SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT

PROJECT ONPROJECT ON

PEPSICO.PEPSICO. BY:SOUMIL SHAHBY:SOUMIL SHAH

TEJAS RANADIVETEJAS RANADIVE VINIT KATIRAVINIT KATIRA

AboAbout Put Pepsiepsi• PepsiCo, Incorporated (NYSE: PEP) is a

Fortune 500, American multinational corporation

• Headquartered in Purchase, NY with interests in manufacturing and marketing a wide variety of carbonated and non-carbonated beverages, as well as salty, sweet and grain-based snacks, and other foods.

• PepsiCo founded in 1965 through the merger of Pepsi- Cola and Frito- Lay.

• Revenue: USD 60 Billion.

• More than 2,75,000 employees.

AboutAbout PepsiPepsi-India-India• Chairwoman, President & CEO: Indra Krishnamurthy

Nooyi

• Available in nearly 200 countries and territories.

• It entered India in 1989

• Owns 43 bottling plants in India, 17 are company owned and 26 are franchisee owned.

• Generates direct employment for more than 4000 people in India and indirect employment for 60,000 people

• Set up 8 Greenfield sites in backward regions of different states. PepsiCo intends to expand its operations and is planning an investment of approximately USD 150 million in the next two- three years.

• Annual exports from India are worth over USD 60 million

PepsiPepsiCoCo ProProductsducts

Pepsi Co’s SHIFTPepsi Co’s SHIFT TOWARDSTOWARDS HEALTHIERS HEALTHIERS PRODUCTSPRODUCTS

World’s SWorld’s Secondecond Largest Food Largest Food & Bev& Beverageerage CoCompanympany

Presence in 200 countries with 198,000+ total employees

Historical data based on 2008 resultsHistorical data based on 2008 results

PepsiCo Americas PepsiCo Americas Foods (PAF)Foods (PAF)

PepsiCo Americas PepsiCo Americas Beverages (PAB)Beverages (PAB)

PepsiCo PepsiCo International (PI)International (PI)

48%48% Revenues Revenues56%56% Division Op. Profit Division Op. Profit

23%23% RevenuesRevenues25%25% Division Op. Division Op.

ProfitProfit

29%29% RevenuesRevenues19%19% Division Op. Division Op.

ProfitProfit•Frito-Lay N.A.Frito-Lay N.A.•Quaker Foods Quaker Foods

N.A.N.A.•Latin America Latin America

Foods Foods

•UK / UK / EuropeEurope

•MEA / AsiaMEA / Asia

Indra’sIndra’s KeyKey PrioritiesPriorities (Feb 16, 2009 PepsiCo Forum)(Feb 16, 2009 PepsiCo Forum)

• 20% reduction in capital in ‘09. 20% reduction in capital in ‘09. Every penny a prisoner!Every penny a prisoner!• 8,300 associates let go on 2008, ‘09.8,300 associates let go on 2008, ‘09.

• Deliver 2010 Annual Operating Plans, both Share and ProfitDeliver 2010 Annual Operating Plans, both Share and Profit• Radically improve the competitiveness of our North America Radically improve the competitiveness of our North America

Beverages businessBeverages business..• Relentless Focus on Value, keep our eye on the value Relentless Focus on Value, keep our eye on the value

equation for all our productsequation for all our products. . • Build the foundations for our Future GrowthBuild the foundations for our Future Growth

• This must be in a way consistent with Performance withThis must be in a way consistent with Performance with• PurposePurpose• But also in a fashion that recognizes that tomorrow will But also in a fashion that recognizes that tomorrow will • not be like yesterdaynot be like yesterday

• Watch the cash very carefullyWatch the cash very carefully. . Cash is kingCash is king, and we've got to , and we've got to Make every penny a prisonerMake every penny a prisoner as if it were in our own pocketbook. as if it were in our own pocketbook.

• Watch DSO, DPO, and inventory levels carefully; Watch DSO, DPO, and inventory levels carefully; • Re-look at all your capex needsRe-look at all your capex needs; and, ; and, • Be extra judicious in all of your spending. Be extra judicious in all of your spending.

