PepsiCo Supply Chain

Supply Chain Management Pepsi Co

Table of Contents Introduction................................................................................................................................... 3 Pepsi Co History ............................................................................................................................... 4 PepsiCo’s Mission ........................................................................................................................ 4 Competitive and Supply Chain Strategies.................................................................................... 5 PepsiCo’s Supply Chain Management ........................................................................................ 6 Difficulties without Just-in-Time.................................................................................................. 6 Improvement with using Just-In-Time (JIT) ................................................................................. 6 I2 Transportation ......................................................................................................................... 6 Implementation ........................................................................................................................... 7 I2 Supply Chain Visibility .............................................................................................................. 7 E-solution by Hewlett Packard (HP) ................................................................................................. 9 Pepsi Bottling ................................................................................................................................ 9 The challenge ............................................................................................................................. 10 The solution ............................................................................................................................... 10 The results ................................................................................................................................. 11 Packaging as a tool for Supply chain management ....................................................................... 11 Palletization Roadmap ............................................................................................................. 12 PepsiCo’s Frito Lay Supply chain .................................................................................................... 13 Strength ..................................................................................................................................... 13 From supplier to retailer............................................................................................................ 13 Retailers ..................................................................................................................................... 13 Competitive advantages ............................................................................................................ 14 Pepsi Tropicana Supply Chain .................................................................................................. 15 Background ................................................................................................................................ 15 Problems .................................................................................................................................... 15 Solution ...................................................................................................................................... 16 Limitations of Pepsi Supply Chain over Coke................................................................................. 17

2

Introduction Supply Chain Management is the process of planning, implementing, and controlling the operations of supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. It is a cross functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end consumer. Supply Chain management is also the combination of art and science of improving the way company finds the raw components it needs to make a product or service and deliver it to customers. It seeks to enhance competitive performance by closely integrating the internal functions within a company and effectively linking them with external operations of suppliers and channel members. Moreover, this has been a prominent concern for both large and small companies as they strive for better quality and higher customer satisfaction. In a supply chain, a company links to its supplier upstream and to its distributors downstream in order to serve its customer. The goal of supply chain management is to provide maximum customer service at the lowest possible costs. Companies now are competing supply chain-to-supply chain rather than enterprise-to-enterprise requiring for more intimately connected relationships. Customer markets and supply chains are no longer limited by physical proximity, and businesses are sourcing from and managing a greater number of far-flung partners and channels. Success of a company now depends on effective global supply chain management, its ability to deliver the right product to the right market at the right time. The complexity involved in managing supply chains that span continents and dominate markets demands strategies and systems that are adaptable. Managing Supply Chain for Global Competitiveness takes a strategic look at all of the core functions of global supply chain management which includes product design, planning and forecasting, sourcing, outsourcing, manufacturing, logistics, distribution, and fulfilment. An example to illustrate this theory on the supply chain management is the PepsiCo, Inc.

3

Pepsi Co History PepsiCo, a Fortune 500, American Multinational Corporation is under the food consumer product industry and is the world leader in convenient foods and beverages. The Pepsi brand and other PepsiCola products account for nearly one-third of the total soft drink sales in the United States. In order for the company to make sure that their products reach the customers, the company needs a efficient supply chain solutions. It was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including the Gatorade in 2001. PepsiCo offers product choices to meet a broad variety of needs and preference -- from fun-for-you items to product choices that contribute to healthier lifestyles. PepsiCo owns some of the world's most popular brands, including Pepsi-Cola, Mountain Dew, Diet Pepsi, Lay's, Doritos, Tropicana, Gatorade, and Quaker. Coca-Cola Company in market value for the first time in 112 years since both companies began to compete. Other brands include Caffeine-Free Pepsi, Diet Pepsi/Pepsi Light, Caffeine-Free Diet Pepsi, Caffeine-Free Pepsi Light, Wild Cherry Pepsi, Pepsi Lime, Pepsi Max, Pepsi Twist and Pepsi ONE,7 Up ,Aquafina (Flavour Splash, Alive, and Twist/Burst),Propel Fitness Water, SoBe, Quaker Milk Chillers. The Frito-Lay brands are : Cheetos,Fritos,Go Snacks, James' Grandma's Cookies, Hamka's, Lay's, Miss Vickie's, Munchies, Sandora, Santitas, The Smith's Snackfood Company, Sun Chips, Kurkure, Tostitos and some of the Quaker Oats brands include Aunt Jemima, Capone Crunch, Chewy Granola bars, Coqueiro, Crisp'ums, Cruesli, FrescAvena, King Vitaman, Life, Oatso Simple, Quake, Quisp, Rice-ARoni, and Spudz PepsiCo’s Mission  



