Supply Chain Management and Logistics - PepsiCo - Case Study Example

of paper: and number: submitted: Supply Chain management and Logistics Introduction Thesis Statement: This research is aimed at evaluating the supply chain management and logistics of a renowned multinational company, PepsiCo. PepsiCo is a giant company operating in the food and beverages segment. The company is a global leader in the segment of food, beverages and convenient snacks. The revenue of PepsiCo as of February 2014 is USD 44 billion and the company employs more than 196000 people across its operations in various locations. The company operates in 200 countries across the world. PepsiCo was established as a corporation in the year 1975 through a merger between two companies Frito Lay and Pepsi Cola. Some of the brand names of PepsiCo have been in the market for more than a decade. PepsiCo consists of three main business units. These are PepsiCo International (PI), PepsiCo America’s Beverages (PAB) and PepsiCo America’s Foods (PAF). PepsiCo America’s Foods include the Frito Lay, Quakers and all other Latin American snacks and food businesses of PepsiCo. PepsiCo America’s Beverages include the PepsiCo beverages segment in North America. PepsiCo International encompasses all the businesses of PepsiCo in the worldwide locations including Europe, Asia, and United Kingdom, Africa and Middle East. The huge success of PepsiCo has been driven by a number of innovative and dynamic business practices. The supply chain management and logistics of the company is an efficient and renowned division which has been a major driver of the worldwide success of PepsiCo. PepsiCo strives for honesty, integrity and efficiency in all its business processes. This is also reflected in the supply chain management of the company. Discussion Supply Chain Design (Source: Schneider, 2003). PepsiCo strives to ensure superior supply chain management strategies. For this, the company plans any changes in the supply chain management design and strategies two years in advance. PepsiCo is a globally recognized company and has an established network of suppliers and manufactures. This helps to facilitate the establishment of a robust procurement process in PepsiCo. PepsiCo sets up its production plants in the most strategic locations. The production process of PepsiCo extensively uses automated systems. The manufacturing process of PepsiCo is 65% automated. The company has a set arrangement of different third party transportation vehicles providers in order to ensure the steady and fast procurement of products. The supply chain management system of PepsiCo has two main units which are the shipping department and the transportation department. The transport department looks into the allocation of products for transportation while the shipping department is responsible for handling orders. The capacity planning is also done in the procurement stage in which the terms and conditions are decided. This is followed by the production planning and sales forecasting processes (Anderson, Frank and Donavon, 2007). The capacity planning and production planning in PepsiCo is done with suitable consideration of the production requirements, the storage of raw goods, packaging of raw and finished goods and the storage of finished goods. The goal of the planning process is to make the optimal use of the available resources in the supply chain and logistics system of the company. PepsiCo conducts the sales planning by evaluating the local demand and maps it with the capacity plans to understand how efficiently it can process the goods to meet the customer demands. This planning process helps to pre define the parameters in which the supply chain and logistics unit will function over a particular period of time. Supply Chain Operations The company ensures the procurement of raw materials on a continuous and convenient basis. It has established policies and plans for effective sourcing and material planning. The suppliers of raw materials for PepsiCo include both domestic and foreign suppliers. The suppliers are selected with a properly planned process which involves the identification of suitable suppliers followed by the selection of the best fits for suppliers and the discussion of terms and conditions with the suppliers. The suppliers of PepsiCo are audited on a periodic basis through efficient quality control and quality check procedures. The company has a specific division dedicated to these activities. This process is shown in the diagram below. (Source: Murthy, 2008). The distributors of PepsiCo are also selected by the company depending on the best fit and the past performances of the distributors. The goal of the supply chain and logistics operations of PepsiCo is to add to the efficiency of the organization by ensuring proper procurement and distribution of products, effective movement of goods from the supplies to the consumers and management of demand uncertainty in the supply chain. The products of PepsiCo often experience a seasonal demand with the demands becoming higher during the summer seasons. Therefore, the company applies the Just in time (JIT) technology in its supply chain during the seasonal periods whereas this concept is not applicable during the seasonal periods. The processes included in the procurement cycles, replenishment cycles, customer order cycle and manufacturing cycles are employed as push processes. The sales order and processing of PepsiCo follows a scheduled structure. The shipping manager of the company receives the sales order from the sales team on a day before the estimate dispatch date. The sales are made on advance payments from the distributors and the orders are shipped to the distributors on the basis of the per day demands of the distributors. Demand forecasting is an important part of the supply chain operations of PepsiCo. Distribution and Transportation Network PepsiCo has always been renowned for the innovative capabilities that it has continuously introduced in its distribution systems. The distribution system of any company includes two main facets which are storage and distribution. For the facilitation of distribution, PepsiCo opens up its production plants in locations which are near the distribution centres. The distribution centres of the company are located within a 250 mile radius of the main retail outlets selected for product distribution. The storage facilities are designed in a way so that the maximum possible number of items can be stored. This is in line with the distribution and time saving strategies used by PepsiCo. Intensive supply of the goods coupled with timely delivery forms the underlying principle of the distribution and transportation process of PepsiCo. The innovative distribution strategy of PepsiCo which was introduced in 2010 was an immediate success and was replicated by other companies. This strategy used the “Direct to Store Deliver Model”. In this system, the company aimed at reducing the inventory level. The company established a strong distribution and transportation structure through which the products of PepsiCo were supplied directly into the stores from the production plants. This eliminated the need of redundant inventory maintenance and thus helped to save the cost incurred by the company for the storage of high volume goods. The model helped to reduce the inventory space, removed the constraints related to warehousing and unleashed the potential of unlimited growth of SKUs. The introduction of this model was a solution to all the difficulties that PepsiCo was facing