Sardar Patel College of Engineering

(Government Aided Autonomous Institute)

MUNSHI NAGAR, ANDHERI (W), MUMBAI-
400058
2016-17

A
REPORT
ON

Supply Chain of Coco-Cola.

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 CERTIFICATE

This is to certify that the work on the project report titled Supply Chain of
Coco-Cola. has been carried out by Sagar Suryavanshi (BTM846) who is
a bonafide student of Sardar Patel College of Engineering, Mumbai, in
partial fulfilment of the term work for the subject Supply Chain
Management in the 8th semester in the academic year 2016-17.

Project guide: _________________

1. Prof. Rohit Deshpande

Principal: _________________

Dr. P.H. Sawant

Table of Contents

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Sr. No Topic Page
1 Supply Chain Of Coco-Cola 4

2 Strategy for Coco-Cola 6

3 Distribution 9
4 Forecasting 13

5 Transportation 15

6 Sourcing Decisions in Supply Chain 17

7 Other Activities in Relation with Supply Chain 19

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 1. Supply Chain of Coco-Cola

1.1 Strategy

To have a good supply chain strategy, Coco-Cola. plans two years in

advance. It has several contracts with manufacturers, and receives raw
material on a convenient basis. The company also decides where
production plants are to be placed. The production process is
automated. The company has to provide and manage transport for the
delivery of products as well as the arrangement of third party services
for the procurement of products. The shipping department handles
orders and the transport department decides the vehicles for safe
delivery.

Material planning and sourcing is carried out as well. Sources of supply

of raw material both local and foreign are identified and terms and
conditions are negotiated. Capacity planning is also done at this stage.
Sales forecasting and production planning depends upon the capacity
of the organization with respect to:

A] Production B] Storage: Raw and Packing C] Storage: Finished

goods

The supplier is audited by the most cost efficient quality control

department. Distributors are also decided by the company, keeping in
mind past performances.

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1.2 Planning

The goal of planning is to maximize the supply chain surplus. Planning

establishes parameters within which a supply chain will function over a
period of time. Companies start the planning phase with a forecast for
the coming year of demand. Coco-Cola carries out sales forecasting for
local demand. The annual sales target is conveyed to the supply chain
department, planning is carried out on a monthly, weekly and daily
basis.

1.3 Operation

Company makes decision regarding individual customer orders. The

goal of supply chain operations is to handle incoming customer orders
in the best possible manner. During this phase, firms allocate inventory
or production to individual orders, set a date that an order is to be
filled, generate pick lists at a warehouse, allocate to shipping, and set
delivery and so on. There is less uncertainty about demand. The
production, sales and supply chain departments get together to decide
the inventory usually on a weekly basis.

1.4 Process Views of a Supply Chain

Coco-Cola has a seasonal demand. Just in time concept is applicable in

non-seasonal period and not applicable in seasonal period. All
processes that are part of the procurement cycle, manufacturing cycle,
replenishment cycle, and customer order cycle are push processes.

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Coco-Cola Sales order and processing: The Shipping Manager receives
sales order from Sales Team, distributors through telephone, fax &
email one day before dispatch. The sales are made to base distributors
on advance payment against orders then shipping manager plans
according to the demand of distributors on daily basis.

2. Supply Chain Strategy for Coco-Cola

There are three major sustainable advantages that give Coco-Cola a

competitive edge as they operate in the global marketplace:

A] Big, muscular brands B] Proven ability to

innovate

C] Create differentiated products D] Powerful go-to-

market systems.

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Coco-Colas 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 offering 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 Coco-Cola will consider product
quality, price and availability of the product. Thus, Coco-Cola
particularly focuses its competitive strategy as to producing sufficient
variety, reasonable prices, and the availability of the product.