PepsiCo's overall mission is to increase the value of shareholder's investment. They do this through sales growth, cost controls and wise investment of resources. They believe their commercial success depends upon offering quality and value to their consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to their investors while adhering to the highest standards of integrity. A customer while purchasing a bottle of Pepsi will consider product quality, price and availability of the product. Thus, Pepsi focuses its competitive strategy as to producing sufficient variety, reasonable prices, and the availability of the product.

Pepsi Ceo Indra Krishnamurthy Nooyi has been the chief executive of PepsiCo since 2006. During her time, healthier snacks have been marketed and the company is striving for a net-zero impact on the environment. This focus on healthier foods and lifestyles is part of Nooyi's "Performance with Purpose" philosophy. In 2007, Nooyi spent $1.3 billion on healthier-alternative brands like Naked Juice, a California maker of soy drinks and organic juice. Today, beverage distribution and bottling is undertaken primarily by associated companies such as The Pepsi Bottling Group and Pepsi Americas. PepsiCo is a SIC 2080 (beverage) company. PepsiCo has also recently acquired a 50% stake in U.S.-based Sabra Dipping Company. 4

PepsiCo also has formed partnerships with several brands it does not own, in order to distribute these or market them with its own brands. Competitive and Supply Chain Strategies       

In its business, diversity and inclusion provide a competitive advantage that drives business results. Its brands appeal to an extraordinarily diverse array of customers and they are sold by an equally diverse group of retailers. It understands the needs of our consumers and customers Uses diversity in our supplier base and in everything we do. Commitment to purchase from a supplier base representative of our employees, consumers, retail customers and communities. Developing partnerships with minority-owned and women-owned suppliers helps us build the world-class supplier base we need. Creates mutually beneficial relationships that expand PepsiCo's sphere of activity. It helps build community infrastructure by providing employment, training, role models, buying from other minority and women-owned business and supporting community organizations

Figure 1

Thus the major sustainable advantages that give PepsiCo a competitive edge as they operate in the global marketplace: 1. Big, muscular brands, 2. Proven ability to innovate and create differentiated products and 3. Powerful go-to-market systems.

5

PepsiCo’s Supply Chain Management Difficulties without Just-in-Time 





  

When an operation of the company was not just-in-time based, the demand or production planner strived to optimize production-oriented goals and objectives such as equipment utilization, labour efficiency, throughput and uptime. Optimizing these goals often leads to run large batch sizes that are dependent on the availability of raw materials. This optimizes the equipment and labour utilization but the production planners and managers had not been looking at the expense of the bigger picture. The sourcing or purchasing managers strived towards reducing company’s spending overall. This manager consolidated suppliers offering products or materials at the lowest per unit costs through buying in volume. They even got the shipping and freight costs included in the purchase price, which led to the increase in the price of the commodity. Purchasing managers focused on getting the best price, not putting into consideration the supplier performance and reliability. The logistics/transportation manager was tacked with getting raw materials in and the finished goods out of the production process and seek to optimize the transportation and distributing network. This manager focused on the lowest cost and reliability of the logistics or transportation solutions. But lowest cost could only be attained if the purchasing team negotiates a delivered cost package deal with the supplier and the supplier is responsible of the reliability and performance of the carriers or transporters.

