SUPPLY CHAIN OF PEPSI CO.

Bisma AmjadKumail ZaidiHumera UsmanAmna TariqNouman ArifAhmed Sameh Nasir

Introduction

• Plans ahead of time • Receives materials from manufacturers on contractual

basis. • Placement of production plant is decided by the company• Transport for the delivery of products is handled by third

parties. • Raw materials are sourced from local and foreign

suppliers • Capacity planning is backed by forecasting sales and

production planning • Supplier and distributors are selected on the basis of

quality

Objectives of supply chain

• Aims to increase supply chain surplus.

• Planning proceeds sales forecasting from the local demand based on targeted sales provided to the department to be set as a benchmark to coordinate activities.

• Planning is done on daily, weekly and monthly basis.

Supply Chain Operation

• Individual customer orders in an optimal manner in which it allocates inventory to each order, set order fulfillment date, pickup lists from the warehouse, decides on shipping and set date.

• Demand is less uncertain so the production, sales and supply chain make inventory decisions weekly basis.

Process Views of a Supply Chain

• Push processes

• Procurement, manufacturing replenishment and customer order cycle is pushed by seasonal demand.

Pepsi Sales order and processing• Order received through email or telephone from sales and

distribution department

• Distributors are given advance payments of orders.

Competitive strategy

• safe, economical and environment friendly products by creating value for their customers and investors.

• A customer considers product quality, price and availability of the product.

• focuses on product variety, reasonable price and product availability.

Supply Chain Strategy

Step 1: The Customer and Supply Chain Uncertainty

Identifying Customer Needs• Refreshing drink taken regularly during winter,• Increased demand in festivals like New • Caters to rural and urban.• Consumers require less response time, product availability,

reasonable price and variety

Demand Uncertainty and Implied Demand Uncertainty• Demand for Pepsi varies by product.• Pepsi has a low demand uncertainty as compared to Mirinda. • Due to lead need for greater variety and higher level of service,

implied demand uncertainty• Supply uncertainty is also affected by new products.

Supply Chain Strategy

• Step 2: Understanding the Supply Chain Capabilities

• In remote areas; somewhat efficient • Cost reduction• In cities; 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

• Company has to decide to transfer the responsiveness to the manufacture stage or to the retailer stage.

• Pepsi tends to be more responsive in the cities and 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.

Drivers of Supply Chain PerformanceInventory• Inventory storage within the • Storage capacity of 120,000 Sq Ft; area is utilized both horizontally and vertically.• Shipping department is in charge for storage and displacement of product orders. • Established more than 10 storage facilities in Rawalpindi and Islamabad.

Transportation• Multiple supply and demand points which cater to the market demand.• Decides modes of transportation w.r.t speed and size of shipment.• Fast mode of transport increases responsiveness & cost; lowers the inventory holding

cost.

Information• Unit manager utilizes production scheduling system• Warehouse in charge uses information to create visibility of warehouse’s inventory• Information sharing improve its responsiveness • Timely and accurate information to fix potential stock out or oversupply problems.

Drivers of Supply Chain PerformanceFacility• Established a flexible and product-focused production facility. • Storage facilities are designed in order to provide maximum possible capacity for

the inventory. • Large amount of capacity allows facility to be flexible • Facilities have been geographically located close to the market.

Pricing• Fixed pricing is used in seasonal demand e.g in summer. • In winter when demand is comparatively low it uses menu based pricing e.g. Rs. 5

off on 1.5 liter bottle

Sourcing• Raw materials, transportation and distribution is outsourced. • Raw materials are procured by Ria bottler who arrange local vendors to provide

raw materials

Distribution Channels

Direct distribution• Delivery of handling of key accounts (wholesalers, restaurants

and hotels like Pizza Hut, KFC)

Indirect distribution• Base market distributors • Out-station distributors

• Pepsi uses light and heavy vehicles for safe delivery of goods• Follows j.i.t; applicable in Non-seasonal period, not in seasonal• If distributor does not achieve its sales target, the distribution is

taken back, addition of new distributor is done. • Pepsi’s supply is low supply uncertainty.

Factors Influencing Distribution Network Design

Response Time• Minimal as direct customers are retailers and consumers. • Locates center in every country, so it can reach its retailer

in less time.

Product Variety • Large variety.• made place in market with their unique product line• product variety includes beverages ranging from the water

Aquafina to Mountain Dew, Pepsi, 7 Up, Mirinda, Pepsi diet

Factors Influencing Distribution Network Design

Availability• Product is always available in stock• The Distributors has 3 days stock as back up

Customer Experience • Positive Image• Retailers are direct customers, place orders to distributors

Return ability • Unsatisfactory items can be returned and changed on the

spot.

