Professional Documents
Culture Documents
Pepsi: An outbound
logistics comparative analysis for
India
Jonathan Marquet
Kris OToole
Sanjit Kumar Sahoo
Pareenay Ad Waala Mehrotra
Kagiso Mamabolo
3Continent Master of Global Management
Professor
Course: Global Supply Chain Management
Content
1
Introduction..........................................................................................................
Coca-Cola.............................................................................................................
3.1
Introduction....................................................................................................
3.2
3.3
Coca-Cola in India...........................................................................................
3.3.1
General information.................................................................................
3.3.2
Distribution channels...............................................................................
3.3.3
Demand forecasting.................................................................................
3.4
Challenges......................................................................................................
3.4.1
Hub-and-spoke system.............................................................................
3.4.2
Information systems.................................................................................
3.4.3
RED..........................................................................................................
Pepsico.................................................................................................................
4.1
4.2
PepsiCo in India..............................................................................................
4.2.1
General Information.................................................................................
4.2.2
Distribution Channels.............................................................................
4.3
Challenges....................................................................................................
4.3.1
Rate Cutting...........................................................................................
4.3.2
4.3.3
Communication of schemes...................................................................
4.3.4
Duplicate Brands....................................................................................
4.3.5
Refrigerator problems............................................................................
4.3.6
Maaza Scheme.......................................................................................
4.3.7
Conclusion..........................................................................................................
Bibliography........................................................................................................
1 Introduction
Vigorous competition within the beverage industry has been well documented.
With such a highly contested market containing a few dominant firms,
organizations are constantly in pursuit of ways to achieve optimal efficiencies. As
this is the case, a high performing supply chain management (SCM) system has
become critical to a firms success. This report will provide a thorough
comparative analysis of the SCM strategies employed by the two leading
organizations competing in the beverage industry: Coca-Cola and Pepsi. The
analysis will be focused on the Indian market and specifically in the field of
outbound logistics.
and also good quality services from such a provider. Further the above
mentioned infrastructure development acts as a hindrance for 3PL in
operating efficiently.
Cost of Quality Services According to industry analysts, logistics cost
in India are among the worlds highest. Also the delivery time for cities
outside metros is also uncertain.
Technology Usage and inadequate investment in IT - Technology
usage is very low in India it restricts the scope of increasing productivity
and efficiency (365business.com). Though India is a leading exporter of IT
yet most of the companies in India still are inhibited in terms of usage of
these technologies. For companies that use IT services have a clear bias in
usage of standalone IT system. There is still a long way for Indian
companies in terms of usage of technologies that are in sync with the
recent developments in the world. The sooner the companies start
accepting the changes in the IT industry and are comfortable in usage of
these technologies. The SCM would become much more smoother and
streamlined.
3 Coca-Cola
3.1 Introduction
Coca-Cola is an American brand that is the global market leader for sparkling
beverages. The invention of the Coca-Cola beverage is well-known across the
globe. In 1886, pharmacist John Pemberton was actually trying to develop a new
medicine when he invented Coke. Even now, the exact recipe of Coke is one the
worlds best kept secrets. As the drink became increasingly popular, the first
Coca-Cola factory opened in 1894 in Vicksburg, Missippi. Presently, Coke is active
in more than 200 countries and serves more than 1.7 billion beverages a day,
including Sprite, Fanta and Coca-Cola. Coca-Cola has become very popular, in
part, due to its successful marketing strategy which it adapts from country to
country.
several schools in the US for example, CSD have been banned since 2006. When
ex-CEO Nevell Isdel came back as CEO in 2004, his main tasks was to save the
ship from sinking. Therefore he decided to improve and change Coca-Colas
network of bottlers. He decided to consolidate all the companys owned bottlers
and increased the interest in their bottlers partners through the purchase of
stakes. He believed by combining the production and distribution system, CocaCola would be able to respond more quickly to changes in the market (Gupta,
2008). To make sure the quality of its products does not vary, Coca-Cola set up a
strong communication network with its suppliers. Through the Supplier Guiding
Principles, Coca-Cola clearly communicates its values and expectations with its
suppliers.
3.3.1
General information
Until 1977, Coca-Cola, was the market leader in India regarding CSD. But when
the new government required Coca-Cola to hand in their secret formula, CocaCola didnt agree and they were forced to leave India. This was the sign for CocaColas main competitor PepsiCo to enter the Indian market in 1988 by creating a
joint-venture with Punjab Agro Industrial Corporation and Voltas India Limited
which lasted until 1993. In 1994, one year after PepsiCo ended the joint-venture,
Coca-Cola re-entered the Indian market after the new Indians Liberalization
Policy. By that time, Coca-Cola noticed a big change in the market. An Indian
player, Parle brothers, successfully marketed Thums Up, Maaza and Limca. To
beat their competitor, PepsiCo, Coca-Cola acquired Parle brothers in 1993. After a
sluggish start, where Coca-Cola unsuccessfully wanted to sell the American way
of living, Coca-Cola became more and more important through its deeper
understanding of the Indian Market. In 2005, Coca-cola and PepsiCo had a total
market share of 95%. Coca-Colas share was equal to 52.4%. (Gupta, 2008)
3.3.2
Distribution channels
Key Accounts: These are key customers who have a large share in the
total share of Coca-Colas sales. These customers mostly consist of fine
clubs, restaurants, hotels, and buy Coca-Colas products in large
quantities. Because of the higher bargaining power, the customers benefit
from 15 days to one month credit.
