Pepsi Cola International (PCI) in Ukraine - Essay Example

EXECUTIVE SUMMARY This report analyses the conditions of Pepsi Cola International (PCI) in Ukraine which has been operating in Former Soviet Union for many years. Pepsi bottles and distributes the product in several major cities by means of franchise agreements. The sales of the company have been increasing in Former USSR with the passage of time however there are several logistics and distribution issues and challenges that the company faces. This case analyses the challenges and issues faced by Pepsi Cola International in Ukraine particularly related to distribution, logistics, marketing channels and supply chain. One of the major challenges faced by Pepsi Cola International in this region is the poor infrastructure because of which too much time is taken to distribute goods throughout the region. The other challenge that Pepsi has been facing in Ukraine is about storing of goods because of lack of sufficient warehouse. Pepsi has also problems in distributing its goods in village areas of the country as people in such regions are not able to get the supplies of Pepsi despite of the fact that they want to drink the Cola. With inefficient logistics and supply chain in the country, different intermediaries have come up which are trying to capitalize on the situation by making the most of this opportunity and trying to sell the cola after keeping some profit. Thus, this is making the price of Pepsi to increase. In addition to this problems faced by one of the largest beverages companies of the world, firms in Ukraine have to face substantial tax rate in the country as the tax is imposed on 90% of the total sales of the company and therefore organisations are forced to misrepresent their actual sales and actual financial statements to improve their profitability. Currently the Coca Cola has built a bottling plant to capture the market of Ukraine despite of the fact that Pepsi has been the most favourite cola in the country for years. Therefore with the introduction of Coca Cola in the Ukraine market, the management is currently business practices and evaluating whether a change is necessary or not. PART 1: CHALLENGES FACED BY PEPSI Pepsi Cola International faces several challenges in Ukraine and some of the most important challenges the company faces because of supply chain, logistics and marketing channels are as follows: 1. FACILITIES AT THE PORT One of the main problems in distributing of goods faced by Pepsi is the lack of proper facilities at the port of Ukraine. Because most of the equipments at the port are more than 20 years old and they have been obsolete and depreciated. Even though, these equipments are being upgraded but still there is a vast difference between the equipments that are currently used by most of the countries and equipments used in Ukraine. Therefore this is one of the major problems faced by Pepsi. Not only the equipments of the port are outdated, but the other main problem that the Pepsi has been facing in Ukraine with regard to port facilities is about storing of goods. The problem in Ukraine is that there is almost no space for warehousing as goods cannot be stored. Thus, it makes it difficult for not only Pepsi but for other companies as well operating in the country to store and distribute goods (Menachof, 2001). 2. PROBLEMS IN TRANSPORTATION OF GOODS In several countries, Pepsi has also been involved in distribution of its goods so that the products of Pepsi are distributed throughout the country and people can easily reach them. However, the situation in Ukraine is a little different as PCI is not delivering its goods in the country. There are no Pepsi drivers or other employees who can check whether the stores have sufficient stock of the products or not and provide this information to the company so that new supplies can be delivered to these stores. In addition to this, Pepsi has been using machines throughout the world to distribute its goods even at places where shops are not present; however in Ukraine because there are no coins in the country, the company is unable to make use of machines. There are twelve licensed bottlers across the country to which PCI sells and delivers its concentrate. These licensed bottlers receive concentrate from sea port. With the help of local transporters including trucks and railways, it is then sent to different bottlers. Therefore the problems in the transportation system are also faced by Pepsi. One of the main problems of transportation system is the time taken to transport goods which is very slow as rail takes almost 5 days to transport one good from Kiev to Odessa, a distance which can be travelled by car in 8 hours with an average speed of 60 kph. The other problem in the transportation system is the lack of sufficient number of specialized trucks as people have been using a specific-purpose truck for some other purposes like in the country, insulated furniture are used for hauling furniture and dump trucks are being used for hauling procedure. The fact is that distribution is carried out by everyone; large transportation companies, small firms as well as individuals. So, people in the country would use their truck to earn money regardless of the type of the truck an individual possesses. The other major problem in the transportation of goods is theft and banditry as trucks transporting goods from one location to another are forced to relinquish their goods at gunpoint. Considering this situation, insurance companies have refused cargo insurance thus increasing the risk of distribution and increasing expenses for the company (Menachof, 2001). 