You are on page 1of 15

ASSIGNMENT OF OPERATION

MANAGEMENT
ON
Supply Chain Management- PEPSICO

Submitted to:
Submitted by:
Prof. M.S Kumar
Saurav Dey
PGFB1444

Table of Contents
Introduction
Pepsi Co History
PepsiCo's Mission
Competitive and Supply Chain Strategies
PepsiCo's Supply Chain Management
Dificulties without Just -in-Time
Improvement with using Just-In-Time (JIT)
I2 Transportation.
Implementation.
I2 Supply Chain Visibility
E-solution by Hewlett Packard (HP).
Pepsi Bottling
The challenge
The solution
The results
Packaging as a tool for Supply chain management
Palletization Roadmap
PepsiCo's Frito Lay Supply Chain
Strength
From supplier to retailer
Retailers
Competitive advantages
Pepsi Tropicana Supply Chain
Background
Problems
Solution
Limitations of Pepsi Supply Chain over Coke

Introduction
Supply Chain Management is the process of planning, implementing, and
controlling the operations of supply chain with the purpose to satisfy customer
requirements as efficiently as possible. Supply chain management spans all
movement and storage of raw materials, work-in-process inventory, and finished
goods from point-of-origin to point-of-consumption. It is a cross functional
approach to managing the movement of raw materials into an organization and
the movement of finished goods out of the organization toward the end
consumer.
Supply Chain management is also the combination of art and science of
improving the way company finds the raw components it needs to make a
product or service and deliver it to customers. It seeks to enhance competitive
performance by closely integrating the internal functions within a company and
efectively linking them with external operations of suppliers and channel
members. In a supply chain, a company links to its supplier upstream and to its
distributors downstream in order to serve its customer. The goal of supply chain
management is to provide maximum customer service at the lowest possible
costs.
Success of a company now depends on efective global supply chain
management, its ability to deliver the right product to the right market at the
right time. The complexity involved in managing supply chains that span
continents and dominate markets demands strategies and systems that are
adaptable.
Managing Supply Chain for Global Competitiveness takes a strategic look at all of
the core functions of global supply chain management which includes product
design, planning and forecasting, sourcing, outsourcing, manufacturing, logistics,
distribution, and fulfilment.

Pepsi Co History
PepsiCo is a USA based company having its head quarters at New York with the
net worth of $30-40 million. The average sales of the company are approx 90
million bottles per month. Pepsi made it first international move in Russia in
1959. During the Khrushchev era, within 32 years Pepsi emerged as the biggest
competitor for Coca Cola. Pepsi is available in 155 countries.
In any soft drink, on the globe Pepsi food is one of the largest soft drink
companies in the world with its headquarters in New York. It was invented by
Pharmacist Culab D. Baradham in 1898 to cure the disease Dyspepsia. It is
from this word that its name was related to Pepsi. Soon it entered the American
market as soft drink, which at that time mostly dominated by Coca Cola, but
soon Pepsi able to dominate the Cola market, and there after it never looked
back. Pepsi and Coca Cola are engaged in ferocious cola war that has taken the
whole world by storm.

Pepsi entered the Indian soft drink in Kanpur in 1988 and began its production in
May 1990 and soon it was giving the local contenders run for their money in soft
drink market. It comes out with dazzling marketing innovation that rocked the
cola market, like selling the product through function Pepsi outlets. Its
advertisement agency was Hindustan Thomson Association (HTA). Its
advertisement budget for 1995-1996 was valued at Rs. 24 crores which is likely
to be increased manifold in coming years.
Pepsi food is one of the largest and best foreign investments in India. Till today it
has invested Rs. 500 crores in India to develop the local market. Pepsi has
distributed exclusive franchises in India to bottle its total product. There are 28
bottling plant of Pepsi in India. Some are directly controlled by Pepsi and rest is
under various franchisees.
Pepsi stands 51st position among the fortune 500 companies of the world. Its
total capital is approx $3000 crores and total sales annually is worth $37 crores.
Its total profit in the year 1996-97 was worth Rs. 458 crores approx. The total
number of employees engaged in the business is 45.25 lakhs globally.

