Sales & Distribution Management

1 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

X`X`

PEPSICO SALES AND DISTRIBUTION

IN HYDERABAD

SALES AND DISTRIBUTION MANAGEMENT - TERM PROJECT

SUBMITTED TO

Prof. MURALI KRISHNA

Date of submission: 11th September, 2009


CONTENTS

INTRODUCTION ............................................................................................................................................. 4

Why Pepsico ? ............................................................................................................................................... 4

PEPSICO INDIA ............................................................................................................................................... 5

PEPSICO HYDERABAD .................................................................................................................................... 5

FACILITIES AND INFRASTRUTRE ................................................................................................................ 7

PEPSICO’S PRODUCT PORTFOLIO .................................................................................................................. 7

SALES & DISTRIBUTION MANAGEMENT ....................................................................................................... 8

SDM OBJECTIVES: ...................................................................................................................................... 8

SALES OFFICE FUNCTIONS: ........................................................................................................................ 9

SALES PROCESS ....................................................................................................................................... 10

SALES STRUCTURE ................................................................................................................................... 10

DISTRIBUTION STRATEGIES: ........................................................................................................................ 12

PRE SALES ................................................................................................................................................ 13

ON SPOT DELIVERY SYSTEM OR READY SALES ........................................................................................ 15

TYPE OF DISTRIBUTION ............................................................................................................................... 16

ORDER PLACEMENT PROCESS ................................................................................................................. 17

ISSUES OF ALLOCATING TERRITORIES ......................................................................................................... 18

CHANNEL DESIGN AND CHANNEL PARTNERS ............................................................................................. 20

CHANNEL MEMBER SELECTION METHOD .................................................................................................. 21

DISTRIBUTORS ......................................................................................................................................... 22

MERCHANDISERS .................................................................................................................................... 22

SCOPE OF INNOVATION IN CHANNEL MANAGEMENT ............................................................................... 22

TYPICAL ISSUES OF CHANNEL CONFLICT ..................................................................................................... 23

WAREHOUSING ........................................................................................................................................... 26

LOGISTICS & TRANSPORTATION ................................................................................................................. 27

PRIMARY LOGISTICS ................................................................................................................................ 27

SECONDARY LOGISTICS ........................................................................................................................... 28

ISSUE OF WAREHOUSING ........................................................................................................................... 29

ISSUES OF LOGISTICS ................................................................................................................................... 29


PROFILE AND OPERATIONS OF A TYPICAL HYDERABAD OPERATOR .......................................................... 30

RECOMMENDATIONS ................................................................................................................................. 31

REFERENCES ................................................................................................................................................ 32

LIST OF FIGURES

Figure 1 : Sales & Distribution Objectives 8

Figure 2 : Sales Team Setup 11

Figure 3 : Hub and Spoke Model 12

Figure 4 : Pre Sales Distribution 15

Figure 5 : Ready Sales Distribution 16

Figure 6 : Order Processing System 18

Figure 7 : Channel Design – Outbound Logistics 20

Figure 8 : Channel Process 21

LIST OF TABLES

Table 1 : Pre Sales Market Execution System ............................................................................................. 14


INTRODUCTION

This project is aimed at studying the sales and distribution strategies adopted by Pepsico in

Hyderabad. This exercise would help us gain an indepth insight about the way the FMCG

companies produce and sell their goods. We can understand how the cycle starts immediately

after the production and how the product is taken to the customer. It will give a brief insight in to

the various intermediaries involved in the process of distribution. This project will also study the

various challenges faced by Pepsico in Hyderabad and how they address these issues. This will

give us an opportunity to map the theories to the practical scenario in the real world scenario.

( we can explain the structure of the report here.)

Why Pepsico ?

In general, it is known that the FMCG industry is one which extensively uses various sales,

logistics, channel management and distribution strategies. Since Pepsico is one of the famous

companies which has always been very agile and responds quickly to the dynamic environment.

Analysts felt that one of the main reasons for the company's massive growth over the decades

and the leadership status it has acquired in almost all its business segments was PepsiCo's

efficient distribution and logistics management operations. Depending on the product involved,

PepsiCo chose between the various standard distribution methods employed, such as the Direct

Store Delivery (DSD) system, the broker warehouse system, the vending and food service

system and the pre-sell method.

PepsiCo adopted these systems to the local conditions of the various countries in which it

operated. PepsiCo's highly advanced distribution system was well supported by state-of-the-art

logistics systems. PepsiCo upgraded its technical capabilities consistently in order to strengthen

its logistics management activities. PepsiCo's bottlers employed wireless technologies to

strengthen their distribution system and effectively serve the customers in the markets in which

they operated. However, with its vast worldwide operational network and good market presence

globally, PepsiCo still did not put enough effort into integrating and streamlining the operations


of its various group companies/divisions. So by studying the strategies adopted by Pepsico, we

can get practical understanding of the concepts.1

PEPSICO INDIA

PepsiCo entered India in 1989 and has grown to become one of the country’s leading food and

beverage companies. One of the largest multinational investors in the country, PepsiCo has

established a business which aims to serve the long term dynamic needs of consumers in India.

PepsiCo India and its partners have invested more than U.S. $1 billion since the company was

established in the country. PepsiCo provides direct and indirect employment to 150,000 people

including suppliers and distributors.

