Supply Chain Management in Pepsi Bottling Group Company
An Introduction and Overview of Pepsi Bottling Group Company
Ideally, Pepsi Bottling Group (PBG) is considered to be one of the world’s leading manufacturer, distributor, and seller of Pepsi-cola beverages, snacks, and food. The company stated its operation in 1999 by offering the largest public shares at the New York sock exchange (PGB, 2013). The company consists of PepsiCo American Beverage, PepsiCo Americas Foods and PepsiCo International. In addition, the company operates in the Spain, United States, Russia, Mexico, Turkey and Greece. Nonetheless, during the 2013 annual report the PBG generated revenue of over $16 billion as shown in the graph (Appendix 1) with an employment base of over 66,000 employees across the world. In Canada and the United States, Pepsi-Cola beverage sales account for about 55% while the rest of the world account for about 45% (PGB, 2013). On the other hand, PBG has employed over 30000 customer sales representatives who deliver and sale over 200 million bottles of drinks per day. The delivery and sale depends heavily on the channel of distribution and the distance between the manufacturing point and the consumers. For example, in North America the company sale directly through Direct Delivery Stores to the customers to promote Pepsi products. At the same time, in U.S and Canada, the company sales through the supermarket taking advantage of convenient and available gas station channels and store. The main competitor in the soft drink industry is the Coca Cola Company. However, PBG compete based on the brand awareness, retail space management, price and promotion, distribution methods, and customer services (PGB, 2013).
Currently, many companies are emphasizing on the importance of supply chain management. This is because it acts as the tunnel through which the company could achieve competitive benefits and advantages in the market (Lamb, Hair and McDaniel, 2012). For example, since 1990, many firms have tried to lean their supply chain to increase and improve internal production as well as attain customer satisfaction. Christopher (2010, pp. 240) states that, currently, companies do not compete among themselves, but competition is between rival supply chain. In other words, the success of a company depends on the choice of a supply chain that adds value to the customers at the lowest cost. In addition, Lambert (2008) asserts that, the choice of supply chain based on flexibility, speed, quality, and responsiveness is crucial during supply chain management. As such, it would enable the company to deal with current unpredictable market, increase efficiency and effectiveness. On the other hand, the supply chain management would agitate the company to adopt lean production and maintain quality at the same time. Therefore, the supply chain management includes the supply strategic planning, control, acquisition of resources and resource allocation to satisfy the unlimited wants. Ideally, this would facilitate business execution and profit generation for the company. This paper would analyze how Pepsi Bottling Group implement, support and deliver supply chain strategies.
The Procurement and Production Processes in PBG
The purchasing department has the obligation to make sure that the company receives the raw materials in time to allow continuous production. PBG has developed a software program that generates considerate demand forecast for the procurement department (PGB, 2013). The program employs future promotional plans as well as retailing prices to determine the inputs required in the production. In other words, the program forecast the raw materials required to maintain production, shipping and ordering. At the same time, maintains the inventory levels at the warehouse to meet the customer’s needs. The PBG has also employed competitive sealed bidding during procurement. Here, the company advertises the quality, quantity, and variety required to during the production process. As such, the potential suppliers would apply by including price quotation and other necessary specification. Later, after choosing the best supplier, the procurement committee would make a chart that indicates the delivery date, inventory levels and pricing. Lambert, Martha and Janus (1998, pp. 17) argues that, the information recorded in the chart is important because it assists to monitor safety stock level and ensure that customer needs are satisfied. In addition, it enables the procurement committee to arrange for the next delivery date. However, the suppliers are not allowed going beyond the budgeted cost and plan.
Production Overview of PBG
The PBG Company’s manufacturing department maintains the production at Stock Keeping Unit. The decision to maintain the stock at that level is done frequently to ascertain the production capacity. For instance, the company may decide to add and remove product capacities in other plants. This changes result from adoption of new packaging and switching from one flavor to another. Wincel (2004, pp. 360) explains that, the PBG has embraced an Installed Base Evaluation, which assesses and determine the number of required drives to maintain its maximum stock. In essence, the plant was installed to streamline production processes. The McNaughton-McKay Electronic Company assisted in designing a migration plan to ease the inventory conversion and cost (PBG, 2013). The agreement between the Pepsi and Rockwell automation of paying fixed cost on spare parts reduced the expenses by about30% (Wincel, 2004). In fact, the company could control the production technology cost, reduce carrying cost, and produce effectively. On the other hand, the lean production enabled the company to initiate a project of producing canning bottles, CO2 and mineral water a part from soft drinks.
Understanding the Supply Chain Raw Material and Finished Goods of PBG
The main objective of supply chain in every company is to maximize profit and generate overall product value. That is why many companies put more efforts to ascertain short supply chain. Pepsi consider five stages in the supply chain, which include supplier, manufacture, distributors, retailers and customers as shown in the appendix 111. However, in some circumstances, the company sells directly to customer for example in North America.
The reason why PBG applies the push supply chain process is because the company has a seasonal demand and non-seasonal demand periods with the calendar. Lamb, Hair and McDaniel explains that, push system has enabled many organizations to meet market expectations (2012, pp. 399). However, the push supply chain is only applied during the non-seasonal period to ensure adequate distribution during the procurement cycle, replenishing cycle, and customer order cycle. For example, the Pepsi’s shipping manager receives the sales order from the distributors and sales team through the fax, email, or telephone before their actual day of dispatch. This entire process enables the shipping manager to plan the distribution according to distribution demands.