2.1 Supply Chain Strategy

Step 1: The Customer and Supply Chain Uncertainty

a Identifying Customer Needs

Coco-Cola needs to understand the customer needs for each targeted

segment and the uncertainty the supply chain faces in satisfying these
needs. Coco-Cola deals with beverages, which are a fast moving
consumer good, it knows the requirements of consumers. Coco-Cola is
considered as a drink which is refreshing during summer, and taken
regularly during winter, with demand hiking around festivals like New
Year, Halloween occasions such as weddings. Coco-Cola caters to both
cities and rural areas. It understands the needs of both. As demand for
beverages is seasonal, the quantity of product needed for each lot is
taken care of with past demand in mind. Consumers generally require
a small response time, high service level, reasonable price and some
variety (for example health conscious people favor diet versions of
sodas).

b) Demand Uncertainty and Implied Demand Uncertainty

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Demand for Coco-Cola varies by product. For example there is a
greater demand for Coco-Cola as compared to Fanta Apple, which
is new. Hence, Coco-Cola has a low demand uncertainty as compared
to Fanta Apple. The product Coco-Cola is approaching its maturity
stage in the PLC whereas Fanta Apple is in the introductory stage.

Coco-Colas implied demand uncertainty varies with the product type

as well as the customer needs. Due to decreased lead time (the
customer may purchase its competitors product if Coco-Cola is not
available at that time), need for greater variety and higher level of
service, implied demand uncertainty increases. This is true for cities
where unmet demand by Coco-Cola is met by Coca Cola and other
such competitors.

Supply uncertainty is also affected by new products. New products

have higher supply uncertainty.

Step 2: Understanding the Supply Chain Capabilities

The efficiency and responsiveness varies according to the consumer

needs, implied demand uncertainty, product type and market
segments. In remote areas the company focuses on being somewhat
efficient as other modes of transportation could turn the product to be
highly expensive. According to the company it does not deal with
distributors who do not have 20 to 25 vehicles, therefore as the
company has focus on cost reduction, uses slow and inexpensive
modes of transportation, the demand is certain, and uses economies of
scale in production, the product Coco-Cola is more inclined towards
being somewhat efficient. In cities, the company focuses its attention
on being highly responsive as Coco-Cola has to meet short lead time,
meet a high service level, handle a large variety of products and
respond to wide ranges of quantity demanded especially at the retail
stage.

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Step 3: Achieving the Strategic Fit

Making one stage more responsive allows the other stage to focus on
being more efficient. The Coco-Cola supply chain assign different roles
to its different stages, the company has to decide either to transfer the
responsiveness to the manufacture stage or to the retailer stage. While
discussing the Coco-Colas supply capability it is seen that Coco-Cola
tends to be more responsive in the cities and a bit less in towns.
Therefore, transferring the responsiveness to the retailer and
distributor, allowing them to face the higher implied demand
uncertainty. This in return allows the manufacturer and supplier to be
more efficient. At the same time, multiple beverage types contribute to
a broader product portfolio causing Coco-Cola to adjust its strategies
accordingly; tailoring the supply chain to best meet the needs of each
beverage demand.

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 3. Distribution

3.1 Distribution Channels

Direct distribution:

1. Delivery of post mix cylinders & handling of key accounts:

The key accounts are different wholesalers, restaurants and
hotels like Dominos, McDonalds which serve as a place for
key sale. These are known as national key accounts and are
very important in terms of competition.

2. Export Parties

Indirect distribution:

1. Through Base market distributors

2. Through Outstation distributors

Coco-Cola uses light and heavy vehicles for safe delivery of goods to
the distributors for timely delivery. It follows the just in time concept
which is applicable in Non-seasonal period and not applicable in the
seasonal period.

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3.2 Review and Revise Distribution

This is usually done through taking over key revenue areas. If the
distributor does not achieve its sales target, the distribution is taken
back and an addition of new distributor is done. Therefore Coco-Colas
supply is low supply uncertainty. Some of its supply source capabilities
are:

Less breakdowns

High quality

Flexible supply capacity

Mature production process

3.3 Factors Influencing Distribution Network Design

At the highest level, performance of a distribution network should be

evaluated along two dimensions:

1 Customer needs that are met

2 Cost of meeting customer needs

The customer needs that are met influence the companys revenues,
which along with cost decide the profitability of the delivery network.
While customer service consists of many components we will consider
those measures that are influenced by the structure of the distribution
network for Coco-Cola.

