Supply chain management (SCM) strategies of PepsiCo - Essay Example

?Supply Chain Management of PepsiCo Executive Summary This paper analyses the supply chain network of PepsiCo. The distribution strategies of the company have also been discussed in the paper. Assessing the Supply Chain Management (SCM) strategies of PepsiCo, the paper depicts the relationship of the company with its different suppliers and the inclusion of innovation as well as technology advancements in its overall distribution process. The paper further evaluates the ways through which PepsiCo complies with few of the most challenging aspects of business in the modern day phenomenon, such as fluctuation customer buying behaviour, forecasting needs and complexities in its SCM approach. As observed with reference to the findings obtained from the study, the SCM strategies of the company have been quite efficient in driving its success within the global periphery. The company also deals in various products and maintains strong network of supply chain for each of its product line which further increases the complexity issues by a large extent in its SCM processes. Moreover, it has also been noticed that the company always seek to adapt new technologies and maintain good relationship with its suppliers in order to enhance its supply chain efficiency to satisfy the customers, its suppliers and also the interests of the business. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Critical Evaluation of PepsiCo’s overall Distribution Strategy and Discussion of the "Direct to Store" Delivery Model 5 Critically Discussing How PepsiCo Handles Relationships with Its Suppliers and Explaining How It Has Been Using These Relationships to Increase Its Efficiency In The Supply Chain 7 7 Assessing PepsiCo’s Efficiency to Deal with Fluctuations in Demand and Supply within Its Supply Chain 10 Conclusion 14 References 15 Introduction Supply chain is the backbone of the modern business organizations. Emphasizing on the conclusions derived from various studies, it shall not be pious to state that the success of companies or any business is dependent on various aspects wherein supply chain can be considered as one of the major attributes. A supply chain may be defined as the combination of one or more companies for flow of products, services and other aspects of business from a source to the customers. It has been analysed in this context that a basic supply chain would include of a company, a supplier and an instantaneous customer directly linked in the flow of goods, services as well as information of the business or companies. The importance of supply chain in context of the modern day business is quite significant as it aims to provide competitive advantages to the companies in the targeted market. Comprehensively, based on these aspects, the systematic and strategic management of a supply chain network is often termed as ‘supply chain management’ (SCM) (Chopra & et. al., 2010; Mentzer, 2001; Christopher, 1998). This paper would intend to analyse the overall distribution strategy of the PepsiCo Beverage Company. Furthermore, the paper would also evaluate how the company deals with its relationship engaging suppliers. Additionally, the paper would discuss about the ways in which PepsiCo attempts to manage different aspects of business such as demand fluctuation and demand forecasting through its supply chain. Critical Evaluation of PepsiCo’s overall Distribution Strategy and Discussion of the "Direct to Store" Delivery Model In the year 2010, PepsiCo Beverage Company, the second major global food & Beverage Company, received the supply chain innovation award for its innovative network of SCM. Based on the understanding of the case study, it has been analyzed that PepsiCo always seeks for streamline operation and facilitate more rapid as well as integrated product delivery procedure in order to maintain a strong supply chain, strengthen its supply chain as well as improve the overall revenue growth of the company. It is worth mentioning in this regard that the award the company had received is in regard to its strong SCM practices facilitated with the innovative “Direct to Store Delivery Model” (DSD model) which was further observed to be quite beneficial to reduce the inventory cost, eliminate the restriction of warehousing space and also enhance the potential SKU growth of the company. It has been observed from the case study that the company was finding it difficult to move a large quantity of its product continuously in terms of warehousing and scarcity of space in its distribution centres creating obstacles to manage the inventories on a regular basis. Contextually, the company seeks to initiate a revised as well as innovative distribution strategy for the company (University of Salford, 2013). DSD is defined as the business process which is principally implemented by manufacturers in order to boost sales with the virtues of distributing directly to its point of sale along with delivering quality assured market services of the products offered. It can further be analyzed that the DSD technique facilitated direct marketing intentions without the engagement of a third party in the distribution channel between the company and the ultimate customers (Otto & et. al, 2009). It also increases the sales of the stores as the product is delivered multiple times per week facilitated by this mechanism which makes the DSD program time as well as cost efficient. Moreover, the DSD distribution concept also facilitates the company to save a substantial amount of time and cost in terms of warehousing and labor intensiveness, as the goods are directly delivered in the stores located at various places. It has also been noted that DSD is also beneficial to the company as it increases the productivity of the company, lower its stock limits and reduce clerical functioning making the SCM process much smoother and efficient (University of Salford, 2013; ABSS, 2006). A basic DSD model would be in the following form. Fig: A Basic DSD Model (MWPVL, 2013) Apart from DSD, PepsiCo also uses the assistance of third party in its SCM process with the intention of distributing its products to the retailers all over the world. The company also implements the Automated Storage and Retrieval System (AS/RS) which consists of a variety of computer based methods