PepsiCo nourishes consumers with a range of products from treats to healthy eats that deliver joy

as well as nutrition and always, good taste. PepsiCo India’s expansive portfolio includes iconic

refreshment beverages Pepsi, 7 UP, Mirinda and Mountain Dew, in addition to low calorie

options such as Diet Pepsi, hydrating and nutritional beverages such as Aquafina drinking water,

isotonic sports drinks - Gatorade, Tropicana100% fruit juices, and juice based drinks – Tropicana

Nectars, Tropicana Twister, Nimbooz and Slice. Local brands – Lehar Evervess Soda, Dukes

Lemonade and Mangola add to the diverse range of brands.

The group has built an expansive beverage and foods business. To support its operations,

PepsiCo has 43 bottling plants in India, of which 15 are company owned and 28 are franchisee

owned. 2

PEPSICO HYDERABAD

The unit at Hyderabad was initially under a franchisee and was brought under the direct control

of PepsiCo only as late as Feb’06. Before this, the Hyderabad unit used to report the CEMU

1 http://www.icmrindia.org/casestudies/catalogue/Operations/PepsiCo%20Distribution%20and%20Logistics%20Operations.htm 2 http://www.pepsiindia.co.in/aboutus_corporateprofile.html


(Central Marketing Unit). As of today, the CEMU has been dismantled and AP is looked after by

the Hyderabad unit. It reports directly to the SOMU (South Marketing Unit)

The Hyderabad unit takes care of the Telangana region and a small part of coastal Karnataka

while there is another unit taking care of coastal AP.

The territories that this unit is divided into are:

Hyderabad I

Hyderabad II

Secunderabad

Warangal

Kurnool

Nizambad

Gulbarga

Each territory has its own sales team headed by a TDM (Territory Development Manager) and

an ADC (Area Development Coordinator). Under each TDM and ADC are CE’s (Customer

Executives). Each territory is further divided into different areas and each area is headed by a

CE. Every CE has a number of PSR\RA’s (Pre Sales Representative\Route Agent) working

under him. Every area under the CE is further divided between each PSR. Each PSR has 3 routes

with an average of 30 outlets per route. A PSR is required to go on his routes, book orders from

the retail outlets and report back to the Depot. The D.A. (Delivery Agents) then delivers these

orders the next day.

The marketing department for the entire unit is one and is headed by the MDM (Marketing

Development Manager). The MDM and his team have the uphill task of supporting the efforts of

the sales team with schemes and offers for both the consumers and the retailers. There are also

incentive schemes that are run by the marketing team for the sales teams to achieve certain

targets.


FACILITIES AND INFRASTRUTRE

PepsiCo India has over thirteen company operated factories (COBO) within SOMU region. Until

February 2009, the facilities at the Sanga Reddy Bottling Plant had only five operating lines,

with the capacity to produce only glass SKUs and Aquafina drinking water.

After the expansion of the plant and its inauguration in May 2009, the number of lines has

increased, with the capacity to produce all the variants under PepsiCo product portfolio. The

Sanga Reddy Plant has become the largest bottling plant of PepsiCo India, with state of art

facilities in production, packaging, warehousing and material handling.

PEPSICO’S PRODUCT PORTFOLIO

Following are main products of Pepsi co(india) pvt limited.

Pepsi

Mirinda Orange

Mirinda Lemon

7 Up

Mountain Dew

Slice

Mirinda Sorbet (Limited

Edition)

Pepsi Gold (Limited Edition)

Pepsi Diet

Lehar Soda

Aquafina

Tropicana

Gatorade

Lehar Namkeen

Lays

Kurkure

Uncle Chips

Cheetos


SALES & DISTRIBUTION MANAGEMENT

SDM OBJECTIVES:

Sales distribution channel objectives

Market/ segment share

Profit objective by market segment

Channel member allegiance

Consumer brand loyalty

Ultimate consumer needs satisfaction

required by ultimate consumer:

Cost/ value

Convenience

Availability

Choice

Sellers channel requirements

required to achieve distribution

channel and marketing

objectives:

High penetration factor

High service levels

Wide range

Promotion

Market intelligence

Market development

Distribution requirements- compensation expected by resellers for providing seller support

Satisfaction rate of stockturn

Gross margin and overhead contribution contribution – ROI on inventory/ selling

area

Promotional allowances and other below-the-line benefits

Distribution exclusively

Continuity

Market development

Credit

Figure 1 : Sales & Distribution Objectives

Customer Satisfaction

Reseller support programmes


As is clear from the figure on the previous page, marketing channel decisions are key decisions

which involve the choice of an intermediary and detailed consideration of the physical

distribution implications of all the alternatives. Thus, before choosing to implement any of the

distribution channels, as in the case of PepsiCo pre sales and ready sales, its imperative to do a

cost effective analysis of all the components going into the system and in the end choosing that

system which is not only more reliable but also more realistic and easily manageable without

compromising on customer satisfaction and service. Also the needs of all the intermediaries have

also to be accounted and there is also a cost attached to it. These costs have also to be kept in

mind before choosing a particular channel.

SALES OFFICE FUNCTIONS: The sales office has four main functions

Finance

Marketing

Sales

Market Equipment

Finance usually maintains the accounts of the customers / distributors and takes care of

credit management and receivables. Finance also assess the investment capabilities and

infrastructure facility that a new customer or distributor need to posses, to open an account with

PepsiCo.

Marketing department executes promotion of various schemes and offers. Product

launches, promotional events, and branding of products is taken care by this department. They

also ensure the purity of visi-coolers and the visibility of the product in the market.