Improvement with using Just-In-Time (JIT) 





When it comes to delivering high cost and perishable products to manufacturing sites, just-intime (JIT) remains one of the most cost-effective supply chain solutions. In JIT process, on time delivery is an absolute necessity. Just-in-Time (JIT) is a philosophy that defines the manner in which a manufacturing system should be managed. It enhances customer satisfaction in terms of availability of options, assurance of quality, prompt delivery times, and value of money. The Pepsi brand and other Pepsi-Cola products accounted for nearly one-third of the total soft drink sales in the United States. In order to ensure that PepsiCo’s concentrates reaches bottlers as needed during the production had to reach them JIT, they partnered with 3PL provider Penske Logistics to manage its transportation. Penske also provides warehouse management for two Pepsi distribution centers in North America.

I2 Transportation  I2 Transportation is a part of end to end solution for planning, execution, and management of the entire transportation cycle.  It is designed to enable an organization to utilize and manage an entire transportation network, as well as reduce cost while improving transport performance.

6

 I2 transportation is designed to employ sophisticated optimization and data techniques to define and evaluate alternative transportation strategies. It is also designed to provide comprehensive data management, analytics, and reporting of key transportation cost and service trade-offs. 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. In 2000, Penske converted Pepsi’s transportation management technology from propriety software to i2 transportation optimization solution. i2 transportation platform was enhanced with the addition of interface between the two companies. In addition, Penske’s partnership with Business objects provided comprehensive supply chain data from its data warehouse, analysis and management applications. Penske’s with use of i2 transportation could track performance at every stage in the process which increased flexibility and provided greater control over the transportation operation. This increase in visibility made it easier to keep track of shipments, revise routes and schedules to accommodate unforeseen changes and implement alternative plans to counter delays. By Penske’s putting a solution in place to track and measure every shipment, Pepsi has been able to provide an on-time delivery performance of well over 99 percent. Pepsi’s transportation is consolidated to a central location to reduce costs. Penske also provided a nationwide carrier rate re-negotiation and service assessment which improved cost structure and achieve on-time delivery goal. With this centralization, allows negotiation in a large scale to secure the best rates and services. Furthermore, Pepsi’s orders are received electronically and optimized to ensure lowest transportation cost. Advanced technology is deployed to select the lowest cost carrier, find the best routes and consolidate shipments. Optimal load configuration ensures maximization of each truckload (2003). In summary, PepsiCo used the JIT process to its supply chain management. To make this possible, Pepsi partners with Penske that has provide them with i2 transportation optimization solutions which has satisfies their consumer with the on-time delivery and with the benefit to the company for it has also reduce transportation cost. I2 Supply Chain Visibility With shorter lifecycles and lead times—to customers demanding faster results and more responsive service. Globalization and outsourcing have added to the complexity, resulting in more diversified supply chains. The number of supply chain partners, as well as the amount of geographic dispersion, has increased dramatically as a result.

7

To ensure that their order-to-delivery performance is not impacted, companies need to have greater coordination and visibility into the material flow across the supply chain. Increase Global Visibility With Companies have access to global visibility into all of their critical supply chain activities and partnerships. It allows organizations to respond more quickly and effectively to a wide range of unplanned and potentially disruptive supply and demand events. Supply-related events can include production bottlenecks, fulfillment delays such as port strikes and customs delays, and supplier shortages. Demand-side events might include customer orders that are greater than forecasts or changes to orders that have already been placed. I2 Supply Chain Visibility is designed to manage these events, assess their impact, and orchestrate a rapid and practical resolution while providing a unified view of the supply chain. The solution can also incorporate packaged business process packs for replenishment, fulfilment, and manufacturing, and these packages can be configured to meet customer-specific requirements. i2 Supply Chain Visibility also enables companies to close the loop between traditional planning and execution processes. It enables better understanding of orders, inventory, and logistics data. Powerful Functionality This solution incorporates pre-built workflows that integrate data across order management, warehouse management, logistics, and inventory applications for the flow of both domestic and international goods. A series of predefined, extensible events and exceptions support each workflow and a visual ―studio‖ allows workflows and events to be extended, configured, and customized to meet specific enterprise requirements. i2 Supply Chain Visibility delivers a robust technology that is scalable and extensible, and that operates smoothly in a distributed computing environment. Extensive Capabilities             