PepsiCo's Mission
PepsiCo's overall mission is to increase the value of shareholder's investment.
They do this through sales growth, cost controls and wise investment of
resources.
They believe their commercial success depends upon ofering quality and value
to their consumers and customers; providing products that are safe, wholesome,
economically efficient and environmentally sound; and providing a fair return to
their investors while adhering to the highest standards of integrity.
A customer while purchasing a bottle of Pepsi will consider product quality, price
and availability of the product. Thus, Pepsi focuses its competitive strategy as to
producing sufficient variety, reasonable prices, and the availability of the
product.

Competitive and Supply Chain Strategies


In its business, diversity and inclusion provide a competitive advantage that
drives business results.
Its brands appeal to an extraordinarily diverse array of customers and they are
sold by an equally diverse group of retailers.
It understands the needs of our consumers and customers
Uses diversity in our supplier base and in everything we do.
Commitment to purchase from a supplier base representative of our employees,
consumers, retail customers and communities.
Developing partnerships with minority-owned and women-owned suppliers helps
us build the world-class supplier base we need.
Creates mutually beneficial relationships that expand PepsiCo's sphere of
activity. It helps build community infrastructure by providing employment,
training, role models, buying from other minority and women-owned business
and supporting community organizations

Figure 1
Thus the major sustainable advantages that give PepsiCo a competitive edge as
they operate in the global marketplace:
Big, muscular brands,
Proven ability to innovate and create diferentiated products and
Powerful go-to-market systems.
PepsiCo's Supply Chain Management
Difficulties without Just-in-Time
When an operation of the company was not just-in-time based, the demand or
production planner strived to optimize production-oriented goals and objectives
such as equipment utilization, labour efficiency, throughput and uptime.
Optimizing these goals often leads to run large batch sizes that are dependent
on the availability of raw materials. This optimizes the equipment and labour
utilization but the production planners and managers had not been looking at the
expense of the bigger picture.
The sourcing or purchasing managers strived towards reducing company's
spending overall. This manager consolidated suppliers ofering products or
materials at the lowest per unit costs through buying in volume.
They even got the shipping and freight costs included in the purchase price,
which led to the increase in the price of the commodity.
Purchasing managers focused on getting the best price, not putting into
consideration the supplier performance and reliability.
The logistics/transportation manager was tacked with getting raw materials in
and the finished goods out of the production process and seek to optimize the
transportation and distributing network. This manager focused on the lowest cost
and reliability of the logistics or transportation solutions. But lowest cost could
only be attained if the purchasing team negotiates a delivered cost package deal
with the supplier and the supplier is responsible of the reliability and
performance of the carriers or transporters.

Improvement with using Just-In-Time (JIT)


When it comes to delivering high cost and perishable products to manufacturing
sites, just-in time (JIT) remains one of the most cost-efective supply chain
solutions. In JIT process, on time delivery is an absolute necessity.
Just-in-Time (JIT) is a philosophy that defines the manner in which a
manufacturing system should be managed. It enhances customer satisfaction in
terms of availability of options, assurance of quality, prompt delivery times, and
value of money.
The Pepsi brand and other Pepsi-Cola products accounted for nearly one-third of
the total soft drink sales in the United States. In order to ensure that PepsiCo's
concentrates reaches bottlers as needed during the production had to reach
them JIT, they partnered with 3PL provider Penske Logistics to manage its
transportation. Penske also provides warehouse management for two Pepsi
distribution centres in North America.
I2 Transportation
I2 Transportation is a part of end to end solution for planning, execution, and
management of the entire transportation cycle.
It is designed to enable an organization to utilize and manage an entire
transportation network, as well as reduce cost while improving transport
performance.
I2 transportation is designed to employ sophisticated optimization and data
techniques to define and evaluate alternative transportation strategies. It is also
designed to provide comprehensive data management, analytics, and reporting
of key transportation cost and service trade-ofs.
Implementation
PepsiCo set two objectives for transportation management. One was to achieve
an on-time delivery and another was to reduce transportation costs. It
empowered with optimized processes and technology that enable the team to
perform at the highest possible level. With the application of new technology that
provides greater supply chain visibility, better organized data, and access to
higher level of real time or near real time information, even the best team can
improve their performance.
In 2000, Penske converted Pepsi's transportation management technology from
propriety software toi2 transportation optimization solution. I2 transportation
platform was enhanced with the addition of interface between the two
companies.
In addition, Penske's partnership with Business objects provided comprehensive
supply chain data from its data warehouse, analysis and management
applications. Penske's with use of i2 transportation could track performance at
every stage in the process which increased flexibility and provided greater
control over the transportation operation. This increase in visibility made it easier
to keep track of shipments, revise routes and schedules to accommodate
unforeseen changes and implement alternative plans to counter delays. By
Penske's putting a solution in place to track and measure every
shipment, Pepsi has been able to provide an on-time delivery
performance of well over99percent.
Pepsi's transportation is consolidated to a central location to reduce costs.
Penske also provided a nationwide carrier rate re-negotiation and service
assessment which improved cost structure and achieve on-time delivery goal.