Sales department ensures that the product is available in the market and also that the sales

targets are achieved. They are also responsible for maintaining relationship with traditional trade

and managing distributors. They work towards increasing sales by adding more number of retail

outlets within their territories.

Market Equipment Management (MEM) has the responsibility of procuring, placing and

maintaining the visi-coolers in good condition at the retail outlets. They also have to track the

number of visi-coolers placed in a year and maintain VPO (volume per outlet).


Human Resource for operations like Merchandising, Pre-sales execution and order

punching is allocated on the basis of contract labor, outsourced to HR agencies. The information

systems at Sales office and Factory are SAP enabled.

SALES PROCESS

Sales and Distribution is a prime driver to a business in beverages industry. The scope of

PepsiCo International, Hyderabad is limited to the sales & distribution to the twin cities of

Hyderabad and few other defined geographical segments in the Up-Country of Andhra Pradesh.

The districts of Raichur and Gulbarga in Karnataka, also falls under the Hyderabad Unit.

This unit follows Hubs and Spokes model of sales & distribution. The entire market is

divided into geographical segments called territories. The Unit supports eight such territories,

which in-turn comprises of distributors. The distributors are the private businesses who partner

with PepsiCo to ensure that all retail outlets under their territory are met with supplies. Thus

distributors are the direct customers to PepsiCo.

SALES STRUCTURE

Sales at each territory are executed by a team, headed by Territory Development Co-

coordinator (TDM). The distributors that fall under the respective territories have a Customer

Executive (CE) representing the company, to coordinate the sales. The pre-sales representatives

(PSR) are appointed to collect the order form the retail outlets and ensure various discount

schemes are executed at their end. The Distributor consolidates the list of order that he would

place to the company. This marks the beginning of order service execution. The sales team setup

is represented as below –


Figure 2 : Sales Team Setup

TDM – Territory Development Manager

ADC – Area Development Co-coordinator

CE – Customer Executive

PSR – Pre-sales Representatives

Pre-sales Representatives at PepsiCo International, Hyderabad are the temporary employees,

under the contract, to a HR agency. The agency takes up the responsibility of training the PSRs

for their job. The job of a PSR is to visit retail outlets in his route and book orders. They also

ensure that the purity of the visi-cooler is maintained and that all the SKUs are available at the

retail outlet. The Merchandisers are also the contract labors, who ensure that the visi-coolers are

kept clean and that all the stock is charged inside the cooler. The Customer executives are under

the direct payroll of PepsiCo. They manage the sales at the distributor point and also lead the

team of PSRs, to drive the sales. TDMs and ADCs have CEs reporting to them. Through the

CEs, they ensure that the projected sales under Annual Operating Plan (AOP) are met by

generating business through distributors.

CE, PSR, Merchandisers

ADC, CE

TDM, ADC Sales Office

Distributor

Retail Outlet

Retail Outlet

Distributor

Retail Outlet

Retail Outlet


DISTRIBUTION STRATEGIES:

AREA DISTRIBUTORS

AREA DISTRIBUTORS

AREA DISTRIBUTORS

AREA DISTRIBUTORS

AREA DISTRIBUTORS

AREA DISTRIBUTORS AREA DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORSSUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORSSUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

AREA DISTRIBUTORSSUB DISTRIBUTORSSUB DISTRIBUTORS

PEPSICO DISTRIBUTION SYSTEM

A COMBINATION OF CHAIN SYSTEM AND

HUB AND SPOKE SYSTEM

HYDERABAD UNIT

Figure 3 : Hub and Spoke Model


PepsiCo follows a combination of chain distribution system and Hub and Spoke

distribution system in Hyderabad. The PepsiCo’s head office is located at Somajiguda in

Hyderabad. It acts as a central unit with several other distributors forming a chain network. All

the coordination and supervision activities are carried out at the head office. Every distributor

has a clearly marked area or territory for which he’s responsible for carrying out the distribution

activities. PepsiCo has its bottling plant in Sangareddy district where cleaning and refilling of the

glass bottles takes place. The distributors place the orders for the stock (called Primary Stock) at

the PepsiCo’s Head office which in turn, after receipt of payment (made either through a demand

draft or cheque) forwards the same to the bottling plant. The bottling plant is then responsible for

delivering the primary stock to the respective depot within 24 to 48 hours. The distributors are

expected to order a certain amount of Primary stock each month which is known as the depot’s

Primary target. The Primary target is decided by the T.D.M or Territory Development Manager

of the territory under which the depot falls.

The target for each depot varies according to seasonality and is also based on

demographic, geographic, climatic and present market conditions. Thus, in order to achieve the

given Primary targets the distributors have to place a certain amount of stock in the market every

month. This is known as the depot’s secondary target. This is also decided by the T.D.M. It is the

task of the Customer Executive that the depot’s primary targets and secondary targets are being

achieved. Thus the C.E is the coordinating link between the company and the distributor.

PepsiCo follows two types of distribution techniques:

Pre sales

On Spot delivery system

PRE SALES

In pre sales technique, there are two front level roles. One is of P.S.R or Pre Sales

Representative and the other is of R.A or Route Agent. For every route one P.S.R and one R.A

is allotted. The R.A has loaders with him to help him load the stock at the depot and to unload

the stock at the outlet and also to load the empty glass cases collected from the outlets for

refilling. The job of P.S.R is to visit each and every outlet in the assigned route and collect

orders from the outlets. The R.A or the Route agents’ job is to deliver the orders which were


taken by the P.S.R the previous day. For example if the market is divided into two routes

namely A and B then the execution will be as shown below:

Day Monday Tuesday Wednesday Thursday Friday Saturday

Route A P S R R A PSR R.A PSR R.A

Route B R A PSR RA PSR RA PSR

Table 1 : Pre Sales Market Execution System

Thus for Route A, the PSR will take the order on Monday and this will be delivered by the RA or

route agent on Tuesday.