Inbound and outbound tracking of order, inventory, and logistics flows Domestic and international flows that track multi-leg and multi-modal shipments Visibility into exceptions and events across orders, inventory, and shipments Role-based views for buyers, suppliers, analysts, and 3PL vendors High degree of permissibility and privacy controls Track-and-trace inventory across multiple locations Configurable event detection mechanism and customizable event management workflows Event chaining such as linking of related events, audit trails, context-based problem prioritization and extensive notification options including e-mail, e-mail digest, pagers, and cell phones Calendars, internationalization (i18n), and multi-time zone support enabled Integration to underlying applications for intelligent resolution and to prevent event recurrence Root-cause, event trend, and performance analysis capabilities Rich event library with over 100+ out-of-box events supported Fast, web-based supplier enablement and transaction support

8

Benefits        

Exception-based management End-to-end supply chain visibility and event management tools Customer-specific solutions for replenishment, fulfillment, and manufacturing The ability to forecast and respond to supply/demand events The option to move from calendar-based to event-driven planning and re-planning. Increased employee productivity Reduced process, personnel, and expediting costs Improved customer, supplier, and partner communications. Real-time decision support

E-solution by Hewlett Packard (HP) PepsiCo signed a deal with Hewlett Packard in 2006 to help improve its supply chain management and increase overall efficiency. The seven year deal involved the overhaul of current IT solutions with PepsiCo and focused on updating server environments as well as ensuring a new infrastructure which benefitted operations and increased overall cost-saving. In particular, HP introduced a number of new solutions which helped to encourage stronger customer relationship management and supply chain management. PepsiCo had also opted for BT as its network provider to ensure the e-solution is fully implemented. The supply chain management solution reduced costs as well as enhanced current service provision online and via its communications networking system. By standardizing and optimizing its server environment, PepsiCo International is better flex to meet its changing business needs and in turn provide better service to customers anywhere in the world.

Pepsi Bottling Pepsi Bottling Group is the world’s largest manufacturer, seller and distributor of Pepsi-Cola beverages. With annual sales of nearly $11 billion, the company’s fastest growing segment is non-carbonated beverages, including the number one brand of bottled water in the U.S., Aquafina, as well as Tropicana juice drinks and Lipton Ice Tea. As part of a 24/7 production operation, the company’s Detroit plant ships about 27 million cases per year. Production at the plant begins as empty bottles are unloaded from trucks via conveyor and transported to a depalletizer. From there, they are, rinsed, dried and sent to a filling machine (filler speeds at the plant vary based on bottle size, ranging from 350 to 1,000 bottles per minute). The bottles leave the fillers and make their way to a packaging machine, and then to a palletizer. Each pallet is wrapped for distribution and moved to the warehouse for shipping.

9

The challenge The plant uses a variety of sensors to monitor bottles as they travel through the sequence of steps and to manage the flow to the individual stations. Line sensors match the speed of the conveyor. The company’s inventory of sensors swelled over the years to include more than 120 different varieties. Many of these included multiple styles of the same product stocked under different brands. A similar problem was developing with its drives inventory, which had grown to over 50 different part numbers. The wide variety of sensors made it progressively more complex and time-consuming to replace a faulty device. Despite its fast, high-performance machinery, the increasingly lengthy and more frequent downtime was beginning to impact the company’s ability to meet its productivity goals. In addition, operating costs were on the rise due to the excess spares inventory. Because of the extensive number of sensors they had in inventory, including multiple styles and brands, simply finding the right replacement resulted in an hour of downtime. A more strategic approach to maintenance was necessary, as even the smallest of delays could cost the plant thousands of dollars in lost production and overtime. Knowing that effective parts management and fast, reliable equipment repair lies at the heart of efficient manufacturing, the company explored ways to get its inventory and maintenance processes under tighter control. That’s when it decided to turn to Rockwell Automation for help.