The four main groups of customers are replenished through a direct route or an
indirect route. The type of route is determined by the type of the bottler. For
COBOs, a direct route is used, while indirect routes are used for FOBOs. The direct
route is shown on Figure 3.3. When Coca-Cola uses a direct route, it means the
bottling unit or partner manages sales, delivery, and merchandising. Therefore, a
FIFO-inventory system is used. By using a First-in First out system, Coca-Cola
makes sure expiration of products are limited and an easy & accurate cost
calculation will be used as goods will be priced according to their purchasing
price.
Figure 3-3: Coca-Cola's Direct Route India
When an indirect route is using, an organization which isnt part of Coca-Cola will
be responsible for the sale and distribution of the product. To guarantee the
quality of the service, the distributor has to full certain requirements which are
listed in Figure 3.4.
Figure 3-4: Coca-Cola's Indirect Route India
3.3.3
Demand forecasting
Historical data
Economic parameters
Seasonal variations
3.4 Challenges
Figure 1-2 shows the business model for Coca-Cola India. This image confirms
that the use of COBO and FOBO are important mechanism for Coca-Cola. In India,
Coca-Cola company is divided in four regional head offices: Haryana, Mumbai,
Hyderabad and Kolkata. Throughout India, there are more than 50 manufacturing
7
plants, which are shown by Figure 1-1 By doing so, Coca-Cola tackles Indias
problem of geographical spread and the differences in taste one will face within
India. (Krishna, 2010)
3.4.1
Hub-and-spoke system
3.4.2
Information systems
check the availability and arrangement of Coca-Cola products. Since they keep
track of what needs replenishments, they can also bunch together outlets that
need restocking. This helps with dynamic route optimization and ensures that
delivery trucks do not make too many unnecessary runs from the plant
(Goswami, 2008). This allows Coke to monitor real time sales, up-sell and crosssell its depots, and increase the quality and effectiveness of its performance
tracking. (Goswami, 2008)
3.4.3
RED
4 Pepsico
4.1 Global Distribution Strategy
The companys products reach the market through the following three channels:
direct store delivery (DSD), customer warehouse, and third-party distributor
networks. PepsiCo chooses the relevant distribution channel based on customer
needs, product characteristics, and local trade practices. Several Distribution
channels can be found for PepsiCo:
Direct Store Delivery: Under the DSD system, PepsiCo delivers products
directly to retail stores. Of the three channels, DSD enables PepsiCo to
merchandise with maximum visibility. Its more suitable for products that
are restocked often and are sensitive to promotions and marketing.
Customer warehouse: The customer warehouse system is a less
expensive distribution channel. Its ideal for products that are less fragile
and perishable, have lower turnover, and are not purchased impulsively.
Third-party distributor networks: PepsiCo distributes food and
beverage products to restaurants, businesses, schools, and stadiums
through third-party food service and vending distributors and operators.
As PepsiCo uses a Pull-method globally, a good forecasting method is needed.
Therefore, a combination of three forecasting methods is used. The following
methods are used in combination for the purpose of sales and demand
forecasting: Time-Series Method: Historical demand data can be effectively used to
forecast future demand.
Qualitative Method: Using historical data and market intelligence as a
guide, PepsiCo management practices their own judgment to determine
the demand forecast. A yearly demand plan is forecasted in this way which
is then further divided into monthly, weekly and daily plans accordingly.
Causal Method: Causal forecasting assumes that the demand forecast is
highly correlated with certain factors in the environment such as the state
of the economy, interest rates, and product pricing that can cause a
change in the demand. An example is how by introducing a product
variant, such as Pepsi Twist, can influence demand for the original product
that is Pepsi.
4.2.1
General Information
PepsiCo entered India in 1988 by creating a joint venture with the Punjab
government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India
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Limited. This joint venture marketed and sold Lehar Pepsi until 1991, when the
use of foreign brands was allowed. Pepsi bought out its partners and ended the
joint venture in 1994 and has now grown to become the countrys largest selling
food and Beverage Company. Being 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 Indias expansive portfolio includes iconic refreshment beverages such
as Pepsi itself, 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, Tropicana 100% fruit juices, and many
other beverages.
To support its operations, PepsiCo has 36 bottling plants in India, of which 13 are
company owned and 23 are franchisee owned. PepsiCos business is based on its
sustainability vision of making tomorrow better than today and its commitment to
living by this vision every day is visible in its contribution to the country,
consumers and farmers.