The different tasks which the P.S.R performs on a given working day are systematically

described as under:

1. Check availability at the depot The PSR has to check the opening stock available at the

depot every day before going to the market to visit the assigned outlets. This helps the

PSR to have a rough idea of the tock available at the depot. Thus while taking the orders

the PSR knows his limit for taking orders of a particular SKU depending on the

availability. This helps in preventing such situations where the orders were undelivered

due to unavailability of stock thus increasing the efficiency of sales execution.

2. Visit outlet on the assigned routes Every PSR has an assigned market which is divided

into routes depending on market size. The job of the PSR is to visit each and every outlet

in his assigned route.

3. Check availability at the outlet The PSR has to check the availability of the different

SKU’s at the outlets.

4. Suggest / take orders Depending on the availability of the SKU’s at the outlet, his

responsibility is to suggest appropriate stock at the outlet and to take the orders for the

same.

5. Sales order entry The PSR has to maintain sales order entry of each outlet he visited

during the day and has to produce the same to the RA for delivery of orders the next day.


The different tasks which the R.A performs on a given working day are systematically described

as under:

1. Check sales order entry taken by the PSR the day before.

2. Check availability at depot i.e. whether sufficient stock is available or not.

3. Pick and pack the orders.

4. Visit only those outlets for which there is an order posting:

a) Deliver the goods

b) Post the goods issue.

c) Give the invoice to the customer.

d) Receive the payment.

e) Receive the empty glasses for refilling.

The complete Pre Sales order distribution system is shown as under:

Figure 4 : Pre Sales Distribution

ON SPOT DELIVERY SYSTEM OR READY SALES

This system of distribution is often referred to as the traditional technique of sales distribution.

This is also the distribution technique being used in the sample area of the study. Except the

sample area, in all others parts of Hyderabad the distribution technique have been upgraded to

Pre sales.

Check

Availibility at

Depot Reciept of Empty Glass


Unlike in Pre sales technique, there is no PSR in ready sales. Thus the role and responsibility of

R.A is vital. The different tasks being performed by a R.A daily are mentioned as under:

1. Stock loading at the depot: the stock which is available in the depot is distributed equally

between all the RA’s and they have to carry maximum possible stock every day during

their visits.

2. Visit every outlet, (not like Pre Sales where the RA visits only the outlets for which the

order has been posted)

3. Take stock order depending on the availability of the stock at the outlet. Here RA- outlet

owner is crucial as it largely impacts the order placed.

4. Deliver the goods, post receipt of goods, receive cash from the owner and move to the

next outlet.

The complete ready sales or on spot delivery system is shown below

Figure 5 : Ready Sales Distribution

TYPE OF DISTRIBUTION

The distributors in Hyderabad follow two types of distribution:

Traditional ( Unorganized Retail)

Modern Trade (Organized Retail)

RECIEVE CASH

TAKE STOCK ORDER

POST RECEIPT

OF GOODS

VISIT OUTLET


TRADITIONAL (Stand Alone Model)

The stand alone model mainly comprises of the small retail outlets in the market place. It

includes about 34,000 retail outlets which mainly comprise of the kirana stores, the Pan shops,

small roadside eating joints and other such small retailers. These small retail outlets are the ones

who provide the maximum revenue and account for approx 90% of the distributor’s revenue.

They also provide much visibility and reach required for the product.

MODERN TRADE

Modern trade includes big retail stores like Spencer’s, Big Bazaar, Food World and others that

generate large volume for the FMCG concerned. These stores are a very important channel for

selling as in Hyderabad 30% of the entire retail industry as it is known is organized into these

very modern trade. Still these outlets do not provide much revenue in terms of sales to the

distributors when compared to the traditional retail outlets.. But with the huge floating

population that Hyderabad has, these stores will in few years become a great source of revenue

for the distributors.

ORDER PLACEMENT PROCESS The Customer Executive (CE) or the Distributor faxes the order to the (Customer Order

Processing Cell) COPC. The fax contains the photocopy of DD (in case of out station

distributors) or Cheque (in case of Local Distributors). The COPC enters the order quantity data

in an excel sheet, which generates the tonnage weight and Order value details. He verifies if the

tonnage requirements matches the full load capacity of the truck. If the requirement does not

match, the COPC executive increases the quantity of the order, after the consent of the

distributor. The excel sheet summarizes the day’s sales and categorizes it based on different

SKUs, territories and trade (Modern Trade / Traditional Trade).

When COPC executive punches the order into the SAP system, the system generates message if

the distributor has a Credit block or a bottle block. The order gets cleared or processed if the

order value is within the credit limit and if there is no bottle block on the side of the distributor.

Such orders are tagged as fully cleared. If there is credit constraint or Bottle blockage, the same

is shown in the system, and only the order that falls within the limits of these two categories, gets

processed. Such orders are tagged as partially cleared. Partially cleared orders get fully cleared


when the payment is received from the distributors and when the requisite number of glass is

obtained from them. Sometimes, the orders get released on the basis of claims (due to them) that

the distributors avails from the company.