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 are 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 distribution warehouse serves as a buffer between manufacturer and customer.• Real-time visibility between customers and warehouse is needed whereas 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• Storage • The storage facilities are designed in order to boost the timely availability

of the product.

• The storage facilities are designed to contain the maximum possible inventory items that are needed at any given time.

• Distribution• The Pepsi distribution system linked the entire supply chain for all product

categories.

• The major object is to carefully track sales of items and offer short replenishment cycle times.

• Whenever a store places an order it is immediately transmitted to the supplier through the distribution manager.

Transportation Network

 Modes of TransportationTruck• TL (truck load) approach. • economies of scale and meet service requirements

minimizing both trucks idle and empty travel time.• Raw materials from the suppliers are brought; finished

products are transported to distributors and then retailers using trucks as well.

Water• small part of the total transport network. • used for shipping of empty cans.

Shipment via central DC with inventory storage using milk-runs• Products are transferred to the DC in a particular region

and are stored there.• Smaller trucks carry these products to the local retailers

as per demand • Cost effective• Prevents stock outs

• Direct Shipping• Used for transporting products to key account holders

such as KFC and Pizza Hut.

Sourcing Decisions in Supply Chain• Raw material for production and packaging is outsourced

through contracts. • Inbound and outbound transportation of products from

manufacturing place to distribution center and to final customer is outsourced to third party.

Supplier Scoring and Assessment • replenishment lead time, supply flexibility, supply quality,

pricing terms, exchange rates, duties & supplier viability• suppliers are asked to send sample of the products i.e.

sugar• ISO-9001 certified company

Selection of suppliers

• sealed bid contract

• Negotiations are done as win-win basis which states that if the supplier doesn’t negotiate on the particular price then it gives additional product quality and less lead time to cover-up the price it charged.

Raw material Procurement

• The basic components of raw material are: concentrate, CO2, sugar and gas.

• Local and foreign both suppliers are used.• Management advertises in newspaper when they need

suppliers .• Selection Criteria of Distributors• Efficient and well-placed distributors are essential for

ensuring product availability, which is the main target of the company

• Product Categorization by Value and Criticality

Revenue Management • In winters demand decreases.

• Lower the prices in off peak periods.

• Pricing and Revenue Management for Multiple Customer Segments

• targets multiple customers from segments such as children, teenagers and adults.

• The product range is available in tin, glass bottles, plastic liter bottles.• Pepsi differentiates between the customers who truly need the supply

chain asset during peak period and those who will benefit from moving their order to the off-peak period.

• This approach increases profits for the firm

Customer relationship management system:

• CRM plays an important role in retaining the customers.

• Pepsi is using CRM to simplify the timely delivery process, reduce inventory costs and to get customer information.

• Pepsi is using CRM system of oracle to give its customers superior customer experience.

• The overall focus of CRM system is to find attract and attract new potential customer and retain the old customers.

Information technology in the supply chain of PepsiCo

• Software and hardware used by PepsiCo• Oracle E-business suite • to increase the reliability of beverages manufacturing machinery and avoiding

failure in the development process• Uses the FTA methodology to determine the reliability of production equipment and

predict where and when a failure will occur. I• HP Hardware— PepsiCo is systematically controlled by central data department by

HP globally • Protection of software application• Norton Antivirus• PepsiCo have ranked IT security as one of their top priorities as increasingly

sophisticated attacks, new data protection regulations, financial fraud and data violation threaten to damage their businesses.

• Oracle Database Firewall is the first line of defense for both Oracle and non-Oracle databases.

• Monitors database activity on the network to help prevent unauthorized access, and other external and internal attacks.

Coordination in the supply chain of the company: the performance and the obstacles involved

• Pepsi Co has enabled it to achieve a market leader status in Pakistan with an estimated 65 % of the market share.

• This has been made possible by the widespread distribution of Pepsi to

the rural population of Pakistan

• Some of the obstacles when coordinating in the entire supply chain include

• In time flexibility plants do not operate continually and are left idle .

• territory in the remote areas of the country where access is not that easy.

• Outsourcing the production to third parties like shamim bottlers in Multan may hamper the communication process.

Recommendations

• PepsiCo should follow design collaboration while making sourcing decisions.

• The design of product, transportation and logistics should be transmitted to the relating department In order to coordinate the activities.

• Riaz bottlers should adopt the proper technologies for better performance of supply chain.

• The operational performance can be achieved by streamline the manufacturing, production and distribution backed by technology which is backed by EDI, ERP and RFID