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. Material planning and sourcing is carried out as well.
Sources of supply of raw material both local and foreign are identified and terms
and conditions are negotiated. Capacity planning is also done at this stage. Sales
forecasting and production planning depends upon the capacity of the
organization. Distributors are also decided by the company, keeping in mind past
performances.
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Routing
o
4.2.2
Distribution Channels
PepsiCo India has adopted intensive distribution strategy the companys main
focus is to reach all its markets.
4.2.2.1
Intensive distribution
4.2.2.2
Channel members
There are four channel members apart from company factory and consumer.
These are, in order of product forwarding:
Godown: These are the hub. They receive products directly from the
factory and their function is to store products and forward them to
distributors as and when orders are placed. They dont have any margin
but are company owned and are paid directly by the company.
Distributor: Pepsi doesnt have any separate stockiest, only distributors
are present. They receive products from the godowns and supply to
wholesalers and also directly to retailers. They appoint a salesman for
retailing, and for this they get subsidy from company. Their margin
depends on whether they are supplying to wholesaler or directly to retailer
and vary from 2% to 5% according to company, but in reality it is lower as
they sometimes sell at lower prices to increase volumes. This leads to rate
cutting. They also get various schemes from the company, which are
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4.2.2.3
14
4.2.2.4
4.2.2.5
15
4.2.2.6
I2 Transportation
4.2.2.7
Implementation
PepsiCo set two objectives for transportation management. One was to achieve
an on-time delivery rate at 99.1% and another was to reduce transportation
costs. It empowered with optimized processes and technology that enable the
team to perform at the highest possible level. With the application of new
technology that provides greater supply chain visibility, better organized data,
and access to higher level of real time or near real time information, even the
best team can improve their performance. The benefits can be listed as follows:
Exception-based management
Customer-specific
manufacturing
solutions
for
replenishment,
fulfilment,
and
4.3 Challenges
4.3.1
Rate Cutting
4.3.2
One of PepsiCos major problems is the existence of wholesalers that are too near
which leads to rate competition between the two wholesalers.
16
4.3.3
Communication of schemes
At times few wholesalers only get to know about the schemes of the month after
many days and they are not able to take the benefits of it.
4.3.4
Duplicate Brands
There are many duplicate brands existing in the market and taking advantage of
the illiterate population in rural areas by selling spurious PepsiCo beverages.
These brads offer very high margins for retailers and distributors.
4.3.5
Refrigerator problems
Some retailers demand a company refrigerator regularly and are not willing to
store PepsiCo products in their own refrigerators and these retailers are generally
big and imperative and theres always a threat that a competitor could provide
them with refrigerators and restrict them from selling Pepsi products.
4.3.6
Maaza Scheme
4.3.7
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5 Conclusion
As illustrated by the report, the Indian environment alone presents a number of
obstacles that must be overcome in order to build and maintain a successful SCM
system. With respect to Coca-Cola and Pepsi, it has been shown that the two
competitors utilize many similar SCM methods but maintain some key strategic
differences as well. While both utilize COBO and FOBO strategies as well as huband-spoke systems, they each have unique strategic philosophies, such as Cokes
Project COLA. As has been clearly indicated by the report, Coca-Cola and Pepsi
both face numerous challenges, and while each company utilizes SCM differently,
it is clear that continued investment for the improvement of SCM will be of critical
importance to the competitiveness and long-term success of the companies.
6 Bibliography
Bharti, H. (n.d.). Indian Institute of Foreign Trade: Supply Chain Management
PepsiCo. Retrieved from Slideshare:
http://www.slideshare.net/hiteshbharti/project-report-scm-pepsi-co
Dubey, P. (2014). Project Report on the Outbound Supply Chian at Coca-Cola.
Retrieved from Shanti Business School:
http://www.slideshare.net/Prashantvd/cocacola-summer-internship-report30083765
Goswami, K. (2008, February 19). Coca-Cola's secret formula. Retrieved from
Network World:
http://www.networkworld.com/article/2283950/infrastructuremanagement/coca-cola-s-secret-formula.html
Gupta, V. (2008). Project Report on Coca-Cola Company. Retrieved from
http://www.slideshare.net/VikasGupta12/final-reportoncocacola
HBC. (2015). Customers. Retrieved from HBC: http://www.cocacolahellenic.com/aboutus/customers
Hindustan Coca-Cola. (2015). How We Execute. Retrieved from Hindustan CocaCola: http://www.hindustancoca-cola.com/How_we_execute.aspx
Hindustan Coca-Cola. (2015). Network. Retrieved from Hindustan Coca-Cola:
http://www.hindustancoca-cola.com/networks.aspx
Krishna, A. (2010). SEGMENTATION MODEL OF COCA-COLA. Patna.
Kumar, L., Kumar, R., Mishra, R., Goyal, S., & Khanna, S. (2013). PEPSICO: SDM
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https://www.academia.edu/5636073/Pepsi_Co_SDM_2_C01_2013
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