The orders for different SKUs are accepted based on their availability, which is projected in the

stock reports updated every morning. The stock reports shall have the quantity of stock of

various SKUs in hand, less the pending orders that are due to be serviced. The consolidated list

of orders from the distributor is punched into the SAP system after the financial credential and

glass limits are verified and approved by the Finance. The marks the e completion of order

processing. The order placement process is represented pictorially below.

Figure 6 : Order Processing System

ISSUES OF ALLOCATING TERRITORIES

OVERLAPPING OF TERRITORIES: Although the territories are clearly demarcated but still

the overlapping occurs. Like region Hyderabad Central is in Secunderabad and Ameerpet area

is in Hyderabad-1 territory almost opposite to each other. Since, the distance between the places

is not much, the distributors usually cross the boundaries.

1) PSRs collect the order

quantity from the retail outlets

2) Distributor consolidates

the requirement and places an order to the Sales Office

3) Sales Office checks credit block & glass

block

4) Sales Office consolidates

the requirement

and intimates to the Factory

5) Production Manager

schedules the production


ISSUES IN PLACING ORDER: Different territories have different distribution points.

Secunderabad has distribution point at Begumpet and Hyderabad-1 has in Kukkatpally. At

times retailer himself orders as per his liking to the respective distributor. So this also causes

dissatisfaction among the distributors.

DISTANCE FACTOR FOR TERRITORY ALLOCATION: Salespersons are located in the

centroid of their territory and have to travel to head office in other cities frequently. Distances

from centroids and head office are important parameters to be taken into account to equate their

time and efforts.

POTENTIAL OF AREA TO BE CONSIDERED: Selling of PepsiCo products requires

frequent and regular customer and territory coverage. So the potential is calculated based on the

population of customers in a specific area. Decisions with regards placing of stock replenishment

order must take into account the selling capacity of the outlet, the kind of channel and the

location of the outlet. For example, if an outlet is located in a busy area-market place, near

school or college or offices, etc, the sales volume is expected to be on the higher side. According

to the kind of Residential Locality, the sales volume of a particular outlet should be determined.

Also the channel category in which outlet belongs should be used in making estimates about the

outlet. If the outlet belongs to the Eatery channel then it is expected to sell more glass bottles

than PET bottles. If it is a Small Grocery in a residential locality then more PET bottles are

expected to sell.

GEOGRAPHIC CONDITIONS: Territory allocation must also consider factors like

connectivity and size. Salesmen abstain from going to territories having poor connectivity. The

work allotted to salesman in such an area should be less compared to other areas.

BASIS OF TERRITORY ALLOCATION FOR DIFFERENT STORES WITH

DIFFERENT OBJECTIVE

Geographic method is the basis of territory allocation adopted by company for superstores with

the objective of ensuring display to satisfy impulse buying of Pepsi. Breakdown method of

territory allocation is adopted for General stores where the objective is to satisfy the demand.

This method sets the sales target for each distributor based on the sales volume to be generated.


CHANNEL DESIGN AND CHANNEL PARTNERS The logistics channel explained below considers only the outbound logistics design and its

partners. The channel design can be represented as below

Figure 7 : Channel Design – Outbound Logistics

The above channel comprises of following Channel Partners –

Shipping and Product Availability Department

Labor Contractors (for loading and unloading at the factory and at Distributor Points)

Transporters and Logistics Providers (for primary and Secondary distribution)

Distributors

Route Agents for Secondary Distribution

Industrial outlets

The channel decisions involved are as follows –

Warehousing – Stock Storage and Availability decision

o FIFO

Order servicing Decision

o Quantity to be dispatched

o Batches to be dispatched

Prodcution Line

Warehousing at the Factory / Company Warehouse

Transportation to the Distributor Point

Warehousing at the Distributor point

Transportation to the Industrial Outlet


Transportation Decision

o Route allocation

o Transport selection

Warehousing – Stock Storage and forecasting decision

Order servicing decision

o Industrial outlets to be serviced

Transportation Decision

o Type of Vehicles to be allotted

o Routes to be taken

o RA to be allotted

o Receipt of empties

The diagram below represents the Channel processes.

Figure 8 : Channel Process

CHANNEL MEMBER SELECTION METHOD PepsiCo has two channel members. They are:

Distributors

Merchandisers

2) Storage at the Warehouse located

in the factory premises

3) Shipping of SKUs to the distribution

centres

4) Distribution of SKUs to the retail

outlets. Also, collection of empty

bottles

5) Shipping of empty bottles to

the factory


the factory


the factory

1) Production

at the Factory


DISTRIBUTORS

PepsiCo has outsourced its distribution to third parties and has not set up its own distribution

system like Coke. PepsiCo’s holds a tender to select its distributors for different areas. For

becoming the distributor of PepsiCo some requirements are to be fulfilled. These requirements

are checked by the company’s Customer Executives who visit the interested parties. The main

areas checked are:

The Infrastructure of the party interested

Warehouse requirements in order to keep proper inventory

Logistic capability.

Past few years financial statements.

On the basis of these criteria, the best suited party is selected from among the ones who filed for

the tenders. The Distribution can be given for a period of one year to around 5 years after which

the term can be renewed or if the distributor is not generating good sales then his license as a

distributor can even be cancelled when the term is over.