earlier regarding the management of its inventories and distribution centres. The wireless technology incorporated in PepsiCo has enabled multi-functional and technology driven capabilities in the company. The orders can be taken on site and then uploaded remotely to a central order routing system set up in the headquarters. This is facilitated by the wireless connectivity of all the units of the company. This has resulted in more efficiency and accuracy in stocking the delivery trucks and inventories because hourly movements of goods can be tracked. All the entities of the supply chain system including the mangers, drivers, suppliers, inventories etc. have the capability of tracking the record deliveries, inventories and also wirelessly print the purchase orders and invoices in the portable printers. The main factors which influence the distribution network design of a company are response time, customer desire, product variety, customer experience, availability, visibility and return ability. Response time in the supply chain of PepsiCo is minimal. Customer desire is high and availability of the products of PepsiCo is very high. The factor of customer experience is positive because of the high quality of the products. This creates the need for faster inventory cycles because the products become off shelf very quickly and need to be replenished in frequent intervals of time. The order visibility of PepsiCo is dependent on an automated system and is high. The return ability of PepsiCo is very strong because the company takes effective steps to ensure that in case of any quality or packaging issues, the products are changed and returned on the spot by the retailers. This is in line to the distribution agreements of PepsiCo with its retailers. Supply Chain Strategies Apart from designing a highly functional and superior supply chain, PepsiCo also employs innovative strategies to manage the supply chain efficiently and to make it more productive. The supply chain strategies of PepsiCo are developed on the basis of a consideration of factors like customer needs and customer uncertainty, demand levels, demand uncertainty (Palmatier, 2004). The supply chain strategies also encompass the evaluation of the supply chain capabilities to achieve a strategic fit between the external demands and uncertainties with the capabilities inherent to the supply chain. Since the main product of PepsiCo is beverages, therefore the factor of seasonality of demand highly impacts the supply chain operations of PepsiCo. The fast moving consumer beverages experience a hike in demand during festive times. As such, the production and movement of the products become more in these times. PepsiCo employs high end technological systems in their supply chains during the peak periods. These include Just in Time (JIT) approach in inventory management, a wireless technology that enables all the entities in the supply chain to track the movement of the products across the whole supply chain. PepsiCo strives to reduce the lead time in order to control the effect of demand uncertainties on the supply chain and logistics processes. (Source: Johnston, 2007). The supply chain of PepsiCo is a multi-dimensional supply chain which assumes different roles in its various stages. The supply chain capability of PepsiCo indicates that the company tends to be less responsive in small towns and is highly responsive in its operations in the cities. The supply chain of PepsiCo involves the transfer of the factor of responsiveness to the retailers as well as the suppliers. The increased responsiveness of all the entities in the supply chain ensures an overall increase in the responsiveness of the whole supply chain of the company. The transfer of responsiveness to the retailers and manufacturers make them aware of the demand uncertainties and thus they can remain prepared to manage the demand uncertainties. This in turn increases the efficiency of the vertical as well as the horizontal components of the supply chain. Since the company operates with a heterogeneous product portfolio, PepsiCo has to adjust the supply chain strategies suitably and tailor the supply chain and logistics systems in order to meet the varying demands for these products. Collaboration is identified as the most important supply chain management strategy used by PepsiCo (Lewis and Slack, 2003). The operations of PepsiCo are highly driven by the worldwide networks that it has established with the suppliers as well as the distributors in the consumer food and beverages sector. The Direct to Store Delivery (DSD) model of PepsiCo is based on the elimination of wastes that are incurred in the process of procuring and distributing the perishable goods like snacks and soft drinks to the markets in high volumes and with a high turnover. In this model, the products are directly taken by the suppliers to the stores. This enables better handing of the perishable goods, reduces the requirement of warehouse space by the retailers and distributors and also ensures better control over the sales and inventory monitoring activities of the company as well as the retailers. Three main sustainable advantages are created by the company through the effective use of a global supply chain. These are the presence of big brands, the proven abilities of the company to create differentiated and innovative products, the established go-to-market system of the company. These are depicted in the diagram below. (Source: Murthy, 2008). Conclusion The supply chain strategies of PepsiCo are aimed at achieving certain sustainable competitive advantages. The supply chain operations of PepsiCo are supportive in terms of fostering innovation and creating differentiated products. Also, the strong go-to-market system employed by PepsiCo is extensively supported by the supply chain management strategies of PepsiCo. Since the brand value is of high importance for PepsiCo and since consumers buy PepsiCo products because of the quality and price assurances, therefore, it is necessary for PepsiCo to employ efficient strategies in all aspects of the business including the supply chain and logistics management strategies. The competitive advantage of PepsiCo is focused on the wide availability of the product which can be delivered through the employment of a superior quality supply chain and logistics system. The supply chain of PepsiCo has been a critical driver of the commercial success of the company. The company should continue innovating and updating the supply chain operations and technologies to ensure that the supply chain and logistics unit of the company continues to act as a main competitive advantage. Also, PepsiCo should consider the arising needs and demands in the customer groups and design the supply chain in a way make it most effective for meeting the demands. The supply chain can be made more flexible and a better use of advanced technologies can be done in the supply chain to make it more competitive and sustainable. References Anderson, D. L., Frank, B. E. & Donavon, J. F. (2007). The seven principle of Supply Chain Management. New York: Taylor and Francis. Johnston, R. (2007). Operation Management: Theory and Practice. New Jersey: Prentice Hall. Lewis, M. & Slack, N. (2003). Operations Management. New York: Taylor and Francis. Murthy, R. (2008). Production and Operations Management. New Delhi: Tata McGraw-Hill. Palmatier, G. (2004). Demand Collaboration: Whats Holding Us Back? Supply Chain Management Review. Vol. 8(1). Schneider, M. (2003). Operations Management. Stamford: Cengage Learning. Read More