3. UNAVAILABILITY OF SUPPLIES IN VILLAGE AREAS There are people who would like to have Pepsi in the village areas of Ukraine however because of complications and issues in the distribution system of Pepsi, they are unable to get the product. The only time these people are able to get Pepsi is when someone from city brings back Pepsi to the village for resale. Therefore considering the challenges and issues in the distribution system of Ukraine, it is one of the most important challenges faced by the management of Pepsi to distribute goods in such areas (Menachof, 2001). 4. LONG CHAIN OF INTERMEDIARIES INCREASE THE COST As there are several regions where Pepsi is not available and such areas are served with the involvement of intermediaries. With the involvement of intermediary the price of the product increases as every intermediary would like to earn profit. Thus, the final consumer at times has to pay four times of the price or even, on occasions, more than four times of the actual price of Pepsi. Therefore this reduces the demand of the product however with proper and efficient distribution system and without involvement of so many intermediary PCI can take advantage of the demand in such regions and increase its sales in the country (Menachof, 2001). PART 2: SOLUTIONS RELATED TO LOGISTICS MANAGEMTENT AND MARKETING CHANNELS: Pepsi has been not able to make considerable profits in the market of Ukraine because of the issues with the overall supply chain and logistics setup in the country. It is important for the company to understand the importance of the marketing channels and logistics management. In order to create high value for the end customers, the company should come up with effective and efficient logistics and supply chain network. The supply chain is considered to be as a value chain for the organisation, which facilitates the organisation in the process of delivering quality and value to the end consumers (Solomon, Marshall, & Stuart, 2003). In order to develop an effective supply chain and logistics network, it is necessary to first analyse the needs and demands of the consumers along with the existing capabilities of the organisation and then taking measures to match both (Boone & Kurtz, 2004). In this part of the report, an attempt has been made to suggest different solutions to the Pepsi in order to improve the overall marketing channels and logistics management in Ukraine. In order to provide appropriate and feasible supply chain and logistics management solutions for the issues being faced by Pepsi in Ukraine, it is first important to understand the basic concepts behind the marketing channels and logistics management (Gundlach, Bolumole, Eltantawy, and Frankel, 2006). DISTRIBUTION CHANNELS AND LOGISTICS MANAGEMENT: Distribution channels consist of different intermediaries which work together in order to make sure that the product is made available to the target market (Fugate, Sahin, & Mentzer, 2006). It is important to design the distribution channels strategies in an effective and efficient manner as these strategies directly impact the other important decisions of the company including marketing (Schoenherr, 2009). Different intermediaries involved in the overall distribution network facilitate in the process of providing product to the end consumers and allow the company to efficiently and effectively supply the goods and products to the target market (Charvet, Cooper, & Gardner, 2008). Before taking important decisions regarding the different facilities and distribution centres it is important to understand the demands and needs of the target market (Payan, 2007). If the customers want timely delivery and availability of the product then the company should work to come up with such a strategy for the supply chain and distribution network that overall responsiveness of the value chain is increased (Panayides, 2007). On the other hand if the customers are price conscious and gain accept the delay in delivery, the company should devise such supply chain and distribution strategies that the overall value chain becomes cost efficient (Flint, Larsson, Gammelgaard, and Mentzer, 2005). It is also important to establish, that there is always a trade off between the responsiveness and cost efficiency of the supply chain and distribution network (Skinner, Bryant, & Richey, 2008). Apart from this high number of facilities also reduce the response time involved in the distribution network (McGinnis, Kohn, and Spillan, 2010). (Chopra, Meindl, & Kalra, 2008) Some of the factors which should be considered beforehand includes (Mentzer, Stank, and Esper, 2008): 1. Lot size of the delivery 2. Waiting time 3. Spatial convenience 4. Variety of products 5. Service backup The distribution network and supply chain should be designed keeping in view all these factors (Sezen & Yilmaz, 2007). Apart from this there is always issues while managing and deciding about the international distribution channel alternatives (Fugate, Mentzer, and Stank, 2010). The organisations should evaluate all possible alternatives before taking any final decision (Simchi-Levi, Kaminsky, & Simchi-levi, 2007). As it is not easy to market and distribute the product in the international market (Halldorsson, Kotzab, Mikkola, Skjoett-Larsen, 2007). (Jeannet & Hennessey, 2001) POSSIBLE SOLUTIONS TO THE ISSUES AND CHALLENGES FACED BY PEPSI COLA INTERNATIONAL IN UKRAINE MARKET: Some of the distribution channels and logistics management solutions suggested in order to overcome the issues and challenges faced by Pepsi Cola in the Ukraine market are as follow: 1. BUILD DEDICATED WAREHOUSE: One of the biggest problems faced by the company is related with the