MERCHANDISERS

Merchandizing plays an important part in making sure that the products of Pepsi have better

visibility. Thus, this helps in increasing the customer base as impulse shoppers often end up

buying products visible to them.

PepsiCo has outsourced its Merchandising operations on the basis of contract labor to a HR

company called Poorvakriti. Poorvakriti is responsible for all the merchandising operations of

PepsiCo for the whole of India. Even for choosing its merchandisers PepsiCo holds a tender

where it selects the merchandiser mainly on the basis of:

The price quoted

Task doing capacity ( checks the past work done by the company)

SCOPE OF INNOVATION IN CHANNEL MANAGEMENT

Channel management involves more than just distribution, and has been described as

management of how and where a product is used and of how the customer and the product


interact. Channel management covers processes for identifying key customers, communicating

with them, and continuing to create value after the first contact.

With the use of modern technology in recent years PepsiCo has been able to manage their

distribution and logistics management operations significantly.

Innovation in the distribution methods: The company launched two new distribution methods to

improve the market penetration of its products globally these were chilled DSD system and

Hybrid system. Chilled DSD System was for items which required continuous refrigeration.

Hybrid system was formed by pooling various distribution networks of Pepsi. They employed

wireless technologies to strengthen their distribution system and effectively serve customers in

markets which they operated.

Setting up “Rules of Engagement” between channel partners: Laws for engagement between

vendor and partner defining the scenarios and do's and don'ts for the sales representatives of

partnering companies. Company should go in for great effort to publish and socialise these law

books to the partner community by means of "deal registrations" through a web portal.

Approvals on these DRs were done on the basis of predefined set of requirements to avid

subjective rulings.

Channel motivation: Motivating the owners and employees of the independent organizations in

a distribution chain requires great effort. Incentives are an important device for achieving such

motivation. The supplier offers a better margin, to tempt the owners in the channel to push the

product rather than its competitors; or a competition is offered to the distributors' sales personnel,

so that they are tempted to push the product.

ERP solution deployment: Ensure that the Business Process Transformation Vision is enabled

through the implementation of the ERP initiative.

TYPICAL ISSUES OF CHANNEL CONFLICT

Channel conflict may be defined as a situation in which one channel member perceives another

channel member or members to be engaged in behavior that is preventing or impeding it from

achieving its goals.


Goal incompatibility- Aligning bottler incentives with goals of Pepsi: The channel principal and

channel partners have incompatible or misaligned goals particularly in the area of new product

introduction, where the incentive conflict seems to cause a lot of problems. Pepsi is acquiring its

major bottling groups in an attempt to better control the incentive conflict between Pepsi and its

bottlers and over pricing, new product introduction, promotion, and quality.

Communications difficulties - goal incompatibility, perceptual differences and role

incongruities may be caused by communications problems: The Merchandiser's meeting is

unorganized and they are informed without giving adequate time to reach the meeting therefore

the whole process of transforming the whole information is not 100 percent.

Issues of profit margin for retailers: Retailers have issues with the margins that they get on the

glass bottles. They are often reluctant to take orders unless they get good margins and may stock

the product of the competitor. Like the MRP of Coke is Rs. 12 while for Pepsi its Rs. 10 for 300

ml bottle but retailers get better margins on Coke bottles.

The addition of new distribution channels: Channel conflict occurs because now there is

another type of distribution channel that is perceived by the existing channels to be chasing after

the same customers with the same brand. From the manufacturer's perspective, channel conflict

becomes destructive because the existing distribution channels react to channel migration by

reducing support or shelf space for the manufacturer. They may now prefer to keep another

beverage like Coke.

Problems between the team leader and merchandiser: The team leader often uses abusive

language to the female merchandiser which is leaving them de-motivated in performing their

work.

Indifferent attitude of merchandisers towards retailers: Retailer often complaint that the

merchandise removes cold stock and fills in warm stock by which the retailer loses sale. Due to

hot weather the retailers do not allow the merchandisers to open the coolers for more than 10

minutes because the cooling of SKU's is being hampered. Therefore Planogram implementation

becomes difficult.


Structural factors - badly designed channel structure and alignment to customer segments:

The use of multiple channels (direct and indirect) and the inclusion of new or emerging channels

without appropriate planning is an issue. The convenience stores complain to the manufacturer

about the prices at which Big Bazaar is selling their products. It has to be explained that there is

no way that a convenience store can compete with Big Bazaar on prices for the price seeking

customer. Instead the convenience store has to compete on saving the consumer time vis-à-vis

travel, shopping and transaction processing, all at a reasonable price premium.

Inequitable treatment of retailers by the manufacturer: Some retailers may be upset if the

prices at which they purchase from the manufacturer are higher than those charged to other

retailers or the direct sales force. There is often the feeling that the manufacturer is favoring

other channels at their expense.

Poor channel management-Unstructured channel management processes, such as partner

recruitment, incentive systems and promotional strategies: Pepsi may like to increase its sales

by offering a discount on its cans. However, the retailer knows that overall soda sales will not go

up much when Pepsi is put on sale because the consumers who bought other brands will just

switch, for the most part. Therefore, the retailer might like to "pocket" any discount that Pepsi

offers.

