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Executive summary
Supply chain management (SCM) is the business activity that relates to vast activities such as product designing, developing, storage and warehousing such that a product reaches its final customers. It is a foregoing activity in a business that ensures the flow of goods and services and includes the process of transformation of the raw materials into finished products that could be used by the final consumers. PepsiCo is such an example that can be taken to study SCM and its complexities that arise in the modern business world. Management of a supply chain must help the company to cut excess costs and also help them consume faster through timely delivery and ensuring that the right products are reaching products at the right time. Thus, the complexities and technicalities of SCM is the main focus of this study.
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Introduction
Supply chain management has emerged as an essential part of a business as it relates to the production and distribution of goods. It is a result of the market demands and cycles that affect the production and supply to the market by analyzing consumer demands. It is essential to explore a series of aspects of the supply chain in order to conduct this report, taking into account PepsiCo as the case study to analyze its supply chain management and critical issues that pertain to the enterprise in response to SCM. This report shall also focus on the Competitor’s SCM strategy of the competitors of Pepsico, which will help in making the evaluation more systematic and informative to the needs of the assignment.
Company background
PepsiCo is an American multinational beverage, food, and snack company headquartered in Harrison, New York. The organization is engaged in manufacturing, marketing, and distributing beverages, food, and snacks and was established in 1965. Ever since the company has had its own unique identity and has also merged with the Pepsi-Cola Company and Frito Lay (PepsiCo, Inc, 2020). The company has expanded its operations in various parts of the world. It has a range of products to its name, the most important of its acquisition being Tropicana products in 1998. It is the second-largest manufacturer of beverages as per its sales and distribution strategy and has a net revenue of $43.3 billion each year (PepsiCo, Inc, 2020). As well known, the company has an effective supply chain management that provides integration with various suppliers and enables timely Management of demand and procurement of raw materials such that there is no hindrance in its product delivery.
Overview of the Supply chain Management of PepsiCo
Supply chain management (SCM) is the business activity that relates to the designing, delivering, and use of a product or service and businesses rely on such supply chains to provide them with the information on inventory management and ways to deliver the right product to the right customers (Kaur et al., 2019). It can also be considered as the streaming of the supply side of the business to maximize the value of customers and gain a competitive advantage in the market. Supply chain management is an effort that is done by the suppliers to make the supply chain as economical as possible. Supply chains cover everything from the manufacturing of a product to product development using information systems that are needed to guide the undertakings (Peng et al., 2020).
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Typically, supply chain management in PepsiCo can be stated as a link between the suppliers and the producers as well as the consumers. Thus, the management of a supply chain must help the company to cut excess costs and also help them consume faster through timely delivery. This can be done by keeping control of the inventories of the beverages and food and their distribution sales of the vendor companies (Bastas and Liyanage, 2019). Supply chain management helps in the coordination of logistics supply, which consists of the following parts:
● The plan or strategy
● The source of materials
● Manufacturing focused on efficiency and productivity.
● Logistics and delivery
● The returns of defective or unwanted products.
The supply chain has a cross-functional approach that helps in the movement of raw materials into an organization and the internal processing, which brings about the final product (Alzoubi et al., 2020). Again that product, For instance, Pepsi drink, moves forward to the end consumer through various distribution channels. In the modern business scenario, supply chains have become technology-driven through blockchain and managing inventories through systematic information systems. This helps the organization to focus on its core competencies and develop the outsourcing of services to many of the customers (Migdadi, 2020).
The supply chain helps to bring about a change in the management of individual functions to the integration of activities into key supply chain processes. For instance, the marketing department functions of Pepsico can be stated by responding to consumer demand and communicating with suppliers and retailers to satisfy this demand. The information that is shared among the supply chain partners can be leveraged through process integration (Yun et al., 2019). It is a collaboration of the efforts of suppliers, product developers, consumers, and the common systems that help in the management of supply chains. The key supply chain processes that are identified in the study are:
● Customer relationship management (CRM): it is the management of the customer’s relationship with the company based on past, present, and future performance. It is the analysis of the customer’s history with the company to deliver the right kind of product focusing on customer retention and ultimately leading to sales growth (Migdadi, 2020). It compiles customers’ data from various sources such as social media, marketing channels, and market demand to facilitate the supply chain processes effectively. Here PepsiCo is known to undertake CRM to develop suitable relationships with its customers to solidify
the relations with them.