With this centralization, allows negotiation in a large scale to secure the best
rates and services.
Furthermore, Pepsi's orders are received electronically and optimized to ensure
lowest transportation cost. Advanced technology is deployed to select the lowest
cost carrier, find the best routes and consolidate shipments. Optimal load
configuration ensures maximization of each truckload (2003).
In summary, PepsiCo used the JIT process to its supply chain management. To
make this possible, Pepsi partners with Penske that has provide them with i2
transportation optimization solutions which has satisfies their consumer with the
on-time delivery and with the benefit to the company for it has also reduce
transportation cost.
I2 Supply Chain Visibility
With shorter lifecycles and lead times-to customers demanding faster results and
more responsive service. Globalization and outsourcing have added to the
complexity, resulting in more diversified supply chains. The number of supply
chain partners, as well as the amount of geographic dispersion, has increased
dramatically as a result.
To ensure that their order-to-delivery performance is not impacted, companies
need to have greater coordination and visibility into the material flow across the
supply chain.
Increase Global Visibility
With Companies have access to global visibility into all of their critical supply
chain activities and partnerships. It allows organizations to respond more quickly
and efectively to a wide range of unplanned and potentially disruptive supply
and demand events. Supply-related events can include production bottlenecks,
fulfilment delays such as port strikes and customs delays, and supplier
shortages. Demand-side events might include customer orders that are greater
than forecasts or changes to orders that have already been placed.
I2 Supply Chain Visibility is designed to manage these events, assess their
impact, and orchestrate a rapid and practical resolution while providing a unified
view of the supply chain. The solution can also incorporate packaged business
process packs for replenishment, fulfilment, and manufacturing, and these
packages can be configured to meet customer-specific requirements.
i2 Supply Chain Visibility also enables companies to close the loop between
traditional planning and execution processes. It enables better understanding of
orders, inventory, and logistics data.
Powerful Functionality
This solution incorporates pre-built workflows that integrate data across order
management, warehouse management, logistics, and inventory applications for
the flow of both domestic and international goods. A series of predefined,
extensible events and exceptions support each work flowed a visual "studio"
allows workflows and events to be extended, configured, and customized to
meet specific enterprise requirements. I2 Supply Chain Visibility delivers a robust
technology that is scalable and extensible, and that operates smoothly in a
distributed computing environment.
Extensive Capabilities
Inbound and outbound tracking of order, inventory, and logistics flows

