Pepsico Operations Management - Case Study Example

PEPSICO OPERATIONS MANAGEMENT By Introduction In PepsiCo Beverage Company (PBC), that is an operation sector of PepsiCo Inc, rated to be largest beverage and Food Company in the globe was awarded with supply chain innovation award from “Council of Supply Chain Management Professionals (CSCMP)” (Zuckerman, 2002). PBC was founded on February 26, 2010 in an effort by PepsiCo’s to align its operations and enhance quick and integrated delivery of products thus creating a more integrated supply chain and empowering its distribution system and overall growth of the firm. PepsiCo was awarded for its creative distribution strategy, “direct to store delivery model” reduced system-wide inventories, eradicated warehouse space congestions, promoted potential unlimited SKU development, and saved on warehouse costs. Timothy Thornton, vice president supply chain logistics found it difficult to move huge number of products in one day in order to create more space for other goods being produced (Monczka, Trent, & Handfield, 2002). Introduction of supply chain management in PepsiCo enhanced its operations and effective flow of information within the firm and amongst different stages. Supply chain operation is effective due to its many sub-divisions within its operations, inputs in different segments add up to final output of whole firm. Primarily, for a company’s success, they should fully meet with customers’ requirements. Customers’ requirements at PepsiCo are for the company to avail products conveniently and in the right market. Supply chain management has greatly helped meet consumers’ demands and offer feedback that helps the firm improve in its production strategies from inputs processes to transformational processes and finally outputs. Supply chain managements at PepsiCo has proved to be the most effective method of operation, this paper therefore covers the associated processes of supply chain management and their implications, input-transformation-output diagrams with their analysis, process map outlining process steps of operations studied at PepsiCo, issues arising in the employment of supply chain management, possible solutions to the issues addressed and finally the reflection gained from the research at PepsiCo. Supply chain management at PepsiCo PepsiCo idea of supply chain management is majored on collaboration and integration. The company employed several initiatives in order to have a more effective supply chain operation. This was done through establishment of various stages of production in which each stage is assigned specific roles. There is a linking network within the firm which allows interactions amongst the various segments of production (Heizer & Render, 2001). Various stages of supply chain managements are represented below in an input-transformation-output diagram. Procurement of raw materials (primary inputs) The raw materials that are used in manufacturing PepsiCo’s food and beverage products are: pineapple juice, apples and fruit juice concentrates, aspartame, corn and corn sweeteners, flavoring, flour, oats, grapefruits, sugar, rice potatoes, vegetables and additive oils, sucralose, and wheat. Packaging raw materials such as: film packaging for food snacks, fuels, plastic resins for plastic beverage bottles and natural gases. PepsiCo does not have readily available materials and they have to rely on external suppliers. Procurement level is handled by procurement manager; management operation in that stage ensures that manufacturing materials are availed on time. This includes ensuring that transport means are available and all orders for raw materials have being made. Manufacturing operations (secondary inputs) Manufacturing operations at PepsiCo is steered by technology despite frequent breakdown of machines and inventory mismanagement. At this level, provision of labor and manpower is vital. Management at this segment ensures that there is enough manpower and all machines are in good working condition. Frequently, there is a close link between manufacturing operations level and human resource management (Hugos, 2003). Production at PepsiCo commences with offloading of empty cans and bottles from the container carriers through the conveyor and moved to the depalletizer. Distribution network (secondary inputs) PepsiCo uses various strategies to avail its products to market depending on the type of products, customers’ needs and practices in local trades. Distribution network at PepsiCo works ensures that goods are delivered on time and that proper infrastructure is availed to enhance delivery. It delivers perishable and friable products that are less likely to be urgent purchases, from its production plant and stores to customers retail stores and warehouses. PepsiCo uses third party vending distributors to supply its snacks, beverages and foods to restaurants, schools, businesses and other institutions. PepsiCo tertiary inputs Beyond production processes, a company cannot fulfill its ultimate goal without the help of tertiary partnership. PepsiCo has made supply chain management effective by employing many retailers and wholesalers who offer direct services to customers (Kim, 2005). Tertiary segments acts as a good ground where PepsiCo can get feedback from customers concerning their products. Product development and commercialization (outputs) Product development and commercialization at PepsiCo involves availing new products fast and marketing them in an effective way. Proper forecasting is crucial at this stage so as to understand the best time to avail a product. Thorough integration is therefore done between customers and suppliers in order to enhance product development without delay. For PepsiCo to remain competitive, short timeframes are maintained between manufacturing and product development. Monitoring and control Feedback is a crucial element in supply chain management. PepsiCo ensures there is close monitoring and control network that acts as link between customers and the firm (Chopra & Meindl, 2007). It is an importance segment as it allows the company to get a proper feedback so as to increase in their product delivery. Monitoring returns also keeps all the other stages alert as they all give an account of their operation to the monitoring management. Process map of supply chain management at PepsiCo Administrative flow Material flow (5-8)hours (2-5)hours (4-5)hours (2-3)hours (2-3)h 2hours Demand During administrative flow, the first process is demand. Demand acts as a catalyst for a company’s production. PepsiCo relies on monitoring and control management, this segment provides the firm with the number of goods needed in market. Once an exact number of products is defined then the firm will approved the demand depending on available resources and products (Chopra & Meindl, 2007). Demand stage must always work in conjunction with the production and manufacturing management in order to always have a record of types of goods and services available like total number of juice bottles ready