Lack of coordination between channel partners – Affecting Decisions regarding stock

replenishment order: The Distributor along with the Customer Executive makes estimate of the

amount of stock that needs to be maintained and the Brand- Pack combination that needs to be

maintained. Based on the Customer Executive’s estimate about the selling capacity of the outlet,

the kind of channel and the location of the outlet, these decisions have to taken. For example, if

an outlet is located in a busy area-market place, near school or college or offices, etc, the sales

volume is expected to be on the higher side. Also the channel category in which outlet belongs

should be used in making estimates about the outlet. If the outlet belongs to the Eatery channel

then it is expected to sell more glass bottles than PET bottles. If it is a Small Grocery in a

residential locality then more PET bottles are expected to sell.


WAREHOUSING

The facility available for the temporary storage of the finished goods is called warehousing.

Warehousing plays an important role for following reasons –

Ensures the space availability for the stocks produced

Provides a strategic location for the ease of distribution

Eases the process of monitoring the stock availability

Eases the process of forecasting the demand and supplies

PepsiCo Hyderabad has three warehouse facilities, with one available at the plant at Sanga

Reddy District. The facilities comprise of bays, for the unloading and loading of SKUs to the

trucks, forklifts for material movements and stacks for the storage of pellets. The warehouse

management falls under the scope of shipping department. The First In First Out (FIFO) system

is adopted and executed for the deliveries of finished SKUs.

The warehouses that are located outside the plant premises, stock the SKUs that arrive from

other PepsiCo Plants. These SKUs comprises of the following –

Pet Bottles of all the variants of PepsiCo

Tins and Cans

Tetra packs

The above SKUs are supplied to the distributors through these warehouses. The ware house at

the plant stocks the following –

All Glass SKUs of PepsiCo, except Tropicana Twister and Nimboos

Pet Bottles of Aquafina

The above SKUs are manufactured at the plant and are supplied to the distributors from here.

Warehouses are also available at the distributor points. These are owned by the distributor and

are used for stocking his SKUs. They do not have facilities like the company owned warehouses,

because the quantum of material stored is less as compared to the factory. However, the

company norms requires that these warehouses have closed storage facilities, that meet various

cleanliness and hygiene factors, as laid down by PepsiCo.


LOGISTICS & TRANSPORTATION 3Logistics is flow of material, information, and money between consumers and suppliers.

Transportation on the other hand is the movement of material from one point to another. Thus

transportation forms an integral part of logistics. Logistics and Transportation at PepsiCo can be

explained under two separate headings as –

Primary Logistics

Secondary Logistics

PRIMARY LOGISTICS

The logistics involved for the supply of finished goods to the distributors can be termed as

primary logistics. The transportation involved in primary logistics starts from the factory or the

ware house to the distributor point.

Figure 9 Primary Logistics

The orders placed by the distributor against the availability of the finished goods are executed

from the plant. SAP system provides for the details of the orders and also the delivery schedules.

The shipping department generates the loading sheet that describes the types and quantities of

SKUs to be loaded in a truck. Ones the loading is done, the invoice is generated and the gate pass

for the exit of vehicle is issued. The material is received at the distributor’s end against the

receipt of the invoice. Damages up to 0.01% of the total stock are acceptable by the distributor,

beyond which he shall claim back from the company. The freight is borne by PepsiCo and thus

the stocks are supplied on door delivery basis.

The primary logistics is the responsibility of PepsiCo, Hyderabad and hence executed by the

shipping department at the factory. PepsiCo, Hyderabad, does not have its own fleet of vehicles

for the distribution. They have contractors or the transporters who provide them with trucks,

3 EDWARD H FRAZELLE, Ph.D, 2004, Supply Chain Strategy. New Delhi: TATA McGraw-Hill Company limited

Factory Warehouse Distributor Point


when required. The company has three such approved transporters. The vehicle used for the

supplies at the primary comprises of –

LCVs

HCVs

Turbos

The transporters have allotted certain truck that shall exclusively serve the distribution of

PepsiCo. These are called system vehicles. There are over hundred such system vehicles that are

available during the peak season. The vehicles that cater to the supply of goods to the Up

Country or other PepsiCo units outside Hyderabad are called Location Vehicles. The routes for

the movement are fixed. Transit happens on point to point basis, either as single point

transportation or multipoint transportation. The placement of vehicles takes place under

following criteria –

Location of the delivery point

Quantity of SKUs to be delivered

Traffic restrictions at a particular route

Time of vehicle placement

Duration of transit

SECONDARY LOGISTICS

Logistics involved in the supply of finished goods to the industrial outlets is termed as secondary

logistics. The transportation involved in secondary logistics starts from the distributor point to

the industrial outlets.

Figure 10 Secondary Distribution

The orders placed by the industrial outlets are processed at the distributor points. The goods are

loaded in the truck based on the route it needs to travel. The route agents ensure that the SKUs

are delivered to the industrial outlets and that the payment is collected against the invoice they

Distributor Warehouse Industrial outlets


carry along with them. The route agent also collects the empties from the industrial outlets. The

stocks are supplied only against the empties received by the RAs.

Secondary logistics is the responsibility of the distributor and thus the cost of transportation is

borne by them. Few distributors have their own fleet of vehicles and the rest hire them from the

market, based on the need. The types of vehicles used for secondary transportation are –

LCVs

Tempos

Small Carriage Vehicles

These are best suited for the movement within the traffic and also in the by lanes. The routes for

the distribution are fixed and transit happens on multipoint basis. The criteria for the selection

and allocation of distributor vehicles is as follows –

The route to be taken

Number of industrial outlets to be covered

Time of Distribution

Traffic Restrictions

ISSUE OF WAREHOUSING Poor Infrastructure: Due to improper infrastructure, at times it leads to space constraint creating

difficulties in bifurcation of SKU. There may even be cases where stocks are placed without roof

Hygiene & Cleanliness: For sensitive items like beverages & juices, the surroundings have to be

kept clean to ensure that the bottles that the consumer receives is in a fresh condition.