All of the battles have seen a conclusion...a victor and a loser. All of the battles have seen a conclusion...a victor and a loser. All but Coke vs. Pepsi. While both sides still claim a victoryAll but Coke vs. Pepsi. While both sides still claim a victory

The The Cola WarsCola Wars were a campaign of mutually-targeted television were a campaign of mutually-targeted television advertisements and marketing campaigns in the 1980s and 1990s advertisements and marketing campaigns in the 1980s and 1990s between soft drink manufacturers between soft drink manufacturers Coca-Cola CompanyCoca-Cola Company and and PepsiCo PepsiCo IncInc

THE GREAT THE GREAT COLACOLA WARS WARS

Strong “NEW” Track Strong “NEW” Track Record of Record of Performance (PEP+PBG+PAS)Performance (PEP+PBG+PAS)

05 06 07 08 09 05 06 07 08 09

PepsiCo Strengths

• Large and Vibrant Categories

• Broad Geographical Footprint

• Developing Market Focus in Beverages

• Global Leader in Snacks

• Strong Brands That Are a Part of the Local Culture

• Advantaged Supply Chain and Powerful Go-To-Market Systems

ChinaIndia

Russia

Egypt

ThailandTurkey

129

8

65

6

9Vietnam

2007 % GDP Growth

Footprint in High Growth, Populous Markets

7

Brazil

Argentina

Venezuela

Colombia

Poland PakistanRomania

So. Africa

9

88

7

55

5

Population (MM)1,3211,110

398627

142477638

16422

189486775

Every Penny a Prisoner

Every Penny a Prisoner

Cash is King!Cash is King!

$62.0$62.0PPBBGG++PPAASS

““The Acquisition of PBG, PAS will change the Landscape”The Acquisition of PBG, PAS will change the Landscape”

$61.0$61.0

$6.9$6.9

$8.0$8.0

PPBBGG++PPAASS

$9.5$9.5

$8.1$8.1

Revenue ($B)Revenue ($B) OperatingOperatingProfit ($BProfit ($B))

PPBBGG++PPAASS

$43.2$43.2$43.3$43.3

• 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.

• Definition an American professional association put forward: “Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities.”

• It also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.

SupplySupply ChainChain ManagementManagement

AA SupSupply Chply Chainain FlowFlow

Cycle View of Supply Chain: There are five stages in a supply chain (Supplier Manufacturer Distributor Retailer Customer) and four supply chain process cycles (customer order, replenishment, manufacturing, procurement cycle).

A Supply Chain Flow

A Supply Chain Flow• Push/Pull View of Supply Chain:

– With push process execution is initiated in anticipation to a customer order. Pepsi 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.

– Pepsi 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.

1. The Customer and Supply Chain Uncertainty

1. Identifying customer needs 2. Demand uncertainty and implied demand

uncertainty 3. Uncertainty for the capability of the

supply chain

Understanding the Supply Chain Capabilities

Achieving the Strategic Fit

SupplySupply ChainChain StrategyStrategy

Supply CSupply Chainhain Flow- PepsiFlow- PepsiOUR PRODUCT IS PEPSI COLA 300ml GLASS BOTTLE

Chembur

Manufacturing plants in Maharashtra

PaithanRoha

One truck carries 9 tonnes which includes 550-700 crates (Primary truck)

FOBO- Franchise owned bottling operations

COBO-Company owned bottling operations

Bottling Operations are of 2 types

In India , out of 43 bottling operations 17 are COBO and the rest are FOBO.

COBOCOBO

FOBOFOBO

Performance of various Performance of various productsproducts

Seasonal saleSeasonal sale

Supply Supply Chain FlowChain Flow- Pepsi- Pepsi

Raw Materials Used for Pepsi

Carbonated water Sugar Citric acid Additives FlavoringsEmulsions

Raw Materials Used for Bottles

Sugar

Glass Silica Aluminium

Dynamics of Dynamics of MateMaterial Flowrial Flow

Supplier Plant CnF/Distributor

Logistics Retailer

FLOWFLOW OFOF MATERIALMATERIAL

Reverse Flow

Forward Flow

Organized Sales

Direct Sales

OrgaOrganizednized SalesSales• CnF (group of workers namely loaders, de-loaders, salesmen

work per CnF) There are 13 CnFs in Pune

• Distributor– 70 manpower with distributor– Distributor supplies to 4000-4500 outlets

• He supplies in 11 routes with the help of 11 vehicles• 10 vehicles for organized sale• 1 for direct sale• Secondary trucks under the supervision of the driver

deliver the material to the retailer• Distributors have 3 days stock as back up with them in

order of any malfunctioning of the plant or other such external factors.