for the market. Release After demand has been approved, the next process is to order the release of products required. PepsiCo releases its goods according to demand. Monitoring and control management ensures that each product is released as ordered through keeping records and confirming invoices. Before goods are released at PepsiCo, all the carriers are weighed on a weigh bridge to ensure there are no loses of goods and to avoid damage on carriers due to overweight. Supplier order entry Supplier order entry contains the product description of the supplier. In case of any changes on products to be delivered, then it must be reflected in the supplier order entry. PepsiCo ensures that all order entries are detailed and catered for before products are delivered. This enhances clarity and transparency in the firm. Supplier invoices Supplier invoice is a segment within procurement services that ensures that all payments and order agreements are fulfilled. PepsiCo ensures that all invoices going to accounts for payable processing have to reference valid UW purchase number (six digits), (Finch, 2010) vendor details and remit-to address is clearly stated on the invoice and payment for invoices $10,000 and above are not finalized until a representative from the department confirms the items were received and in good working condition. Invoice payment Invoice payment dictates an agreement between sellers and buyers. PepsiCo ensures that there are clear guidelines between them and customers concerning the products delivered. The invoice should clearly indicate agreed date of payment and kind of good delivered. This ensures accountability and transparency between the two parties. Material flow Supplier products Suppliers acts as a link between a firm and customers. At PepsiCo, suppliers ensure that products are of good quality before they supply them to consumers. This is done through sampling of good to be transported and proper packaging in trucks used for transport. Clear warnings should be mentioned in case of fragile products like food snacks and juice to avoid spillage. During packing of products due for transportation, heavy goods like Aluminium cans are stored below fragile products like food and beverages. Shipping and transportation of products Shipping involves importing good from the production zones to areas where customers can easily access them. PepsiCo does its shipping either by air, ground or water depending on the kind of products. Perishable goods like snacks are preferably transported by air while products like flavored juices are mostly transported by roads under minimal refrigeration as they got a longer life span (Prater & Whitehead, 2013). Once products have reached destination, they are inspected in case of any damage before they are received by retailers. Receiving and damage inspection During the process of transportation, some of the products may be damaged; there should be a thorough inspection by receiving party for compensation of spoilt good on delivery day. PepsiCo keeps clear records during the process of transportation to account for the spoilt products and makes proper arrangement to meet with customers’ demands. Number of rejected goods is taken back to PepsiCo after inspection. Storage This is the last stage of material flow before products reaches consumers. PepsiCo provides customers with the best mode of storage depending on type of good. Expire date is well tabulated to avoid food poisoning especially on snacks and juices. At this stage, there is a lot of inventory work as clear records are kept on goods stores in the retailers’ warehouses (Prater & Whitehead, 2013). After this stage, products are now ready for consumer use and ready for the market. Impacts of supply chain management on company’s strategic objectives Management of inventories One of major issues affecting supply chain management at PepsiCo is management of inventories. This is not only an alarm at this company only but also in other organizations employing such an operation. Due to high levels of corruption and increased middle men in the distribution network. Some goods leave the company unaccounted for thus bringing about losses (Prater & Whitehead, 2013). On the other end of the chain, after damage inspection is done, proper replacement of damaged goods is not adhered to as agreed. Good and transparency inventories are hard to keep. Quality control Quality control in a firm is of vital importance. This ensures that goods produced are good for human consumption and usage. PepsiCo finds it hard to balance between the number of goods produced and their quality. This may bring about production of counterfeit goods. Corruption has also brought about fake branding of products that do not meet required standards. Poor quality control has led to mistrust issues between producers and customers. Product design Product design is important as it portrays company’s image to customers, good design brings about good sales. With a good product design comes along an increased cost of production, many manufactures opt to go for a cheaper design to save on cost, thus lowering the quality of a product. Services and processes involved in the whole production unit become cost ineffective, this has brought about unnecessary expenditure. Supplier management Supplier and management relationship is a key for a business organization to succeed. More often than not, there this relationship is neglected; there should be a win-win strategy in sharing of resources. Abandoning of such a relationship has led o serious implication like poor inventory management, lack of invoices and lack of transparency (Krajewski, Ritzman & Malhotra, 2010). When this gap is created, flow of information is also affected as management does not have direct contact with customers as compared to suppliers. Ways to improve supply chain management (2-3) hours 2hours (4-6)hours PepsiCo made supply chain operation effective by: firstly reducing the packaging time. This was improved by increasing the number of workers for loading operations. Arrangement method for the trucks was changed so as to enhance movement of juice and snack containers to avoid unnecessary traffic. Secondly, transportation time was reduced by increasing the infrastructure. Although this came with increased expenditure but after overall evaluation, there was an increase in profits. It was noticed that a lot of time was being wasted during receiving of good, inspection and storage as these activities were done differently. Therefore these activities were merged and done at one unit, this rely saved time and increased productivity. Conclusion From the above research, it is clear that chain management operation does not only deal with logistics. It involves collective efforts which add up to effective production in organizations. This paper shows that supply chain management is divided in many sub-divisions allocated different duties. With such sub-divisions, there is division and specialization of labor. 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