Response Time for Coco-Cola is minimal as the direct customers for

Coco-Cola are the retailers and then the consumers. Coco-Cola try to
locate centre of gravity in every country , so that it can reach its
retailer in less time.

Product Variety in Coco-Cola is large. They have made their place in

the market with their unique product line ranging from chips to water,

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the product variety includes beverages ranging from the water
Aquafina to Mountain Dew, Pepsi, Coco-Cola Max, Minute Maid, Fanta,
Fanta Apple & Fountain Fresh, Coco-Cola diet , Coco-Cola light.

Availability of Coco-Cola is very high and the product is always

available in stock whenever an order arrives. The Distributors have 3
days stock as back up with them in order of any malfunctioning of the
plant or other such external factors.

Customer Experience for Coco-Cola has always been positive as they

receive the product with ease and on time. The retailers are the direct
customers as they place an order to the distributors.

Return ability of Coco-Cola has always been very strong in a sense

that unsatisfactory items can be returned and changed on the spot.
This is true for both the consumers and the retailers. Coco-Cola has
laid down a system through which they can effectively manage this
requirement.

3.4 Distributor Storage with Carrier Delivery

In Coco-Cola inventory is not held by the manufacturers at the

factories but is held by distributors/ retailers in intermediate
warehouses and package carriers are used to transport the products
from the intermediate location to the final customer. This requires
distributor storage to keep high levels of inventory because
distributor/retailer aggregates demand uncertainty to a lower level
than the manufacturer. Transportation costs for Coco-Cola are
somewhat lower because an economic mode of transportation (e.g.
truckload) can be employed for inbound shipments to the warehouse,
which is closer to the customer. Facility cost is high because of a loss of
aggregation and often end up with higher processing costs. The
information structure needed is not that complex. The distribution
warehouse serves as a buffer between manufacturer and customer.

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Real-time visibility between customers and warehouse is needed
whereas visibility between customer and manufacturer is not required.
Response time is also reduced. Customer convenience is high and
order visibility with manufacturer storage becomes easier. Distributor
storage is well suited for medium to fast moving goods and it can also
handle higher level of variety than retail stores.

3.5 Value of Distribution System

There are basically two components of distribution:

Storage

Distribution

The storage facilities of Coco-Cola are designed in order to boost the

timely availability of the product. For this purpose the distributors are
fully equipped with facilities that are needed to ensure intensive supply

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of the product. The storage facilities are designed to contain the
maximum possible inventory items that are needed at any given time.

The distribution does not work between specific supply chain

components but it performs a basic function of integration amongst all
supply chain components. In case of FMCG like Coco-Cola, the value of
systematic distribution process cannot be undermined. The Coco-Cola
distribution system linked the entire supply chain for all product
categories. The distribution centers and its information network play a
key role in that regard. The major object is to carefully track sales of
items and offer short replenishment cycle times. Whenever a store
places an order it is immediately transmitted to the supplier through
the distribution manager.

4. Forecasting

4.1 Demand Forecasting

Importance

Demand forecasts form the basis of all supply chain planning .

Forecasts of future demand are essential for making accurate supply
chain decisions and ensuring the companys success. Examples of such
decisions include how much of the product to make, how much to
inventory, how much to replenish and how much to order.

Ease of Forecasting

Beverages are a push product. Forecasting is not easy in the beverage

industry as there are possible serious fluctuations in demand due to
seasonal changes in winter and summer, which cannot be easily
predicted before hand or controlled. Therefore, accurate forecasting
can be difficult at times, and there is a margin for error. However,

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having multiple product lines and daily planning procedures do
decrease risk of error by high responsiveness.