ISSUES OF LOGISTICS Timely Delivery: It is a very big issue. As the distributor for Pepsi is selected by the company

which does not include people directly under the control of Pepsi so there are cases where there

are delays in the delivery to the small retailers.

Delay in Refill: Our discussion also revealed that where Coca cola ensures that the refills are

done by 9 am on a particular day whereas the Pepsi distributor takes time for its refill which is

completed by 11 am. Due to this the retailers tend to choose Coca cola over Pepsi. For example


Most of the small retail shops in the by lanes are closed in the afternoon and hence the delivery is

done on the next day leading to shortage in stock of the retailer, which in turn helps competitor

like Coca cola in capturing the markets.

Fuel Consumption: At times the distributor in order to reduce the fuel consumption sends single

trucks on multiple routes leading to failure in deliveries on time.

PROFILE AND OPERATIONS OF A TYPICAL HYDERABAD OPERATOR

The Hyderabad office is a sales unit with its operations limited to twin cities of Hyderabad and

Secunderabad and few other upcountry locations of Andhra Pradesh. The company has over 33

distributors and over 34000 industrial outlets in the twin city of Hyderabad and Secunderabad.

Distributor Area: A.S Rao Nagar in Secundarabad

Customer Executive: Mr. Bala Krishna

Sales and Distribution Function of an operator: PepsiCo follows a combination of chain

distribution system and Hub and Spoke distribution system in Hyderabad. The PepsiCo head

office is located at Somajiguda in Hyderabad. It acts as a central unit with several other

distributors forming a chain network. All the coordination and supervision activities are carried

out at the head office.

The distributors place the orders for the stock (called Primary Stock) at the PepsiCo’s Head

office which in turn, after receipt of payment forwards the same to the bottling plant at

Sangrareddy district. The bottling plant is then responsible for delivering the primary stock to the

respective depot within 24 to 48 hours.

The distributors order a certain amount of Primary stock each month which is known as the

depot’s Primary target. The Primary target is decided by the Territory Development Manager

(T.D.M) of the territory under which the depot falls. In order to achieve the given Primary

targets, the distributors have to place a certain amount of stock in the market every month. This

is known as the depot’s secondary target. This is also decided by the T.D.M. It is the task of the

Customer Executive that the depot’s primary targets and secondary targets are being achieved.


A distributor at PepsiCo can follow two types of distribution techniques: Pre sales and On Spot

delivery system.

PRE SALES: In pre sales technique, there are two front level roles. One is of P.S.R or Pre Sales

Representative and the other is of R.A or Route Agent. For every route one P.S.R and one R.A is

allotted. The R.A has loaders with him to help him load the stock at the depot and to unload the

stock at the outlet and also to load the empty glass cases collected from the outlets for refilling.

The job of P.S.R is to visit each and every outlet in the assigned route and collect orders from the

outlets. The R.A or the Route agents’ job is to deliver the orders which were taken by the P.S.R

the previous day.

ON SPOT DELIVERY SYSTEM OR READY SALES: Unlike in Pre sales technique, there is

no PSR in ready sales. The different tasks being performed by a R.A daily are mentioned as

under:

1. Stock loading at the depot: the stock which is available in the depot is distributed equally

between all the RA.s and they have to carry maximum possible stock every day during their

visits.

2. Visit every outlet

3. Take stock order depending on the availability of the stock at the outlet. Here RA- outlet

owner is crucial as it largely impacts the order placed.

4. Deliver the goods, post receipt of goods, receive cash from the owner and move to the next

outlet.

RECOMMENDATIONS

TRANSPORTATION

1) The number of vehicle should be increased in primary distribution by one of the

following ways –

Acquiring company vehicles

Hiring vehicles on lease

Increasing the number of approved transporters who can place any number of

vehicles when required.

2) Allot some incentives to the transporters on servicing the order within a stipulated time


3) System vehicles shall be tracked and made available stationed at the plant ones the order

is serviced.

4) Allocate some vehicles specific to the distributor for its primary supplies.

5) Support the distributors in acquiring vehicles for the secondary supplies.

6) Allot time slots for the loading and dispatch of vehicles which has to suplly to the city.

This will ensure that the vehicles leave the plant at the time, when the city is open to lorry

traffic.

WAREHOUSING

1) Make available more number of forklifts at the dispatch section

2) Allot token system for parking of vehicles at the bay. By doing so, the vehicles which

need to be given a priority could be loaded first.

3) The information flow between the bay and the shipping department shall be made

wireless for ease of communication.

4) Stipulate a time limit to the movement of vehicles inside the plant. Thus any vehicle that

enters the plant shall leave out within the stipulated time. This would help in reducing the

idle time of vehicles inside the plant.

DISTRIBUTOR POINT

1) The number of loaders should be increased both for route and the primary.

2) Add more number of vehicles for the by lanes.

3) Distributor should allot his own vehicle for acquiring primaries from the factory.

4) Route agents could be incentivized for achieving targets set for the supplies.

REFERENCES 1. Kotler, Philip,2004. Marketing Management, 11

th Edition, Delhi: Pearson Education Pvt

Ltd.

2. Mr. BalaKrishna, Customer Executive Pepsi - Secunderabad

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