of placing as well as retrieving loads from particular storage locations of PepsiCo (University of Salford, 2013). Notably, with the incorporation of this system, the direct labor cost of the company was reduced by 40% along with a considerable increase in the manual loading and transporter loading productivity of the company. Furthermore, in the year 2000, the company went in collaboration with the 3PL provider Penske logistics in order to transport its high cost perishable items to the production location in the right time when needed, which in turn would certainly optimize the production of the company. As a result of the collaboration with the logistics company, the transportation management technology of PepsiCo was changed from proprietary software to an advance i2 technology and thus computerising the entire SCM practices of the company. It is worth mentioning in this context that after the incorporation of the new technology, i.e. the i2 technology, the company was able to obtain 99% on time delivery performance. Additionally, as revealed from the case study, the company also uses other technologies which enable it to obtain the benefits of lowest transportation costs and continuous enhancement of the distribution network (University of Salford, 2013). Critically Discussing How PepsiCo Handles Relationships with Its Suppliers and Explaining How It Has Been Using These Relationships to Increase Its Efficiency In The Supply Chain With its operations scattered in different parts of the world, the relationship of PepsiCo with its different suppliers is quite crucial. Notably, it has often been argued that PepsiCo’s relation with its suppliers have been one of the major reasons for the immense success of the company all around the world. From an in-depth perspective, it can also be analyzed that the success of the supply chain of the company is largely due to its collaborative relationship with its retailers all around the world which has not only facilitated the company with maximized profitability and revenue generation scope, but has also rewarded it with the benefits of sustainable growth prospects. From a theoretical perspective, the concept of supplier relationship management can further be addressed as a multidimensional aspect which includes the various processes such as supply management, supplier settlement, collaboration with the suppliers and monitoring the performance of the suppliers among others (Emmet & Crocker 2008). With reference to the empirical evidences available, it has been observed that the company went into collaboration with Wegman’s Retail and approached them to sell the Frito Lay product of the company which was of high margin. The company encouraged Wegman’s to sell its Frito Lay product, while preserving the sales of the beverage product of the company. This resulted in a mutual benefit for both the companies which ultimately contributed towards the supply chain efficiency of PepsiCo (University of Salford, 2013). It has further been noted that in order to enhance their interaction with the customers, the company developed a new workforce solution with Trimble which is a well known company that provides technology assistance to other companies such as PepsiCo in terms of Global Positioning System (GPS) receivers and Inertial Navigation System among others. It is worth mentioning in this context that with the intention to maximize its interaction with the customers in order to generate better brand awareness and therefore sell its products more effectively. The Trimble solution enables the company to identify and thus obtain benefits from the real time demand of the product and promotional information in accordance with the customers’ buying behaviour. Furthermore, in order to strengthen its supply chain, the company also decided to revise its distribution system for its Gatorade product line and deliver them directly to the stores through its DSD initiative. Correspondingly, the outcome obtained from this step of the company revealed a 20% increase in sales in this particular product line. The company also tied up with the Dollar general corporation for selling its products with a more effective SCM strategy. Dollar General Corporation is renowned as a chain of variety stores that operates in the US with over 9200 stores. Through its SCM initiative, PepsiCo initiated to deliver its Gatorade products directly to the stores of Dollar General (University of Salford, 2013). Fig: A Basic GPS Model (Engineers Garage, 2012) Apparently, in accumulation, these SCM initiatives helped the company substantially to strengthen its supply chain and distribution performances which further facilitate sustainability and profitability in almost every sphere of the organisation. Contextually, it has been observed that PepsiCo sells different kinds of products all around the world. Hence, the demand pattern for the product of the company is diverse depending on the product lines and the customers’ preferences. As the company deals with different kinds of products, it also experiences demand throughout the year in its worldwide locations. With reference to the company’s performances over the years, it can be observed that the strong supply chain strategies of the company have been quite effective to satisfy the continuously augmenting demand for its products throughout the year, which requires adequate measures to facilitate the year-on-year supply increases. It has also been noticed that some of the products offered by PepsiCo experience a seasonal demand. It is in this context that the company focuses on creating strategic allies with the retailers offering them with substantial profits to encourage their participation in the SCM. From an overall perspective, it could be observed that the company always seeks to maintain a good relationship with its supplier in order to develop a proper supply chain network so that the company can maintain as well as enhance its good performance in the global market (University of Salford, 2013). Assessing PepsiCo’s Efficiency to Deal with Fluctuations in Demand and Supply within Its Supply Chain In context of the modern day business fluctuations in terms of consumer tastes, preferences and buying behaviour which in turn tends to influence the overall consumer demand to a large extent (Dyckhoff & et. al., 2004). PepsiCo is also