4.2 Forecasting Methods

A combination of three forecasting methods is used. The following

methods are used in combination for the purpose of sales and demand
forecasting:-

1. Time-Series Method

Historical demand data can be effectively used to forecast future

demand.

2. Qualitative Method

Using historical data and market intelligence as a guide, Coco-

Cola management practices their own judgment to determine the
demand forecast.. A yearly demand plan is forecasted in this way
which is then further divided into monthly, weekly and daily
plans accordingly.

3. Causal Method

Causal forecasting assumes that the demand forecast is highly

correlated with certain factors in the environment such as the
state of the economy, interest rates, and product pricing that can
cause a change in the demand. An example is how by
introducing a product variant, such as Coco-Cola Twist, can
influence demand for the original product that is Coco-Cola.

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 5. Transportation

5.1 Transportation Network

Coco-Cola supply chain strategy is closely linked to the appropriate use

of transportation. In a typical market, quick response enables supply
chains to meet the customer demands for ever-shorter lead times, and
to synchronize the supply to meet the peaks and troughs of demand.
The major focus is to determine the processes that are to be integrated
in the supply chain network with their corresponding suppliers,
distribution centers and the associated transport links between them.

5.2 Modes of Transportation

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Land: Truck offers advantage of door to door shipment, a shorter
delivery time and no transfer between pick up and delivery. Coco-Cola
uses the TL (truck load) approach. This approach provides paves the
way for economies of scale and is able to meet service requirements
while minimizing both trucks idle and empty travel time. Truck loads
are more suited Coco-Cola because of the use of warehouses and
larger shipments therefore making it cheap. Raw materials from the
suppliers are brought using trucks; finished products are transported to
distributors and then retailers using trucks as well. Coco-Cola have its
own fleet of small and large trucks and vehicles for carrying goods and
raw material, while the distributors also use their own vehicles.

Water: This mode forms only a very small part of the total transport
network. It is used for shipping of empty cans .

Air: It is again a very small part of the entire transport network.

5.3 Design Options for a Transportation Network

Shipment via central DC with inventory storage using milk-

runs: This is the main mode used for transporting goods to consumers
who are far away. Products are transferred to the distribution center in
a particular region and are stored there. Smaller trucks then carry
these products to the local retailers as per demand in smaller vehicles
using milk runs. This method is cost effective because it saves on high
transport cost that would have been involved in transporting to each
retailer directly form the supplier, and also prevents stock outs
because inventory is maintained closer to the retail outlets.

(Shipping via Central DC) Retailer

Retailer

Retailer

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D.C Retailer

Retailer
Direct Shipping: This method is used for transporting products to key
account holders such as KFC and Pizza Hut.

Direct Shipping with Milk-Runs: This method is used for

transporting post mix cylinders to retailers within the for fountain fresh
Coco-Cola. The shipment is made in milk runs.

6. Sourcing Decisions in Supply Chain

6.1 Outsourcing

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For Coco-Cola, outsourcing results in the supply chain function being
performed by a third party. It is in fact one of the most important
factors facing the firm. Raw material for production and packaging is
being outsourced through contracts. Inbound and outbound
transportation of products from the manufacturing place to the
distribution center and then to the final customer is also being
outsourced to a third party. The basic considerations are:

Pointing out sources of supply and negotiate with suppliers

Sourcing of raw material from local and foreign suppliers
Deciding terms and conditions with supplier
Coordinating activities and documentation with suppliers
Cost comparisons and quality assurance.
Coco-Cola makes the decision from where to outsource by inviting bids
for tenders in the local newspapers. The tender works as a general
offer to all the interested parties whether they are related to the
provision of raw material or distribution vehicles. Sourcing process of
the company includes the selection of supplier, design of supplier
contracts, product design collaboration, procurement of material and
services and evaluation of supplier performance in case of raw material
procurement.