Domestic and international flows that track multi-leg and multi-modal shipments
Visibility into exceptions and events across orders, inventory, and shipments
Role-based views for buyers, suppliers, analysts, and 3PL vendors
High degree of permissibility and privacy controls
Track-and-trace inventory across multiple locations
Configurable event detection mechanism and customizable event management
workflows
Event chaining such as linking of related events, audit trails, context-based
problem prioritization and extensive notification options including e-mail, e-mail
digest, pagers, and cell phones
Calendars, internationalization (i18n), and multi-time zone support enabled
Integration to underlying applications for intelligent resolution and to prevent
event recurrence
Root-cause, event trend, and performance analysis capabilities
Rich event library with over 100+ out-of-box events supported
Fast, web-based supplier enablement and transaction support
Benefits
Exception-based management
End-to-end supply chain visibility and event management tools
Customer-specific solutions for replenishment, fulfilment, and manufacturing
The ability to forecast and respond to supply/ demand events
The option to move from calendar-based to event-driven planning and replanning. Increased employee productivity
Reduced process, personnel, and expediting costs
Improved customer, supplier, and partner communications.
Real-time decision support
E-solution by Hewlett Packard (HP)
PepsiCo signed a deal with Hewlett Packard in 2006 to help improve its supply
chain management and increase overall efficiency. The seven year deal involved
the overhaul of current IT solutions with PepsiCo and focused on updating server
environments as well as ensuring a new infrastructure which benefitted
operations and increased overall cost-saving.
In particular, HP introduced a number of new solutions which helped to
encourage stronger customer relationship management and supply chain
management. PepsiCo had also opted for BT as its network provider to ensure
thee-solution is fully implemented.
The supply chain management solution reduced costs as well as enhanced
current service provision online and via its communications networking system.
By standardizing and optimizing its server environment, PepsiCo International is
better flex to meet its changing business needs and in turn provide better
service to customers anywhere in the world.
Pepsi Bottling
Pepsi Bottling Group is the world's largest manufacturer, seller and distributor of
Pepsi -Cola beverages. With annual sales of nearly $11 billion, the company's
fastest growing segment is non-carbonated beverages, including the number one
brand of bottled water in the U.S., Aquafina , as well as Tropicana juice drinks
and Lipton Ice Tea. As part of a 24/7 production operation, the company's Detroit
plantships about 27 million cases per year.

Production at the plant begins as empty bottles are unloaded from trucks via
conveyor and transported to a depalletizer. From there, they are, rinsed, dried
and sent to a filling machine (filler speeds at the plant vary based on bottle size,
ranging from 350 to 1,000 bottles per minute). The bottles leave the fillers and
make their way to a packaging machine, and then to a palletizer. Each pallet is
wrapped for distribution and moved to the warehouse for shipping.
The challenge
The plant uses a variety of sensors to monitor bottles as they travel through the
sequence of steps. Line sensors match the speed of the conveyor. The
company's inventory of sensors swelled over the years to include more than 120
diferent varieties. Many of these included multiple styles of the same product
stocked under diferent brands. A similar problem was developing with its drives
inventory, which had grown to over 50 diferent part numbers.
The wide variety of sensors made it progressively more complex and timeconsuming to replace a faulty device. Despite its fast, high-performance
machinery, the increasingly lengthy and more frequent downtime was beginning
to impact the company's ability to meet its productivity goals. In addition,
operating costs were on the rise due to the excess spares inventory. Because of
the extensive number of sensors they had in inventory, including multiple styles
and brands, simply finding the right replacement resulted in an hour of
downtime.
A more strategic approach to maintenance was necessary, as even the smallest
of delays could cost the plant thousands of dollars in lost production and
overtime. Knowing that efective parts management and fast, reliable equipment
repair lies at the heart of efficient manufacturing, the company explore the ways
to get its inventory and maintenance processes under tighter control. That's
when it decided to turn to Rockwell Automation for help.