The Pepsi Bottling Group’s Detriot plant reduced its number of sensors from 180 to 46, a decrease of 66 percent, by standardizing it sensors inventory to Allen-Bradley products. This reduced downtime and inventory costs. The solution The first task undertaken by Rockwell Automation was to conduct an Installed Base Evaluation – a plant-wide inventory assessment to determine the exact number of sensors and drives the plant currently had in stock. Next it needed to figure out what products were actually needed and which ones 10

could be eliminated. To streamline its operation, Rockwell Automation recommended that Pepsi standardize its entire sensors inventory on Allen-Bradley products. The local distributor, McNaughtonMcKay Electric Company (Mc&Mc), helped design a migration plan to help ease the cost of this inventory conversion. Although all the drives employed at the plant were Allen-Bradley brand, many were older models representing a multitude of drive families. To simplify its drives inventory and upgrade its technology at the same time, Pepsi converted all of its drives to the Allen-Bradley PowerFlex family of AC drives. A detailed cross-reference chart developed by Rockwell Automation now provides technicians with a quick and easy way to identify failed and replacement parts, as well as installation instructions. To ensure reliable availability to spare parts, Pepsi set-up a Rockwell Automation Services Agreement that included parts management. With the agreement, Pepsi pays a fixed monthly cost for their spare parts, which are owned and managed by Rockwell Automation but stocked on-site. The agreement allows Pepsi to reduce its upfront expenses, have immediate access to spares, reduce carrying costs, and update its control technology cost-effectively. The agreement also includes an in-service warranty, so the parts don’t go out of warranty until they are actually used for the warranty period. To help the company better utilize its internal resources and reduce costly troubleshooting delays, the Rockwell Automation Services Agreement included TechConnect Support. This remote support service provides the plant with 24/7 access to Rockwell Automation technical specialists. When a problem occurs, Pepsi technicians can call for immediate troubleshooting assistance to resolve it as quickly as possible. To help facilitate problem resolution, Rockwell Automation technical specialists can also perform remote system diagnostics through an Allen-Bradley modem installed at the Pepsi facility. This helped Pepsi minimize risk and reducing long term costs. The results Leveraging Rockwell Automation Services & Support has proved to be a smart decision for Pepsi Bottling Group. The improved inventory and parts management capabilities helped reduce downtime and inventory costs, and standardizing on Allen-Bradley products eased training requirements and minimized the technology learning curve. These benefits have ultimately enhanced productivity by 8 percent and reduced the overtime required to fill orders. In addition, the plant was able to reduce the number of sensors it uses from 180 to 46, a decrease of 66 percent. Likewise, it was able to reduce the number of drive styles from several hundred to 14.

Packaging as a tool for Supply chain management      

GS – 1 standards (bar codes) RFID tags for real-time stock replenishments Commercial Security offerings Counterfeit & pilferage Online supply chain visibility across the chain Pack safety for the consumer

11

Pepsi-Cola Saved $44 million by switching from corrugated to reusable plastic shipping containers for one litre and 20-ounce bottles, conserving 196million pounds of corrugated material. Palletization – cost vs. value creator Key supply chain cost optimizer through an Integrated supply chain approach • Drive standards – pallets/trucks • Pallet pooling services

Palletization Roadmap

12

PepsiCo’s Frito Lay Supply chain Frito-Lay is the snack food division of PepsiCo and the largest supplier of potato and corn chips in the world, currently holding 40% of the market share globally, and selling its products in 120 countries. Strength Frito-Lay is succeeding against a multitude of competitors in a fierce, yet slow-growth industry, selling approximately 4.5 billion packages of snacks per year. In order to achieve this, the company has learned how to masterfully create, innovate and manage all aspects of its supply chain using high-tech IT systems that allow it greater control over its production processes and distribution network.

