Supply Chain Management can be defined as the proper organization of the entire system of interrelated businesses which are engaged in the movement of products and services from the point where they are originated to the point where they are consumed (Cetinkaya, et. al., 2011).
This assignment will discuss about PepsiCo, Inc. as the international corporation having its headquarters situated in Purchase, New York. PepsiCo also produces a variety of snacks and food items like Lay’s, Cheetos, Fritos Corn chips and many more but its top selling product is Pepsi.
The recipe for the soft drink Pepsi was developed for the first time in the 1880s and then was given the name “Pepsi-Cola” in the year 1898 (PepsiCo, 2017).Slowly and gradually, its product lines expanded with the introduction of Diet Pepsi and acquisition of Mountain Dew. Later on, the Pepsi-Cola Company decided to merge with Frito Lay, Inc. and resulted in PepsiCo, Inc. in the year 1965.
As a supply chain manager of PepsiCo, Inc., the deep analysis provides an overview of the various processes followed within the supply chain of the organization. The main product of the organization is Pepsi and therefore its productivity, quality and efficiency of the operations are analyzed in the following report (Zucchi, 2015). Moreover, some recommendations have been made for making some alterations in the processes which are currently followed for the purpose of betterment.
The supply chain management is concerned with the management of all the flows that are essential for the movement of goods from the manufacturer to the ultimate consumer. There are four important flows in the supply chain of Pepsi - product flow, cash flow, information flow and return flow (Coyle,et.al., 2012).
Supplier- The raw materials used in the production of Pepsi includes carbonated water, sugar, citric acid, flavorings, additives, emulsions, etc. These are supplied to PepsiCo by 1st tier (third party suppliers) and 2nd tier suppliers accordingly. Some ingredients are also arranged by the company from the other companies or nearest locations in order to reduce the costs.
Manufacturer- The next step is concerned with the delivering of the ingredients to the manufacturer and the starting of the manufacturing process. Some bottling plants are owned by PepsiCo themselves while some are provided authority by PepsiCo for the manufacturing of finished beverages. The raw materials such as glass, silica and aluminum are utilized for the purpose of manufacturing of bottles in which the drinks are bottled after production. They are then directed towards the warehouse so that the further dissemination of the bottles can be initiated.
Warehouse and Distribution- The drinks are then delivered to the warehouses. For the purpose of distribution of its products in the market, PepsiCo follows a three channel process- direct store delivery, third party distributer networks and customer warehouse (Bailey, 2014).
The Cash flow is concerned about the financial flows of the organization from the customers towards the suppliers of raw materials after the setting off of various expenses involved in the process (Li, Chen & Wang, 2011). Here the money flows upwards along the supply chain from the customer after the deduction of their margin towards PepsiCo which is then utilized for the purpose of setting off of the dues of the raw material suppliers.
Information flow is key element in the process of supply chain as the product flow is possible only after information flow takes place. The inside information of PepsiCo is transmitted among the various representatives, executives, managers and officials for proper decision making. Moreover, proper flow of information is maintained among the suppliers, manufacturers and retailers regarding the order, forecasts and demand of the product. The customers are provided information regarding the product and various offers by the way of marketing and advertisements on radio, television, newspapers, banners, pamphlets and many other ways.
Return flow in case of PepsiCo consists of returning of the bottles back to the company (New & Westbrook, 2004).The empty bottles are returned back to PepsiCo by the retailers which are picked by the secondary trucks from them. These empty bottles are carried further by the primary trucks towards the bottling plant for the purpose of cleaning so that they can be reused.
The analysis of the key flows of supply chain of PepsiCo results in the conclusion that the organization follows well-defined processes in terms of the production of their products. But some improvements are still recommended in some areas for the achievement of better results. The sales of almost every soft drink company nowadays are reducing at a significant rate due to the increasing consciousness and awareness among the consumers for their health. Moreover, the excessive use of pesticides and harmful components used in Pepsi for the preservation of the product has become a serious threat for the health of its customers. Therefore, standardization of quality is strongly recommended in the manufacturing of the products by PepsiCo. Moreover, the company must also provide proper instructions on the plastic bottles regarding its disposal so that some steps can be initiated towards the protection of environment.
Long term capacity planning- Pepsi engages in the yearly forecasts for the next 5 to 10 years on the basis of probable yearly growth rate of the products and these expected quantities are compared with the existing capacity planning. This is done in order to meet the demands for the products and accordingly launch new products in the market such the revenue for the company can be increased.
Medium term Aggregate Planning- The process for aggregate planning involves the estimation of the total quantity required on a monthly basis of all the sizes in which Pepsi is available. Accordingly, the hiring and working hours of the workers are adjusted to meet the requirements of production.