● Customer service management: it is the management of information of the customers to provide adequate services and scheduling product availability through timely data handling (Kusi-Sarpong et al., 2019). It is the goal of the organization to manage customer service effectively such that customer relationships are enhanced. Thus, the service management of customers is taken very seriously in PepsiCo as the company has a reputation for providing adequate services to its customers such as price changes and offers.
● Inventory management: it is the process of ensuring that the stock levels of the company are maintained and that the product is ready for distribution at the right time and cost (Muller, 2019). Inventory management also deals with inventory forecasting and planning such that future stock levels are predetermined by PepsiCo to forgo any complexities in the supply chain. Inventory management is an essential aspect where the different products of Pepsico are arranged as per the production and availability of materials as well as the management of the stock as per the market demand.
● Order fulfilment: it is the process that starts with the point of sales inquiry to the delivery of the product to the final consumers. It is mainly described as an act of distribution (Chen and Kitsis, 2017). However, in the broader sense, it starts by initiating the request of clients and developing such products that are satisfactory to them. PepsiCo manages its orders based on the suitability of its clients, and their demand and production are conducted as per the orders that the company regularly receives from its suppliers.
● Demand management style: it is the Planning methodology that helps to plan and manage the demand for the products. This is mostly at the macroeconomic level as well as the micro-level in the internal organization (Flores et al., 2020). PepsiCo had undertaken this process as a means to manage its worldwide demand and also identify the capacity and processes needed to fulfil the demand requirements of its clients. Here, effective demand management follows a closed-loop where feedback is used for planning the predictability of outcomes.
● Product development and commercialization: product development is the process where suppliers and customers are integrated in order to reduce the time to market (Reche et al., 2020). Commercialization is the marketing of the products that are developed within the specified date of the product life-cycle such that it offers maximum benefits to the customers. Here production technology and manufacturing flow are essential constituents of product development (Ben-Daya et al., 2019). It uses its brand to create wider publicity for its products and also helps towards sustainability to gain Market recognition.
● Manufacturing flow management: a product must flow to the right suppliers at the right time such that the company can make forecasts effectively (Kusi-Sarpong et al., 2019). The manufacturing processes of PepsiCo are flexible as it uses mass customization processes to create better products according to changes in customer needs. Handling transportation and manufacturing sites are properly designed to initiate a smooth flow of products.
● Supplier relationship management: the supplier’s relationship with the company must be such that a long term business relationship is made among them. It identifies the needs of suppliers that are global as well as local, has good faith in its business activities (Chen and Kitsis, 2017). PepsiCo has a long chain of suppliers that help the company to carry on its activities smoothly and provide adequate raw materials to PepsiCo for maintaining quality and cutting down costs through regular dealings. Critical evaluation of PepsiCo’s Performance It has been seen that PepsiCo is one of the leading Food and Beverages companies in the whole world and it conducts its business operations in more than 200 countries. It has also been seen that it has 23 brands under its name and each brand generates more than $1 billion (PepsiCo, Inc. 2020).
It has been seen that where the consumers are shifting more towards healthier foods and beverages still the business of PepsiCo is performing well that mostly selling salty snacks and carbonated drinks. However, it has been seen that a shift from the sugary drink has shown a little decline in the performance in North America, although the company still managed to improve. Also, it has been seen that since the decrease in the tax rate in the US the revenue of the company has increased (Forbes. 2020).
Earlier the company was only into the business of selling salty snacks and carbonated drinks, however, it has been seen that due to the shift to more healthy snacks and beverages and increased the sales growth of the company. This has also led to increasing in the share price of the company. In 2019, it has been seen that the market value of the company was $185.8 billion which increased by 20% during the year. Further, it has been seen that the expected earning per share of the company was $1.5, however, the actual came at $1.54. The revenue of the company was expected at $16.426 billion hovers, the actual came at $16.449 billion (Lucas, 2019).
After the shift to more organic products, it has been seen that due to its organic product the company
generated 2.2% more revenue. Since the consumers are drinking less soda the company has shifted to make other drinks too such as “Mountain Dew Game Fuel” and “Sparkling water” (bubbly drink) (Lucas, 2019).