Supply chain in USA: Supplier Base: Frito-Lay’s supplier network for potato chip production has fewer than 100 individual suppliers. Strategy Used: 





Several years ago, Frito-Lay approached its potato suppliers to seek those farmers willing to concentrate on cultivating a limited number of potato varieties, with a focus on producing the most appealing taste and quality potato chip for the consumer. Frito-Lay then offered these farmers long-term contracts, which made it easier for the farmers to get financing and for Frito-Lay to achieve more efficient, profitable economies of scale in other areas of the value chain. It is noteworthy to mention that steps like these that insure a stable supply of raw material are important to a company who purchases 2.3 billion pounds of potatoes and 775 million pounds of corn annually.

From supplier to retailer   

Frito-Lay traditionally relied upon its in-house fleet of trucks to transport products from its plants to its 1,900 warehouses or 200 distribution centers. However, as the company expanded, operations managers realized that it was not economical to produce every product at every plant, and thus began specializing at particular locations. On the other hand, logistics became increasingly difficult and distances grew longer, and thus, Frito-Lay learned to exploit the benefits of truck carrier services, employing Menlo Logistics to handle route planning. Menlo was able to reduce the carrier base by 50% and negotiate nationwide discounts with other carriers.

Retailers 

The last stop involved is the 400,000 stores across the nation that carries Frito-Lay’s snack food products. The company utilizes their own technological systems to show stores how reallocating shelf space, for example, can produce larger profits. 13

 

Retailers are also provided with Frito-Lay’s ―Profit-Vision Program‖, which allows retailers to analyze their sales and compare it to national performance statistics. At the same time, Frito-Lay benefits from the program because it convinces retailers to allocate more shelf-space to their products.

Strengths of IT corporation 

 

 

Tracks the logistical movement of products throughout the supply chain, from acquiring the raw materials to final delivery, by utilizing its 848 tractors, 2,251 trailers, and a fleet of thousands of local computer-equipped delivery trucks. Empowers its regional managers with access to vast amounts of information on their databases that can be used to effectively guide them in their distribution decisions. It is able to correctly assess demands across all of its products due to the availability of point-ofsale data and an impeccable IT system, giving planners the ability to discern consumer trends and appropriately prepare production plans. Its managers can be proficient in determining levels of inbound supplies, raw materials, the allocation of the company’s production capacity, and logistical details for truck routing. The company’s ability to target local demand patterns with effective promotion and delivery systems results in continuously optimizing profit margins and reducing inventory and unneeded costs.

Competitive advantages  



The company tries to captivate its customers by developing extensive databases that record who their customers are and exactly what they want. They focus on being the most reliable, quality-driven suppliers who provide services through the retail channel by means of collecting as much information along the way and utilizing it to address their weaknesses and capitalize on their strengths. Despite only delivering potato and corn chips, relies on its ability to add unparalleled value in its distribution channel. Its customers know that when they do business with Frito-Lays, they aren’t simply buying a product to shelve in their stores, but incorporating an advanced information system with hopes of increasing sales and profits.

Supply chain in India Horticulture produce in India is largely marketed through traditional channels. A typical marketing chain for horticultural produce consists of several players as shown in Figure

PepsiCo is one of the pioneers of contract farming in India since 2001 Their experience in contract farming has covered many crops – potato, basmati rice, tomato, chili, peanut, oranges and more recently sea weed. PepsiCo’s operations started in India started in the region of Punjab in collaboration with state government. PepsiCo India's project with the Punjab Agro Industries 14

Corporation and Punjab Agriculture University remains one of the most ambitious contracts farming projects in the country.