6.2 Supplier Scoring and Assessment

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When comparing suppliers, Coco-Cola does not only focus on the
quoted price but also other dimensions that may affect the total cost of
the supplier. The following factors other than quoted price are being
considered: replenishment lead time, supply flexibility, supply quality,
pricing terms, exchange rates, duties and supplier viability. For Coco-
Cola the supplier scoring and assessment is based on the feature that
the supplier performance, in terms of replenishment lead time and on
time performance, distinguish them amongst their competitors. Soon
after the tender notice for the procurement of raw materials is
advertised, the suppliers are asked to send sample of the products. For
example, for the manufacture of Coco-Cola, concentrate and sugar are
demanded of high quality which is the forte of the company. These
samples are tested in the total quality laboratories. If the samples
match with the standard set then the sales department selects that
particular supplier. Coco-Cola being an ISO-9001 certified company
cannot sell low quality products, therefore it has strict standards set for
the purchase of raw materials from suppliers.

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 7. Other Activities In Relation With Supply Chain

7.1 Raw material Procurement

For the manufacturing of Coco-Cola products, raw materials procured

are like packaging materials, bottles, cans, sugar and concentrate etc.
from both local and foreign suppliers. The materials used in the
manufacture of beverages are primarily being procured from various
parts of the country. Sugar is purchased from several different
suppliers chosen from a list already selected by Coco-Cola
International. The concentrate is obtained directly from Coco-Cola
International. The management usually advertises in the newspaper to
invite tenders for the supply of these raw materials. The basic
components of raw material are: concentrate, CO2, sugar and gas.

7.2 Selection Criteria of Distributors

Selection of distributors is a critical step, because the majority of

supply to the retailers is handled by the distributors. Efficient and well-
placed distributors are essential for ensuring product availability, which
is the main target of the company

7.3 Product Categorization by Value and Criticality

Coco-Colas strategic item is its drink formula. It is considered to be a

base line for the companys business all over the world. The critical
item is the gas component that is CO2; the company must ensure the
availability of this item with less comparative accumulated cost. Cans
and bottles come into the category of general items, the company tries
to ensure maximum efficiency while buying these items. The use, type

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and specifications of bottles differ with different products. General
items have more specific use as compared to bulk items. Sugar may
rightly be placed under the category of bulk items. Maximum efficiency
has been ensured while buying sugar and its related products in bulk.
Bulk items are used invariably in all products of Coco-Cola with slightly
variations of proportion.

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7.4 Revenue Management

C r i ti c a li ty
High Critic al Item s
Stra te gic Item s
Ensure long term
Ensure av ailability relationship
Gas CO2
Drink Formula
Bulk P urcha se
Ge nera l Item s Item s
Ensure low c ost Ensure low c ost
Low Cans and bottle s Sugar

Low High
Val u e/ Co st
26

utdallas .edu/~ m e tin

Seasonal
peaks of demand are common every year. In Coco-Cola the seasonal
demand varies as it increases considerably in summer than in winters.
Off-peak discounting can shift demand from peak to non-peak periods.
This is exactly what Coco-Cola does as it reduces its prices on litre
bottles and comes up with new saving schemes just to attract
customers. Coco-Cola charges higher price during peak periods and a
lower price during off-peak periods.

7.5 Pricing and Revenue Management for Multiple Customer

Segments

These are different segments which Coco-Cola has allocated and

targets multiple customers from these segments such as children,
teenagers and adults. The product range is available in tin, glass
bottles, plastic liter bottles and fountain fresh.

Using In Practice

Managers do gather accurate and complete data relating to products,

offered prices, competition and most important customer behavior. For
Coco-Cola its equally important to quantify the expected benefits from
revenue management. Historical data and a good model of customer

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preferences are being used to estimate the benefits. Coco-Cola
differentiates between the customers who truly need the supply chain
asset during peak period and those who will benefit from moving their
order to the off-peak period. This approach increases profits for the
firm while also satisfying the customers creating a double impact.
Revenue management tactics have brought in huge profits to the
company.

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