Supply Chain Strategy by PBG
The supply chain master planning and strategic network design is the major core factors which are required to produce an excellent supply chain. The PBG’s focus was to transform the network structure without changing the location of facilities. In other words, the company endeavored to transform from static to dynamic supply chain strategy. The strategy formulation would provide continuous monitoring, optimization, and evaluation of production sourcing. The PBG fixed the logistic network through partnership with 3PL provider who managed the transportation. However, Lambert state, “partnership is based on trust and shared risk towards achieving business performance” (2008, pp. 257). In addition, Penske provided the warehouse facilities to distribute Pepsi products in North America. The technology embraced by 3LP achieved 99.1% on time delivery and reduced greatly the transport cost incurred by the company (Gentiletti, 2012). The strategy also empowered and facilitated the processes thus enabling the production team to perform at their best. In other words, it increased the specialization among workers. During the strategic planning, the PBG focused and used the forecast demand and safety stock requirement because this is the onset of future progress. Barney (2012, pp. 254) asserts that, the modern PBG’s supply chain strategy reduced the transport cost as well as producing product to meet the market demand at the fastest time possible. As such, the company produces manageable Stock Keeping Unit and serves the customer at the closest point possible. In addition, the strategy ensured that various strategies maximized the supply chain’s performance. Moreover, Dickersbach (2009) added that due to the complexity during implementation, the LogicNet Plus XE system was incorporated. This model allows the organization to analyze the dynamic and complexity of supply chain.
Sourcing and material planning was also part of the supply chain strategy. This is because of the fact that the organization was supposed to negotiate with both foreign and local persons who were supplying raw materials to enable them carry out capacity planning. Therefore, the production and sales forecasting depended on the storage capacity of raw material (80,000 Sq Ft), storage of finished goods 120000 Sq. Ft) and production (250 ML crates per day).
Strategy Implementation
PBG brands account for about one third of the soft drinks in the U.S. Therefore, the company employed the new optimizing tools to achieve low cost and maximize the profit. During the application LogicNet Plus XE of The Excel model is replaced during the implementation of new process by the optimizing tool. Dickersbach (2009) explains that, during the process, the company realizes a loop between production and the tool. Ideally, the tool creates an automatic data feed which reflect on the optimization tool as illustrated in appendix 11. The 3PL and the Penske used the transportation at every stage of distribution channel to track the performance of the model and increase flexibility and control during transportation operation. Such partnership provided adequate information on how to build comprehensive supply chain that would assist to track unforeseen changes in the global market (Barney, 2012, pp. 4). The PBG centralized all its operation to allow better negotiation since it enjoyed the benefits of the economy of scale. On the other hand, the LogicNet Plus XE model was implemented using the business units. The business units included the East Coast Region and the Central Business Units. The model supported the senior management through identification of production and distribution processes.
Supply Chain Visibility
Since PBG has facilitated accessibility and global visibility, it is easier for partnership and enhancement activities in the supply chain. At the same time, it assists the organization to respond quickly and efficiently to unplanned disruption in the supply chain (Lambert, 2008). These uncertainties include delayed delivery, strike at the port, and production bottleneck (Lamb, Hair and McDaniel, 2012, pp. 402). The supply management strategy has enhanced international trade by providing solutions and in-building work flow among organizations. Furthermore, it integrates logistic, order management, ware house management, and inventory control.
Reference
Barney, J. B., 2012. Purchasing, supply chain management and sustained competitive advantage: The relevance of resource‐based theory. Journal of Supply Chain Management, 48(2), 3-6.
Christopher, M., 2010. Logistics and supply chain management. Financial Times/Prentice Hall.
Dickersbach, J. T., 2009. Supply chain management with APO: structures, modeling approaches and implementation of SAP SCM 2008. Berlin, Springer.
Gentiletti, A., 2012. Design and optimization of global distribution supply chain at McCain Foods. Massachusetts Institute of Technology.
Lamb, C. W., Hair, J. F. and McDaniel, C. D., 2012. Essentials of marketing. Mason, Ohio, South-Western Cengage Learning
Lambert, D. M., 2008. Supply chain management: processes, partnerships, performance. Sarasota, Supply Chain Management Institute
Lambert, D. M., Martha C. C., and Janus D. P., 1998. Supply chain management: implementation issues and research opportunities. International Journal of Logistics Management, 9(2) 1-20.
Pepsi Bottling Group 2013. {Online} Available at <http://www.pepsico.com/company> {Accessed 8 Jan 2014}.
Pepsi Bottling Group Annual Report, 2013. {Online}Available at <https://www.google.com/finance?q=NYSE:PEP&fstype=ii> {Accessed 8 Jan 2014}.
Wincel, J. P., 2004. Lean supply chain management a handbook for strategic procurement. New York: Productivity Press.
Appendices
Appendix 1: Annual Report of PBG FOR Year 2013.
Source: Pepsi Bottling Group Annual Report, 2013.
Appendix 11: Supply Chain Transition in PBG
Old Process
Demand Forecast tool Excel Model Source Matrix Production Planning Tool Production
New Process
Demand Forecast Tool Logic Chain Source Matrix Production Planning Tool Production
Appendix 111: Supply Chain of Raw Materials to the Finished Product
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