Pepsi Tropicana Supply Chain Background Of the four principal Distribution Centres (DC) in the U.S. the Jersey City, N.J. DC is responsible for the supply of Tropicana juices in all states in the Northeast U.S., and all Canadian provinces. Jersey City houses a unit load capacity Automated Storage and Retrieval System (ASRS) that is fully integrated into an Automated Warehouse System (AWS). The center handles chilled premium orange juices, and blended juices from concentrate as well as shelf stable juice products from either Florida or local copackers. Products vary according to package size, and juice type and style, giving rise to approximately 200 Stock Keeping Units (SKU), each facing random demand from customers. Juices arrive already palletized and variously pre-packaged, and are unloaded according to demand, and moved into the ASRS area. The Jersey City Distribution Center (DC) of Tropicana is responsible for the supply of Tropicana juices in all states in the Northeast U.S., and all Canadian provinces. Premium orange juice from Florida represents approximately 65% of the shipments, and has an approximate shelf life of 65 days. The Jersey City DC receives five Tropicana Unit trains from the production facility in Florida weekly. Each train has approximately 45 refrigerated cars. Juices arrive already palletized and pre-packaged in paperboard containers and plastic and glass bottles. Two types of unloading procedures are currently in practice: cross-docking and warehousing. Cross docking normally is used for customers receiving a single product types or transfers to a smaller distribution center in Whitestone, NY. Each train usually contains 8 to 10 railcars that can accommodate cross-dock delivery. Problems There are three major problem areas related to the current practices in Tropicana. 1.

Ordering policy of the individual retailers.

At the moment, Tropicana manages the inventory orders for about 10% - 20% of the retailers. This process is called CRP or continuous replenishment program.

15

The Tropicana customer service department administers the ordering of those individual customers. From the supply chain perspective, this is mutually beneficial for both the customers and the warehouse. The advantage of the warehouse is that it is able to centralize the demand information of individual stores in its replenishment decisions of juices shipped from Florida to Jersey City. The retailers benefit from in time delivery and less stock out cost. Individual stores contribute the other 80% - 90% of the orders, which are not under Tropicana’s control. This is subject to random variation and hence uncertainties of demand on the warehouse. One approach would be to create an incentive for the customers to entrust their ordering function to Tropicana. This is the so-called supplier-retailer coordination problem. A carefully designed coordinated system will benefit each and every player in the supply chain network. This may require the design of contracts or cost sharing agreements with the customers. 2. Central ordering of juices that are shipped to the distribution center. Currently there are five trains of juices scheduled to arrive weekly from Florida. The company never ships partially filled trains from Florida. The Jersey City distribution center sometimes builds up inventory of certain classes of juices that are close to their expiration date, and the company has to get rid of them either at a very low price with sales promotion or donate them to charity. A carefully designed and sophisticated coordination of ordering policies will reduce the chances for these problems and result in savings. At the same time it will increase the fill rate because the additional capacity gained from more reasonable ordering can be used for ordering more juices of the type that cause trucks to wait in the yard. 3.

Combining marketing strategies with inventory levels and other factors.

Marketing strategies such as sales incentives can influence demand. Foreseeing an inventory buildup problem, the company can use marketing (and mainly pricing) as a tool to either increase demand (when certain items build up) or reduce demand (when insufficient inventory is available). Solution 1. Tropicana, a unit of PepsiCo, implemented i2 Supply Chain Strategist to model manufacturing logistics operations to include co-packer operations. 2. The model involved over 30 manufacturing and distribution facilities and the seasonal demand of over 20 product types. 3. Tropicana used i2 Supply Chain Strategist to execute hundreds of scenarios and sensitivities, producing data that provided insights into areas where the company could rationalize system capacity at manufacturing facilities and increase efficiencies within existing distribution and logistics systems.

16

Limitations of Pepsi Supply Chain over Coke 1. PepsiCo has duplicate distribution systems for its beverages. Coca-Cola has for the most part maintained distribution of its entire beverage line-up through its bottlers. 2. Pepsi bottling system is more fragmented than Coca-Cola's 3. In a consolidated system negotiations involve fewer players and therefore take less time to gain agreement, which may be why the Pepsi system has lagged in system efficiency efforts. PepsiCo and its bottlers have established a purchasing cooperative to gain purchasing power in buying raw materials. 4. While PepsiCo has been pursuing international beverage acquisitions, those investments will take time to produce significant operating income 5. PepsiCo consolidation puts pressure on the independent system bottlers to more readily consider agreements for warehouse distribution.

17