storage and warehousing of the product. It will be beneficial for the company to opt for their own warehouses in the country. In this way Pepsi Cola will be able to directly control the process of distribution and warehousing. The company will be able to overcome the problem of lack of proper facilities at the port of Ukraine. Pepsi Cola can modify the distribution model of manufacturer or distributor storage with customer pickup according to its requirements and needs. For instance, the company can opt for retail storage with customer pickup. In the manufacturer or distributor storage with customer pickup, the company setup different pickup points or stores from where the customers can pick their orders which have been previously placed. This concept is mostly used by the online stores and websites. (Chopra, Meindl, & Kalra, 2008) Pepsi Cola can modify this model by using different retail stores as pick up sites for the customers. With the help of this model, the company will be able to supply the products to the retailers in different geographical regions according to the demands and needs of that particular region (Cooper, Lambert, & Pagh, 1997). This will hence allow the company to increase the responsiveness of the overall supply chain and distribution network and will eliminate the issues of stock outs and non availability of the products in remote areas (Gourdin, 2006). Apart from this it will be easier for the organisation to gather relevant information and data about the demands and needs of the target market (Aldin & Stahre, 2003). As this model will allow constant information flow from end customers to the target market (Panayides, 2007). 2. PRIVATE TRANSPORT FLEET: Pepsi Cola has to invest more in the Ukraine market in order to increase the responsiveness of the overall supply chain and distribution network. In this way the company will be able to capitalise on the increasing demand of soft drinks in the region. Main issue in the region is regarding the timely availability of the product to the end customers. One of the biggest hurdles in this regard is of transport. There is no proper transport infrastructure in the country. It is more feasible for the company to deliver the products through road as compared to by rail. For this purpose the company should setup its own private transport fleet. Although this will increase the overall cost of the company but at the same time will increase the revenues by increasing sales as there will be minimal stock outs. Pepsi can spread the cost of the private transport fleet by entering into partnership contract with the twelve licensed bottlers in the country and provide them with the private transport solution. 3. DISTRIBUTION CENTRES FOR DIFFERENT GEOGRAPHICAL REGIONS WITHIN THE COUNTRY: The distribution network of Pepsi in Ukraine is inefficient in terms of reaching all remote areas. Hence, the company is not able to cater a large segment of target market who wants cola drink. This issue can be resolved by building separate distribution centres (DC). These distribution centres (DC) will be in such a location that the demand of different remote areas will be fulfilled through these centres. This on one hand will increase the fix cost and inventory cost but on the other hand will reduce the stock out cost and transportation cost (Mulhrm, 2009). These distribution centres will also help in reducing the cost of the final product because of long chain of intermediaries (Bosona & Gebresenbet, 2011). This will reduce many informal intermediaries in the distribution network of Pepsi Cola in Ukraine. CONCLUSION: Logistics management and supply chain management is one of the important strategic decisions which should be taken by the organisations in order to increase the overall profitability (Nevins & Bruce, 2008). Many other important decisions are directly connected with the marketing channel and distribution strategies (Movahedi, Lavassani, Kumar, 2009). In today’s highly competitive and globalised world it has become important for the organisations to come up with effective and efficient global distribution and supply chain strategies in order to create a competitive advantage over the other competitors (Cooper, Lambert, & Pagh, 1997). In this report, an attempt has been made to analyse the present situation of Pepsi Cola international in Ukraine and propose different solutions related to logistics management and distribution network. Pepsi Cola international has been facing several issues and challenges in the Ukraine market because of lack of proper transportation network and distribution infrastructure. There is high demand in the market but end consumers are not able to grab the product and face stock outs. This in turn leaves negative implications on the overall sales and performance of the company. In order to overcome this issue and increase the availability and timely delivery of the product, Pepsi Cola International has to come up with effective distribution network strategy. In this regard it has been suggested that company should directly participate in the process of distribution and build its own warehouses and distribution centres in the region. Apart from this the company can go for establishing its own private transport fleet. All these factors will result in increasing the responsiveness of the supply chain and distribution network of the company. Although this requires considerable amount of initial investment on part of the organisation, but this will benefit the organisation in increasing the overall sales and will also facilitate the company in the process of long term profit making. 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