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In order to ensure a good supply chain strategy, Pepsi co. plans two
years in advance. It has several contracts with manufacturers, and
receives raw material on a convenient basis. The company also
decides where production plants are to be placed. The production
process is 65% automated. The company has to provide and manage
transport for the delivery of products as well as the arrangement of
third party services for the procurement of products. The shipping
department handles orders and the transport department decides the
vehicles for safe delivery.
1. Production
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period of time. Companies start the planning phase with a forecast for
the coming year of demand. Pepsi carries out sales forecasting for local
demand. The annual sales target is conveyed to the supply chain
department, planning is carried out on a monthly, weekly and daily
basis.
Pepsi Sales order and processing: The Shipping Manager receives sales
order from Sales Team, distributors through telephone, fax & email one
day before dispatch. The sales are made to base distributors on
advance payment against orders then shipping manager plans
according to the demand of distributors on daily basis.
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There are three major sustainable advantages that give PepsiCo a
competitive edge as they operate in the global marketplace:
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with past demand in mind. Consumers generally require a small
response time, high service level, reasonable price and some variety
(for example health conscious people favor diet versions of sodas).
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Highly
Somewhat Highly
EfficientIn towns
Responsive
Responsive PEPSI in cities
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modes of transportation, the demand is certain, and uses economies of
scale in production, the product Pepsi is more inclined towards being
somewhat efficient. In cities, the company focuses its attention on
being highly responsive as Pepsi has to meet short lead time, meet a
high service level, handle a large variety of products and respond to
wide ranges of quantity demanded especially at the retail stage.
Making one stage more responsive allows the other stage to focus on
being more efficient. The Pepsi supply chain assign different roles to its
different stages, the company has to decide either to transfer the
responsiveness to the manufacture stage or to the retailer stage. While
discussing the Pepsi’s supply capability it is seen that Pepsi tends to be
more responsive in the cities and a bit less in towns. Therefore,
transferring the responsiveness to the retailer and distributor, allowing
them to face the higher implied demand uncertainty. This in return
allows the manufacturer and supplier to be more efficient. At the same
time, multiple beverage types contribute to a broader product portfolio
causing Pepsi to adjust its strategies accordingly; tailoring the supply
chain to best meet the needs of each beverage demand.
➢ Direct distribution:
○ Export Parties
➢ Indirect distribution:
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○ Through Base market distributors
Pepsi uses light and heavy vehicles for safe delivery of goods to the
distributors for timely delivery. It follows the just in time concept which
is applicable in Non-seasonal period and not applicable in the seasonal
period.
This is usually done through taking over key revenue areas. If the
distributor does not achieve its sales target, the distribution is taken
back and an addition of new distributor is done. Therefore Pepsi’s
supply is low supply uncertainty. Some of its supply source capabilities
are:
➢ Less breakdowns
➢ High quality
The customer needs that are met influence the company’s revenues,
which along with cost decide the profitability of the delivery network.
While customer service consists of many components we will consider
those measures that are influenced by the structure of the distribution
network for Pepsi.
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Response Time for Pepsi is minimal as the direct customers for Pepsi
are the retailers and then the consumers. Pepsi try to locate centre of
gravity in every country , so that it can reach its retailer in less time.
Product Variety in Pepsi is large. They have made their place in the
market with their unique product line ranging from chips to water, the
product variety includes beverages ranging from the water Aquafina to
Mountain Dew, Pepsi, Pepsi Max, 7 Up, Mirinda, Mirinda Apple &
Fountain Fresh, Pepsi diet , Pepsi light.
Return ability of Pepsi has always been very strong in a sense that
unsatisfactory items can be returned and changed on the spot. This is
true for both the consumers and the retailers. Pepsi has laid down a
system through which they can effectively manage this requirement.
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the customer. Facility cost is high because of a loss of aggregation and
often end up with higher processing costs. The information structure
needed is not that complex. The distribution warehouse serves as a
buffer between manufacturer and customer. Real-time visibility
between customers and warehouse is needed whereas visibility
between customer and manufacturer is not required. Response time is
also reduced. Customer convenience is high and order visibility with
manufacturer storage becomes easier. Distributor storage is well
suited for medium to fast moving goods and it can also handle higher
level of variety
• Storage
• Distribution
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The storage facilities of Pepsi are designed in order to boost the timely
availability of the product. For this purpose the distributors are fully
equipped with facilities that are needed to ensure intensive supply of
the product. The storage facilities are designed to contain the
maximum possible inventory items that are needed at any given time.