• Retailers

Direct SalesDirect Sales From CnF the secondary trucks leave for the semi urban and rural

areas for the direct sales of the materials . For each day truck consumes 6-7 L of diesel per day. This kind of selling is not used for demand forecasting but still generates huge amount of revenue that is why this practice is being followed despite having various loopholes.

• One truck carries 3 tonnes which includes 144 crates• Each crate consists of 24 bottles• Crate weighs 14.4 kg in case on 200ml full bottle• Crate weighs 18 kg in case on 300ml full bottle• Height of 300ml bottle -22cm • Weight of 300ml bottle-700gms when full• Weight of 300ml bottle-400gms when empty

Reverse FlowReverse Flow

The empty bottles are picked by the secondary trucks from the retailers and brought back to the CnF.

The primary trucks carry the empty bottles further to the bottling plant where the bottles are cleaned and reused.

Supplier Plant CnF/Distributor

Logistics Retailer

Information FlowInformation Flow Money FlowMoney Flow

FLOW OF MONEYFLOW OF MONEY

Organized Sales Direct Sales

•A Pre Sales Representative (PSR) takes •the order from the retailer thrice a week. •Direct sales representative (DSR) delivers the •order the very next day. •The money is paid by •the retailer to the DSR at the time of delivery.

•The money is paid by the retailer to the •Driver at the time of delivery. •The payment is made in cash.

•All expenses are borne by distributor but are later reimbursed by company•Rs 170 for each crate of 200 ml bottles•Rs 218 for each crate of 300ml•Empty bottle costs Rs.3-6 each

•The retailer gets a margin of Re The retailer gets a margin of Re 11

DISTRIBUTION of sellersDISTRIBUTION of sellers

TOTAL AMOUNT OF SALE DAILYTOTAL AMOUNT OF SALE DAILY

NO

OF

CR

ATE

SN

O O

F C

RA

TES

FLOW OF INFORMATIONFLOW OF INFORMATION

Sales Manager

Territory Development Manager

Customer Executive

Direct Sales Representative

Pre Sales Representative

FLOW OF INFORMATION contdFLOW OF INFORMATION contd

The customers of the Company are divided into different categories and different routes, and every salesman is assigned to one particular route which is to be followed by him on a daily basis.

Monthly target for PSR is 2500-3500(in season), 1500-1800(off season)◦ Incentives are based n these targets◦ They should achieve an annual growth

of minimum 20%

Key Accounts: It basically consists of organizations that buy large quantities of a product in one single transaction. The Company provides goods to these customers on credit, payments being made by them after a certain period of time

Examples: Clubs, fine dine restaurants, hotels, Corporate houses

Future Consumption: This route consists of outlets of Pepsi products, wherein a considerable amount of stock is kept in order to use for future consumption.

Examples: Departmental stores, Super markets etc.

FLOW OF INFORMATION contd

• Immediate Consumption: The outlets in this route are those which require stocks on a daily basis. The stocks of products in these outlets are not stored for future use instead, are exhausted on the same day and might run a little into the next day i.e. the products are consumed at a fast pace.

• Examples: Small sized bars and restaurants, educational institutions etc.

• General: Under this route, all the outlets that come in a particular area or an area along with its neighboring areas are catered to. The consumption period is not taken into consideration in this particular route.

Pepsico:logistics strategyPepsico:logistics strategy

MAJOR MAJOR DISTRIBUTION DISTRIBUTION

SYSTEMSSYSTEMS

BROKER BROKER WAREHOUSE WAREHOUSE DISTRIBUTIONDISTRIBUTION

(BWD)(BWD)

VENDING AND VENDING AND FOOD SERVICES FOOD SERVICES SYSTEM (V&FS)SYSTEM (V&FS)

(DWD)(DWD)DIRECTDIRECTSTORESTORE

DELIVERYDELIVERY

bottlersbottlers

warehouseswarehouses

RetailersRetailers

WholesalersWholesalers

DistributorsDistributors

RetailersRetailers

warehouseswarehouses

RetailersRetailers

Direct store deliveryDirect store delivery Direct order from grocery Direct order from grocery and convenience stores andand convenience stores and delivery of previous orders.delivery of previous orders.••Orders are taken manually in this system.Orders are taken manually in this system.••PepsiCo ensured that the products reached thePepsiCo ensured that the products reached the stores in time and also arranged them properly on stores in time and also arranged them properly on the stores’ shelves. the stores’ shelves.••Products were arranged such that they attractedProducts were arranged such that they attracted maximum visibility for passers bymaximum visibility for passers by••PepsiCo often used the DSD system inPepsiCo often used the DSD system inorder to launch order to launch new products in pretty quicknew products in pretty quicktime (in some cases, within a week).time (in some cases, within a week).