Since the customers prefer soft-drinks mostly in summers, Pepsi is a seasonal product. Therefore, chase strategy can be adopted where the production department makes adjustments in its capacity to meet customer’s demands by adopting the some reactive alternatives. Some adjustments in the workforce can be made such that the employees are hired on contract basis in peak seasons i.e. summers and are fired in slack seasons. Some incentives for vacations can be provided during the slack seasons. Moreover, there is no requirement for overtime during the slack seasons.
Short Term Planning (MPS & MRP) - After PepsiCo makes the decision regarding the monthly production level, its disaggregation is made in the Stock Keeping Units and Distribution level so that the production can be made as per the selling units. The warehousing space and manpower is managed in accordance with the demand. The demand and supply planners agree upon the part quantity and schedule receipt date at the Distribution Centre. This is the Master Production Schedule (MPS) of PepsiCo. It is a statement regarding the no. of units to be produced along with the manner and time of production (Kerzner, 2009). The MPSs are prepared on weekly basis.
The raw materials are specified on the Bill of Materials (BOM) along with the packing items required to produce one unit. The BOM includes the end item as a case of bottle, the intermediate and sub-assembly items such as bottles and syrups along with the purchased tem i.e. raw material.
PepsiCo orders the required quantities of raw materials after variable periods of time. After the calculation, the purchase orders are placed to the suppliers on the basis of lead time. Lead time is the time taken by the suppliers in order to produce and deliver the required raw materials to the Pepsi plant. Sugar is the item with high lead time while carbon dioxide is the item with lowest lead time. This is the Master Requirement Plan (MRP) of Pepsi.
Very Short Term Plans- Comparison of the output with the plans made by Pepsi is made such that the day to day production activities can be easily monitored for production control.
Forecasting is essential for every organization for the purpose of estimating the future sales by considering various factors affecting the demand of the products (Michael, 2011). PepsiCo can make the use of both qualitative and quantitative methods of forecasting so that the results can be analyzed and appropriate changes in the processes can be initiated with further decision making in this regard.
As far as qualitative forecasting is concerned, PepsiCo should go for “intention surveys” so that subjective opinions can be obtained regarding the products. Moreover, such surveys will help the organization in determining the changes in taste of the customers over the period of time and will enable them to meet the demands after making the necessary alterations. These surveys can be performed by the way of three methods- expert opinion’s poll (opinion of experts or sales representatives regarding the perception of the customers regarding various products), Delphi method (opinion of group of experts regarding the expected future demand of a product) and market experiment method (consumer behavior is studied so that information can be collected regarding future demand) (Arlbjorn, 2010).
The time series forecasting can also be used as the quantitative method of forecasting in which historical data related to the demand is analyzed for making predictions regarding the future demand of a product (Brownlee, 2016).Time-series forecasting will allow PepsiCo to provide a satisfaction level to customers on the basis of proper analysis of their needs and demands over time (Time-Critical Decision Making for Business Administration, 2015). Moreover, it will allow PepsiCo to diversify the risk in the supply chain by engaging multiple suppliers for raw materials. Also, the forecasting method will help the company in attaining higher level of profits by making the suitable changes for meeting customer demands.
Emerging markets and demands can be easily detected through the use of recommended forecasting methods. Survey and time-series method will serve the purpose of qualitative and quantitative forecasting and provide the benefit of two aspects i.e. historical data trend and current opinion of customers.
Pepsi is one of the leading soft drinks in almost every country and its credit also goes to its effective supply chain so that continuous supply is facilitated in every part of the company without any delay. Still improvements are recommended in some areas and processes so that the expectations and needs of the consumers are continuously met with standardized products.
It is recommended that some changes must be made in the manufacturing process of Pepsi by the way of innovation in taste so that the customers of other competitive brands can also be attracted and cause an increase in its sale (Venkataraman, Summers & Venkataraman, (2017). Its competitor Coca-Cola frequently comes up with attractive advertisements which may affect the supply of Pepsi. Moreover, good relations with the franchisees, suppliers and distributers must be maintained so that the supply is not hindered at any stage of the product (Gardner, 2004). Total quality management must be emphasized with continuous meeting of quality standards along with improved performance. At the end, it can be concluded that the processes followed by PepsiCo has resulted in making it a leader of the beverages. The supply chain has been effectively managed in the global market and enabled it to defeat all its competitors (Closs, Speier & Meacham, 2011). The recommendations will allow PepsiCo to continuously hold its position in the future and further enhance its processes and working.
Arlbjorn, J. S. (2010). Supply Chain Management. Academica.
Bailey, S. (2014). PepsiCo’s three-channel distribution network. Retrieved November 16, 2017, from https://finance.yahoo.com/news/pepsico-three-channel-distribution-network-170022730.html
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Zucchi, K. (2015). Job Description & Salary: Supply Chain Management. Retrieved November 16, 2017 from http://www.supplychain247.com/article/job_description_and_salary_supply_chain_management
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