The Pepsi Bottling Group's Detriot plant reduced its number of sensors from 180
to 46, a decrease of 66 percent, by standardizing it sensors inventory to AllenBradley products. This reduced downtime and inventory costs.
The solution
The first task undertaken by Rockwell Automation was to conduct an Installed
Base Evaluation a plant-wide inventory assessment to determine the exact
number of sensors and drives the plant currently had in stock. Next it needed to
figure out what products were actually needed and which ones
could be eliminated. To streamline its operation, Rockwell Automation
recommended that Pepsi standardize its entire sensors inventory on AllenBradley products. The local distributor, McNaughton McKay Electric Company (Mc
& Mc), helped design a migration plan to help ease the cost of this inventory
conversion.
Although all the drives employed at the plant were Allen-Bradley brand, many
were older models representing a multitude of drive families. To simplify its
drives inventory and upgrade its technology at the same time, Pepsi converted
all of its drives to the Allen-Bradley Power Flex family of AC drives. A detailed
cross-reference chart developed by Rockwell Automation now provides
technicians with a quick and easy way to identify failed and replacement parts,
as well as installation instructions.
To ensure reliable availability to spare parts, Pepsi set-up a Rockwell Automation
Services Agreement that included parts management. With the agreement, Pepsi
pays a fixed monthly cost for their spare parts, which are owned and managed
by Rockwell Automation but stocked on-site. The agreement allows Pepsi to
reduce its upfront expenses, have immediate access to spares, reduce carrying
costs ,and update its control technology cost-efectively. The agreement also
includes an in-service warranty, so the parts don't go out of warranty until they
are actually used for the warranty period.
To help the company better utilize its internal resources and reduce costly
troubleshooting delays, the Rockwell Automation Services Agreement included
Tech Connect Support. This remote support service provides the plant with 24/7
access to Rockwell Automation technical specialists. When a problem occurs,
Pepsi technicians can call for immediate troubleshooting assistance to resolve it
as quickly as possible.
Leveraging Rockwell Automation Services & Support has proved to be a smart
decision for Pepsi Bottling Group. The improved inventory and parts
management capabilities helped reduce downtime and inventory costs, and
standardizing on Allen-Bradley products eased training requirements and
minimized the technology learning curve. These benefits have ultimately
enhanced productivity by 8percent and reduced the overtime required to fill
orders. In addition, the plant was able to reduce the number of sensors it uses
from 180 to 46, a decrease of 66 percent. Likewise, it was able to reduce the
number of drive styles from several hundred to 14.
Packaging as a tool for Supply chain management
GS - 1 standards (bar codes)
RFID tags for real-time stock replenishments
Commercial Security oferings

Counterfeit &pilferage
Online supply chain visibility across the chain
Pack safety for the consumer
Pepsi-Cola Saved $44 million by switching from corrugated to reusable plastic
shipping containers for one litre and 20-ounce bottles, conserving 196million
pounds of corrugated material.
Palletization - cost vs. value creator
Key supply chain cost optimizer through an integrated supply chain approach
Drive standards -pallets/ trucks
Pallet pooling services

Palletization Roadmap

PepsiCo's Frito Lay Supply chain


Frito-Lay is the snack food division of PepsiCo and the largest supplier of potato
and corn chips in the world, currently holding 40% of the market share globally,
and selling its products in 120 countries.
Strength
Frito-Lay is succeeding against a multitude of competitors in a fierce, yet slowgrowth industry, selling approximately 4-5 billion packages of snacks per year.
In order to achieve this, the company has learned how to masterfully create,
innovate and manage all aspects of its supply chain using high -tech IT systems
that allow it greater control over its production processes and distribution
network.
Competitive advantages
The company tries to captivate its customers by developing extensive databases
that record who their customers are and exactly what they want.
They focus on being the most reliable, quality-driven suppliers who provide
services through the retail channel by means of collecting as much information
along the way and utilizing it to address their weaknesses and capitalize on their
strengths.
Despite only delivering potato and corn chips, relies on its ability to add
unparalleled value in its distribution channel. Its customers know that when they
do business with Frito-Lays, they aren't simply buying a product to shelve in their
stores, but incorporating an advanced information system with hopes of
increasing sales and profits.
Supply chain in India

Horticulture produce in India is largely marketed through traditional channels. A


typical marketing chain for horticultural produce consists of several players as
shown in Figure

PepsiCo is one of the pioneers of contract farming in India since 2001 Their
experience in contract farming has covered many crops - potato, basmati rice,
tomato, chili, peanut, oranges and more recently sea weed. PepsiCo's operations
started in India started in the region of Punjab in collaboration with state
government. PepsiCo India's project with the Punjab Agro Industries
Corporation and Punjab Agriculture University remains one of the most ambitious
contracts farming projects in the country.