Further, it has been seen that PepsiCo’s Frito-Lays’ organic products also led to increased revenue by 5%. It has been stated that after the decline in North America the company gained a strong market and turned out to become a strong performer in that region (Lucas, 2019). The year 2020 started great for the company. It has been seen that the company has reported that its learning has increased by 10 per cent in the first quarter. The reason for the increase in the first quarter was that the consumers were purchasing a lot of products and storing them at home in order to spend more time at home. However, with the beginning of the pandemic that is the starting of the second quarter the sales for the company has decreased. It has been seen that the beverages business was most affected as movie theatres, sports stadiums and restaurants were closed. However, it has been seen that the share of the company did rise by 1% as a result of pre-market trading. During the year ending in March, the company has reported $13.88 billion in revenue and $1.07 earnings per share. However, in the continuing year, the performance of the company again improved as a lot of consumers again started purchasing the products (CNBC. 2020).
Key issues in managing the Supply chain The global market and network economy constituents the collaboration of the supply chain management where the business focuses on certain strategic activities. The supply chain has been adequately affected by the recent technological changes that bring both positive and negative impacts on its functioning and can also bring about many new changes in the future business framework (Ben-Daya et al., 2019). As per the supply chain management of PepsiCo, it has been identified that the company is facing several issues in its supply chain, which is due to the usage of traditional methods of supply chain management (WordPress, 2018.). These issues are:
● Its age-old distribution strategy leads to rising costs and is also taking considerable time to actively use its supply chain to meet modern business challenges that entail in its business.
● Third-party integration offers problems due to rising costs and its dependability on the same suppliers for its raw materials creates dominance of suppliers in their company.
● The fragility of its products, such as beverages and foods, is often spoiled due to delays in its delivery which points out the ineffectiveness of its supply chains.
● The company had large run batches for production that is dependent on the availability of raw materials. The optimization was much less and the focus of the company was very less in response to its expenses of distribution.
● Shipping and freight charges that are included in the purchase price of a product often increase the price of the product (Touboulic, 2014).
● The difference in quality due to its various factories and suppliers that are situated in different countries often lead to customers being less satisfied with the product. Thus, the producers are mainly focusing on getting the best price and not putting consideration into supplier performance and reliability.
● The logistics and transportations manager often focused on optimization through low costs and better transportation through its distribution network (Chen and Kitsis, 2017). However, most of the purchasing teams and suppliers often did not take responsibility for delivering the best products that maintained the quality of their products. Thus, low cost often brought a lack of quality to the company.
● The plastic bottling of PepsiCo factories uses various sensors and monitors for bottle production which includes more than 120 varieties. The inventory drivers of the company slowly became ineffective as they could not produce recyclable bottles that are still the cause of concern for the distributors of PepsiCo (WordPress, 2018).
● The faulty production systems of PepsiCo are still time-consuming and complex as it does not control the operating costs of the company as these machines require adequate maintenance including adequate replacement at the hour of downtime (WordPress, 2018).
● Delays in manufacturing flow and procurement often cost the company thousands of pf dollars as the competition is tight and there are similar products available that can take their place if timely delivery is not conducted by the company’s distributors. Wastage and spillage are also the reasons for the complexities in the production of PepsiCo.
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● Lack of innovation was also a means of degrading the quality of the products like a lack of modern technologies often lead to unsystematic handling of supply chains.
In contrast with the Competitors SCM strategy
PepsiCo has several competitors that have neck-to-neck competition with the company but one of its close competitors in the beverage product is Coca-Cola. Coca-Cola is one of the leading soda and beverages in the global market and has made its mark in the industry through its large product portfolio and high reputation brand (Dynamic Inventory, 2018). The brand is known and its products are sold in more than 200 countries and are the biggest competitor of Pepsico as the two are the most important sellers of carbonated drinks and bottled water. Coca-Cola uses modern technologies for production and uses 3D manufacturing for its bottles and cans. Coca-Cola’s logistics team comprises more than 100 teams that ensure the safety of goods distribution from the factories to the fridge. It has had a long term relationship with its retail partners ever since it was established and has a reliable base of suppliers that do not compromise with quality (Dynamic Inventory, 2018). There are supplier Innovation days conducted by Coca-Cola in which the company’s marketing and procurement team provides a full-fledged plan for the future needs and also provides suppliers with the changes that are needed to be done that maintain its quality.
