a cost

play; in fact, it may increase your costsbecause the labor is so cheap there,especially in the really developing coun-tries. You create shared services notbecause its going to be cheaper, butbecause you cant do it otherwise. Theseback-office capabilities arent a nice tohave, you have to have them because ofSarbanes-Oxley. Ken Johnsen

Management recognized that over time theEuropean business could overtake the U.S.

business:

When you have U.S. growing revenue at2% or 3% and international growing atthree times that, eventually internationalcould overtake the U.S. And then if weexpand into other areas of the world, well,one day we wont be PepsiAmericas. Ourname will be something different.

Ken KeiserPresident and COO

Given the opportunity, PepsiAmericas wanted toget IT right in its CEE business. Managementwas busy trying to determine what that meant.

EpilogueIn August, 2009, PepsiCo announced that itwould acquire its two largest bottlers, The Pepsi

Bottling Group (PBG) and PepsiAmericas(PAS). 4 In announcing the merger, PepsiCoChairman and Chief Executive Officer Indra

Nooyi said:

PepsiCo has had a constructive part-nership with PBG and PAS over the past

10 years. While the existing model hasserved the system very well, it is clearthat the changing dynamics of the North

American liquid refreshment beveragebusiness demand that we create a more

flexible, efficient and competitive systemthat can drive growth across the fullrange of PepsiCo beverage brandsThe fully integrated beverage businesswill enable us to bring innovative prod-ucts and packages to market faster,

streamline our manufacturing and distri-bution systems and react more quickly tochanges in the marketplace... Ultimately,it will put us in a much better position tocompete and to grow both now and inthe years ahead.

PepsiAmericas Chairman and Chief ExecutiveOfficer Robert C. Pohlad said:

Over the past nine years, PepsiAmericasand each of our employees have helpedbuild a remarkable organization. Thesuccess we have achieved is reflected inthe agreement reached with PepsiCo.

4 This epilogue on the PepsiAmericas acquisition is basedon material at: http://investors.pepsiamericas.com/releasedetail.cfm?ReleaseID=400925


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Figure 1PepsiAmericas Operations 2009

United StatesCentral and

Eastern Europe Caribbean Total

Population (millions) 50 151 8 209

Per Capita Consumption 1,555 672 866

Percent of Total CompanyNet Sales 2008 69 26 5 100

Employees 12,200 7,600 1,000 20,800

Production Facilities 17 13 3 33

Distribution Facilities 127 45 5 177

Figure 2PepsiAmericas Partial Organization Chart

Robert PohladCEO and

Chairman of the Board

Alex WareEVP and CFO

Ken Keiser President and COO

Tim GormanSVP and Controller

Sandy Mathias VP, U.S. Finance

Mike DurkinEVP, U.S.

Operations

Jay HulbertEVP, WorldwideSupply Chain

Jim RogersEVP, International

Operations

Ken JohnsenSVP and

CIO

John Kreul VP, Applications and

Customer Service

Irina Raff VP, Architecture and

Infrastructure

Rich Frey VP, SalesOperations


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Figure 3Timeline of PepsiAmericas Business and IT Initiatives

Year Business Initiative IT Capability Initiated

2000 Merger of PepsiAmericas & Whitman

2001 NextGen: Common platform and move topre-sell

Project GovernanceFunctional IT SteeringCommittee

2002

2003 Succession Management Program Management Office

2004 System Development Lifecycle (SDLC) Project Execution Team

2005 Acquisition of independent bottler - CentralInvestment Corporation (CIC)

NextGen Platform Completed Customer Alignment

2006 Competitive Edge: Information Hub, DataWarehouse, Reporting & Analytics, eCommerce,Mobile Platform

Acquisition of Pepsi bottler in Romania

Enterprise Data Management

2007 CO3

Acquisition of Sandora juice company in Ukraine

Business Relationship Management (BRM) Quality Assurance

2008 Global Growth Program (GGP) Project GovernanceGlobal Steering Group

2009 PepsiCo Transaction

Figure 4Business and IT Strategy 2006 to 2009

Business Architecture: Business and Technical Agreement

Systems Architecture: Logical System Description

Technical Standards: Technology Delivery

Continuity of Operations / Disaster Recovery

Customer& Partner

Connectivity

WorkforceMobilization

FlexibleDistribution

Network

MetricsDriven

ExecutionModel

AccuratePlanning &Forecasting

SellingCapability

Selling &RevenueMgmt.

AssetMgmt.

InformationBackbone eCommerce

Enterprise

MobilePlatform

Enterprise

DataMgmt.

Reporting & Analytics

Deliver & expanda portfolio of

dynamic brands

Consistent &superior LRB

execution

Win in growthchannels

Customer-centric,cost-effective &aligned supply

chain

PASStrategicPlanks

CriticalFuture

BusinessCapabilities

Required ITEnablers

Foundation


20/23


Figure 5Information Backbone

DeliverySales System

PeopleSoftERP

PricingSystem

HumanResource

System

EnterpriseReporting

DemandPlanning

WarehouseManagement

System(VoicePick)

OrderManagementand Routing

Pre-SellOrder System

Call Center

DataWarehouse

Central DataRepository

Invoices

Orders

Orders

Master Data

Master Data

Master Data

Master Data

*PepsiCo North America

Deals, Pricing

People

PCNA*

Figure 6Contents of the Data Warehouse

Orders

Invoices

Forecast

CDAs

Ads

Displays

Demographics

Payments

Hours Worked

ProductPicked

Delivered

OrdersTaken

Invoices Created

Training

# Accidents

ProductsMerchandized

Enterprise Data Management Is a Key Enabler for This

National Price

InvoicePrice

DealPrice

OrderPrice

Wholesale

RetailPrice

CompetitionPrice

Ad price

Building a 360 Degree View of Our Business


21/23


22/23


Figure 9Growing Economies with Growing Beverage Categories

2.2% 2.1%

5.7% 5.9% 6.0%6.1%

6.5%6.9%

7.3%8.0%

8.8%

10.3%

0%

2%

4%

6%

8%

10%

12%

US Hungary CzechRepublic

Romania Moldova Bulgaria Poland Ukraine Estonia Lithuania Slovakia Latvia

GDP Growth Rate(Est. 2007)

Figure 10Population in PepsiAmericas Markets

50million population

United States

8million population

Caribbean

151million population

Central andEastern Europe


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Documents

Pepsi Americas Business Case