among the companies who face such challenges with respect to the fluctuation in the consumer market scenario. Recent reports revealed that the demand for PepsiCo is largely affected by the changes observed with respect to the preferences and tastes of the customers all around the world. It is known that constant demand of the product is quite essential for the company as it directly affects its revenue as well as profitability in the long-run. It has been observed that any mistake or inability from the side of the company could also result into significant demand reduction. It has been further noted that the success of the company is dependent on its ability to anticipate and respond to the change in demands and trends among the customers through the implementation of effective SCM policies. In this regard forecasting of the future demand has been an integral part of the SCM strategies implemented by PepsiCo is its worldwide business operations. The term, ‘forecasting’ may be defined as the prediction of the future demand of the product on the basis of various aspects such as planning as well as decision making. However, it is quite significant to understand that this technique is based on assumptions where chances of success are considered to be quite uncertain. Forecasting practices in PepsiCo is classified into three types which commonly includes long, medium and short term projections of the company’s performance which assists the organisation to maintain a continuous control over its business functions in accordance with the external market fluctuations (Lysons & Farrington, 2012). To be illustrated, PepsiCo implemented the PCA database in its operations in order to obtain an accurate forecast of the possible future demand fluctuations. The company is engaged with the manufacturing of different products where most of the products witnessed continuous demand in the worldwide market, while few of the offered products were subjected to seasonal sales. Thus, in order to forecast the demand for the diverse product of the company, the new supply chain system is inbuilt which enables the company to connect with its distributors all over the world with a multidimensional approach comprising both direct and indirect interactions with the customers. The PCA database further helps PepsiCo to effectively plan its demand, production as well development of the product so as to obtain long term efficiency in satisfying customer tastes and preferences facilitated with more accurate identification (Practical Computer Application, 2013). Fig: Process of PCA (Practical Computer Application, 2012) However, owing to its complexities in the supply chain might give rise to the situation of bullwhip effect within PepsiCo. The forester effect or the bullwhip effect is a situation that is fundamentally caused due to the frequent swing in inventory of companies as a result of changing demand patterns. It mainly occurs due to the failure or uncertainty in the demand forecast of companies which can further unsterilise the inventory position of the company by a substantial extent. It has been observed in this regard that PepsiCo always intends to maintain a strong supply chain network. Based on this ground, it can be argued that the company is quite aware of the importance of an effective supply chain in its success. It always intends to enhance its supply chain through establishing collaborative relationships, implementing advance techniques and ensuring better interaction with its customers to name a few. These aspects further enable the company to obtain an almost accurate demand forecast, which reduces the chances of the rise of situation that leads to the ‘forester effect’ (Slack & et. al., 2006). Contextually, with respect to the distribution process as practiced by PepsiCo, it has been analyzed that there exist a situation when the demand for the goods exceeds its supply in the market. This particular situation is often explained with the theory of ‘demand pull inflation’. It has been further noted that due to the rise in demand, there also exist chances of rise in price in the market owing to which, PepsiCo has been implementing a smart selling solution called Trimble and PCA database in its supply chain network which has apparently enabled it to obtain the real time demand forecasting of its various products, sales information of its different distribution centres as well as the promotional information regarding its products on offer. In its SCM initiatives, the company was also observed to have changed its distribution pattern from warehouse delivery to DSD mechanism in order to deliver the product directly to retailers’ shelves and gather a more precise and updated understanding about the demand pattern in the market. These factors further helped the company to balance its supply in accordance to the demand of the product in the market thereby avoiding situations of demand pull inflation (Emmett & Crocker, 2012). Conclusion From the overall study, it can be summarized that supply chain is one of the vital aspects of the modern day business. It plays a major part in determining the position and reputation of companies in the global market. It has been observed in this context that PepsiCo focuses on extensive management of its supply chain network within its targeted worldwide market. Based on a similar context, it can be argued that the success of the company all around the world is largely owing to its efficient supply chain network and other SCM policies. Conclusively, it can be stated that facilitated with effective technology inclusion and innovative thinking, PepsiCo’s SCM process has been a success in the modern day business context which not only preserved the sustainability interests of the company by satisfying the stakeholders but also proved effective in accomplishing the business goals of the company by a significant extent. References ABSS, 2006. Gaining a Competitive Advantage in Direct Store Delivery (DSD). Home. [Online] Available at: http://www.abss.co.th/download/zebra/Case_studies/DSD_R4_9%2026.pdf [Accessed April 07, 2010]. Christopher, M., 1998. Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service, 2/E. Pearson Education. Chopra, S. & et. al., 2010. Supply Chain Management: Strategy, Planning and Operation. 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