••Market response for a particular productMarket response for a particular productcould be determined more easily.could be determined more easily.••The retailers also benefited from the DSDThe retailers also benefited from the DSDsystem.system.••Retailers didn't have to incur labor costsRetailers didn't have to incur labor costsrequired for required for unloading the trucks & placingunloading the trucks & placingthe products on shelves.the products on shelves.

Vending and food service Vending and food service system system

••PepsiCo’s sales personnel distributed productPepsiCo’s sales personnel distributed productthrough through third party V&FSthird party V&FS..••Through this product system, product was madeThrough this product system, product was madeavailable to school, colleges, canteen, stadiums,available to school, colleges, canteen, stadiums,offices, restaurants etcoffices, restaurants etc••Through this Pepsi generated Through this Pepsi generated revenues of over revenues of over $1 billion every $1 billion every year year through this channel.through this channel.••PepsiCo distributed its beverages in PepsiCo distributed its beverages in the india through the india through five retail channels five retail channels supermarkets/retail stores,supermarkets/retail stores,fountain/restaurant, convenience fountain/restaurant, convenience stores,vending, and others.stores,vending, and others.•There were also other distribution •There were also other distribution channelschannelsfor beverages including for beverages including restaurants,caterers and institutional restaurants,caterers and institutional buyers such as airlines.buyers such as airlines.

Broker warehouse Broker warehouse distributiondistribution

• • Employed third party distributorsEmployed third party distributors• • This system adopted for less delicate &This system adopted for less delicate &perishableperishableproducts (e.g.- Pepsi Cola, Mountain Dew)products (e.g.- Pepsi Cola, Mountain Dew)• “• “IMPULIMPULSIVESIVE BUYBUYINGING” products were not ” products were not includedincluded••Employees at the Employees at the storestore

Advantages:Advantages:1.No employees1.No employees2.economical2.economical

SWOT ANALYSISSWOT ANALYSISSTRENGTHSSTRENGTHS

Pepsi has a large market share Pepsi has a large market share than its competitorsthan its competitors

As the target customers of As the target customers of pepsi is young generation, so pepsi is young generation, so pepsi has more brand loyal pepsi has more brand loyal customerscustomers

The environment of factory is The environment of factory is very good and attractivevery good and attractive

Pepsi spends a lot of Pepsi spends a lot of its budget in its budget in advertisingadvertising

Pepsi is an Pepsi is an international company international company and it a very good hold and it a very good hold in international in international markets as wellmarkets as well

Employees are also Employees are also motivatedmotivated

WEAKNESSWEAKNESSPepsi does not offer any kind of Pepsi does not offer any kind of

incentive or discount to its retailersincentive or discount to its retailers

Pepsi target only young customers in Pepsi target only young customers in their promotionstheir promotions

Pepsi tin pack is not available in far Pepsi tin pack is not available in far rural areasrural areas

Unavailability of all products at same Unavailability of all products at same time at same outlettime at same outlet

Decline in tasteDecline in taste

Political franchisePolitical franchise

Offering low margin to retailersOffering low margin to retailersFailure of some productsFailure of some products

OPPURTUNITIESOPPURTUNITIES

Demand of pepsi is more than its competitorsDemand of pepsi is more than its competitors

Company looking to diversify its business into Company looking to diversify its business into other potential businessesother potential businesses

Increase demand of beverages will increase its Increase demand of beverages will increase its demand and growth ratedemand and growth rate

Distribution of snack foodsDistribution of snack foods

Increased interestsof people in sports and Increased interestsof people in sports and musical groupshas provided an oppurtunityto musical groupshas provided an oppurtunityto increase its sale through themincrease its sale through them

THREATSTHREATSTough rivalry among Tough rivalry among

competitorscompetitors

People have started People have started realising that soft drinks realising that soft drinks are not good for health are not good for health which is also a major which is also a major threat to companythreat to company

Government regulationsGovernment regulations

Shortage of resources Shortage of resources

DuplicationDuplication

NON-CARBORATED NON-CARBORATED SUBSTITUTESSUBSTITUTES