Quarterly meetings with the suppliers often provide a mutual performance review that is needed to be conducted by the company to maintain its supply chain. It has a strategy of strict quality control in its manufacturing premises that needs to be followed to maintain the safety of its production and also of the employee working for it (Pratap, 2018). Its Inventory management system is backed by the Global Supply Chain council that focuses on adhering to the established supply chain strategy of Coca-Cola. It has a standard and guidelines for its bottle production partners that it checks strictly such that it is centralized and follows the prescribed sustainability practices of the company. Its logistics partners are trying to move the production houses closer to the customs such that cost control can be effectively practised (Chen and Kitsis, 2017). Seamless processing is carried on by Coca-Cola that is shared by all supply chain participants.
Improvement areas and Future Changes
PepsiCo is trying to improve its supply chain processes following the paths of its competitors so as to gain a reasonable competitive advantage in the global market. The common is focusing on its supply chain management through its code of conduct known as the PepsiCo Global Procurement Supplier Social Capability Management Program, where accountability to the supplier code of conduct is followed by suppliers and getting adequate training to improve supply chain activities (Bastas and Liyanage, 2019). The CRM practices will also be enhanced by focusing on consumer feedback and using the latest technology such as Just-in-Time methods to manage the on-time distribution of its products. The third-party corrective managers shall focus on developing more systematic ways of production and also initiating the idea of using recyclable plastic in the future such that its bottle issues can be solved. Proper training of its suppliers and bringing out the original essence of the company can help engage the employees with the company and perform the systematic flow of products to the customers (Sehrawat, 2019). It can use the idea of Coca-Cola’s strategy of bringing the production factories near the consumption point such that the optimization is possible and globally accepted means can be applied by the company to attain more popularity and increase sales (Dynamic Inventory, 2018). Fragile glass bottles can be made stronger to avoid spillage and safer transportation means can be used by the company such that better chances are there to reduce wastage and ensure on-time delivery of its products. Collaborative supply chain methods can be used by PepsiCo and increase relationships with its clients and retailers such that an effective supply chain strategy can be adopted by the company.
In order to increase its global visibility, the contract has initiated to involve IT solutions for its supply chain management and also partner with companies to provide assistance on critical supply chain activities (Chen and Kitsis, 2017). The company is moving towards the greater achievement of customer satisfaction and using potentially disruptive means of the supply chain such that supply related bottle-necks can be reduced. Thus a Supply Chain visibility program is undertaken by the company such that practical resolutions are made in the business that provides rapid growth in the sales and also meets customer requirements at the specific time period. Penske’s partnership with the company has been a fruitful means to analyze the warehousing activities and also monitor the supply chain processes (Ben-Daya et al., 2019). This company has an i2 transportation system that has helped the company to track performance at each stage and also undertake the shipment activities as per the plans made. As per this partnership, PepsiCo is able to perform on-time deliveries and also increase performance to 99%.
Recommendation
It is recommended that PepsiCo must use advanced supply chain methods that are different from other companies and not follow what the competitors are doing. The company must conduct effective research with the help of its managers and try to use various Inventory handling methods which will be most effective to it as per the needs of the company. It must centralize its supply chain and induce its suppliers to comply with the rules in any part of the world such that product quality is maintained. Also, customer service management must be given adequate focus such that the company gets a competitive advantage through online deliveries and on-time availability at the retail stores. These steps can help the company to achieve a better position in the market and also get customer support through better services.
Conclusion
Supply chain management is a vast subject that requires a focus on each element and process to develop an effective study. It is also important to know that many big companies use supply chain management as a means to increase their strength and gain a suitable position in the market. However, PepsiCo is a reputable company that has slightly shifted its focus from SCM, but if it focuses on its techniques of production and delivery to consumers, it can surely gain a competitive advantage over its rivals such as Coca-Cola. Not only does it have a competition to follow but also to satisfy its customers to remain strong in the market. However, it is difficult to follow an extreme SCM strategy as the company will face cost issues that may lead to lower profitability and erosion of its uniqueness.
Thus, a strategy that is suitable for its business must be adopted with adequate innovative methods and application with the modern business scenario.