Importance
Ease of Forecasting
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having multiple product lines and daily planning procedures do
decrease risk of error by high responsiveness.
1. Time-Series Method
2. Qualitative Method
3. Causal Method
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to synchronize the supply to meet the peaks and troughs of demand.
The major focus is to determine the processes that are to be integrated
in the supply chain network with their corresponding suppliers,
distribution centers and the associated transport links between them.
Water: This mode forms only a very small part of the total transport
network. It is used for shipping of empty cans .
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transport cost that would have been involved in transporting to each
retailer directly form the supplier, and also prevents stock outs
because inventory is maintained closer to the retail outlets.
Retaile
D.Cr (Shipping via Central DC)
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factors facing the firm. Raw material for production and packaging is
being outsourced through contracts. Inbound and outbound
transportation of products from the manufacturing place to the
distribution center and then to the final customer is also being
outsourced to a third party. The basic considerations are:
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[Source: http://www.etq.com/supplierquality/]
When comparing suppliers, Pepsi does not only focus on the quoted
price but also other dimensions that may affect the total cost of the
supplier. The following factors other than quoted price are being
considered: replenishment lead time, supply flexibility, supply quality,
pricing terms, exchange rates, duties and supplier viability. For Pepsi
the supplier scoring and assessment is based on the feature that the
supplier performance, in terms of replenishment lead time and on time
performance, distinguish them amongst their competitors. Soon after
the tender notice for the procurement of raw materials is advertised,
the suppliers are asked to send sample of the products. For example,
for the manufacture of Pepsi, concentrate and sugar are demanded of
high quality which is the forte of the company. These samples are
tested in the total quality laboratories. If the samples match with the
standard set then the sales department selects that particular supplier.
Pepsi being an ISO-9001 certified company cannot sell low quality
products, therefore it has strict standards set for the purchase of raw
materials from suppliers.
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from both local and foreign suppliers. The materials used in the
manufacture of beverages are primarily being procured from various
parts of the country. Sugar is purchased from several different
suppliers chosen from a list already selected by PepsiCo International.
The concentrate is obtained directly from PepsiCo International. The
management usually advertises in the newspaper to invite tenders for
the supply of these raw materials. The basic components of raw
material are: concentrate, CO2, sugar and gas.
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High Strategic Items
CriticalItems
Criticality
Ensure longterm
Ensureavailability relationship
GasCO2 DrinkFormula
BulkPurchase
General Items Items
Ensure lowcost Ensure lowcost
Low Cansandbottles Sugar
Low High
Value/Cost
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These are different segments which Pepsi has allocated and targets
multiple customers from these segments such as children, teenagers
and adults. The product range is available in tin, glass bottles, plastic
liter bottles and fountain fresh.
Using In Practice
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Managers do gather accurate and complete data relating to products,
offered prices, competition and most important customer behavior. For
Pepsi it’s equally important to quantify the expected benefits from
revenue management. Historical data and a good model of customer
preferences are being used to estimate the benefits. Pepsi
differentiates between the customers who truly need the supply chain
asset during peak period and those who will benefit from moving their
order to the off-peak period. This approach increases profits for the
firm while also satisfying the customers creating a double impact.
Revenue management tactics have brought in huge profits to the
company.
References:
1. Anderson, David L., Britt. Frank E., and Favre. Donavon J., The
seven principle of Supply Chain Management, Logistics
Management, 2007.
2. Bearnon, B.M (1998), "Supply Chain design & analysis: Models &
Methods," International Journal of Production Economics, Vol. 55
pp. 281-294.
3. Cock, M, "The Complexity of Managing Complexity"
Transportation and Distribution Magazine, 2000.
4. Paul R Murphy, Jr Donaald F Wood (2008) Contemporary Logistics
9th Edition, Pearson International Edition. Page 6-11.
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5. www.cio.com/article/30381/Supply Chain Management Guru Hau
Lee on Demand Forecasting (accessed May 20, 2010)
6. www.logistics.about.com/od.supplychainintroduction/Introduction
to Supply Chain.htm (accessed May 20, 2010)
7. www.pepsi.com (accessed May 20, 2010)
8. www.logistics.about.com/od/supplychaintroduction/a/Lean
SCM.htm (accessed May 22, 2010)
9. www.entegreat.com/eg industrysolutions beverage SCM.htm
(accessed May 22, 2010)
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