Pepsi Tropicana Supply Chain


Background
Of the four principal Distribution Centres (DC) in the U.S. the Jersey City, N.J. DC
is responsible for the supply of Tropicana juices in all states in the Northeast U.S.,
and all Canadian provinces. Jersey City houses a unit load capacity Automated
Storage and Retrieval System (ASRS) that is fully integrated in Automated
Warehouse System (AWS). The centre handles chilled premium orange juices,
and blended juices from concentrate as well as shelf stable juice products from
either Florida or localco - packers. Products vary according to package size, and
juice type and style, giving rise toapproximately200 Stock Keeping Units (SKU),
each facing random demand from customers. Juices arrive already palletized and
variously pre-packaged, and are unloaded according to demand, and moved into
the ASRS area.
The Jersey City Distribution Centre (DC) of Tropicana is responsible for the supply
of Tropicana juices in all states in the Northeast U.S., and all Canadian provinces.
Premium orange juice from Florida represents approximately 65% of the
shipments, and has an approximate shelf life of 65 days. The Jersey City DC
receives five Tropicana Unit trains from the production facility in Florida weekly.
Each train has approximately 45 refrigerated cars. Juices arrive already palletized
and pre-packaged in paper board containers and plastic and glass bottles. Two
types of unloading procedures are currently in practice: cross-docking and
warehousing. Cross docking normally is used for customers receiving a single

product types or transfers to a smaller distribution centre in Whitestone, NY. Each


train usually contains 8 to 10 railcars that can accommodate cross-dock delivery.
Problems
There are three major problem areas related to the current practices in
Tropicana.
Ordering policy of the individual retailers.
At the moment, Tropicana manages the inventory orders for about 10% - 20% of
the retailers. This process is called CRP or continuous replenishment program.
The Tropicana customer service department administers the ordering of those
individual customers. From the supply chain perspective, this is mutually
beneficial for both the customers and the warehouse. The advantage of the
warehouse is that it is able to centralize the demand information of individual
stores in its replenishment decisions of juices shipped from Florida to Jersey City.
The retailers benefit from in time delivery and less stock out cost. Individual
stores contribute the other 80% - go% of the orders, which are not under
Tropicana's control. This is subject to random variation and hence uncertainties
of demand on the warehouse. One approach would be to create an incentive for
the customers to entrust their ordering function to Tropicana. This is the so-called
supplier-retailer coordination problem. A carefully designed coordinated system
will benefit each and every player in the supply chain network. This may require
the design of contracts or cost sharing agreements with the customers.
Central ordering of juices that are shipped to the distribution centre.
Currently there are five trains of juices scheduled to arrive weekly from Florida.
The company never ships partially filled trains from Florida. The Jersey City
distribution centre sometimes builds up inventory of certain classes of juices that
are close to their expiration date, and the company has to get rid of them either
at a very low price with sales promotion or donate them to charity. A carefully
designed and sophisticated coordination of ordering policies will reduce the
chances for these problems and result in savings. At the same time it will
increase the fill rate because the additional capacity gained from more
reasonable ordering can be used for ordering more juices of the type that cause
trucks to wait in the yard.

Combining marketing strategies with inventory levels and other factors.


Marketing strategies such as sales incentives can influence demand. Foreseeing
an inventory build-up problem, the company can use marketing (and mainly
pricing) as a tool to either increase demand(when certain items build up) or
reduce demand (when insufficient inventory is available).
Solution
Tropicana, a unit of PepsiCo, implemented i2 Supply Chain Strategist to model
manufacturing logistics operations to include co-packer operations.

The model involved over 30 manufacturing and distribution facilities and the
seasonal demand of over 20 product types.
Tropicana used i2 Supply Chain Strategist to execute hundreds of scenarios and
sensitivities, producing data that provided insights into areas where the company
could rationalize system capacity at manufacturing facilities and increase
efficiencies within existing distribution and logistics systems.

Limitations of Pepsi Supply Chain over Coke


PepsiCo has duplicate distribution systems for its beverages. Coca-Cola has for
the most part maintained distribution of its entire beverage line-up through its
bottlers.
Pepsi bottling system is more fragmented than Coca-Cola's
In a consolidated system negotiations involve fewer players and therefore take
less time to gain agreement, which may be why the Pepsi system has lagged in
system efficiency eforts. PepsiCo and its bottlers have established a purchasing
cooperative to gain purchasing power in buying raw materials.
While PepsiCo has been pursuing international beverage acquisitions, those
investments will take time to produce significant operating income.
PepsiCo consolidation puts pressure on the independent system bottlers to more
readily consider agreements for warehouse distribution.