Sales & Distribution Management

PEPSICO SALES AND DISTRIBUTION IN HYDERABAD

SUBMITTED TO Prof. MURALI KRISHNA

X`X`

SALES AND DISTRIBUTION MANAGEMENT - TERM PROJECT

1 |of P esubmission: p s i c o S 11 a ltheSeptember, s & D i s t2009 ribution Management Date

CONTENTS INTRODUCTION ............................................................................................................................................. 4 Why Pepsico ? ............................................................................................................................................... 4 PEPSICO INDIA............................................................................................................................................... 5 PEPSICO HYDERABAD .................................................................................................................................... 5 FACILITIES AND INFRASTRUTRE ................................................................................................................ 7 PEPSICO’S PRODUCT PORTFOLIO .................................................................................................................. 7 SALES & DISTRIBUTION MANAGEMENT ....................................................................................................... 8 SDM OBJECTIVES: ...................................................................................................................................... 8 SALES OFFICE FUNCTIONS:........................................................................................................................ 9 SALES PROCESS ....................................................................................................................................... 10 SALES STRUCTURE ................................................................................................................................... 10 DISTRIBUTION STRATEGIES: ........................................................................................................................ 12 PRE SALES ................................................................................................................................................ 13 ON SPOT DELIVERY SYSTEM OR READY SALES ........................................................................................ 15 TYPE OF DISTRIBUTION ............................................................................................................................... 16 ORDER PLACEMENT PROCESS ................................................................................................................. 17 ISSUES OF ALLOCATING TERRITORIES ......................................................................................................... 18 CHANNEL DESIGN AND CHANNEL PARTNERS ............................................................................................. 20 CHANNEL MEMBER SELECTION METHOD .................................................................................................. 21 DISTRIBUTORS ......................................................................................................................................... 22 MERCHANDISERS .................................................................................................................................... 22 SCOPE OF INNOVATION IN CHANNEL MANAGEMENT ............................................................................... 22 TYPICAL ISSUES OF CHANNEL CONFLICT ..................................................................................................... 23 WAREHOUSING ........................................................................................................................................... 26 LOGISTICS & TRANSPORTATION ................................................................................................................. 27 PRIMARY LOGISTICS ................................................................................................................................ 27 SECONDARY LOGISTICS ........................................................................................................................... 28 ISSUE OF WAREHOUSING ........................................................................................................................... 29 ISSUES OF LOGISTICS................................................................................................................................... 29 2|Pepsico Sales & Distribution Management

PROFILE AND OPERATIONS OF A TYPICAL HYDERABAD OPERATOR .......................................................... 30 RECOMMENDATIONS ................................................................................................................................. 31 REFERENCES ................................................................................................................................................ 32

LIST OF FIGURES Figure 1 : Sales & Distribution Objectives

8

Figure 2 : Sales Team Setup

11

Figure 3 : Hub and Spoke Model

12

Figure 4 : Pre Sales Distribution

15

Figure 5 : Ready Sales Distribution

16

Figure 6 : Order Processing System

18

Figure 7 : Channel Design – Outbound Logistics

20

Figure 8 : Channel Process

21

LIST OF TABLES

Table 1 : Pre Sales Market Execution System ............................................................................................. 14

3|Pepsico Sales & Distribution Management

INTRODUCTION This project is aimed at studying the sales and distribution strategies adopted by Pepsico in Hyderabad. This exercise would help us gain an indepth insight about the way the FMCG companies produce and sell their goods. We can understand how the cycle starts immediately after the production and how the product is taken to the customer. It will give a brief insight in to the various intermediaries involved in the process of distribution. This project will also study the various challenges faced by Pepsico in Hyderabad and how they address these issues. This will give us an opportunity to map the theories to the practical scenario in the real world scenario. ( we can explain the structure of the report here.)

Why Pepsico ? In general, it is known that the FMCG industry is one which extensively uses various sales, logistics, channel management and distribution strategies. Since Pepsico is one of the famous companies which has always been very agile and responds quickly to the dynamic environment. Analysts felt that one of the main reasons for the company's massive growth over the decades and the leadership status it has acquired in almost all its business segments was PepsiCo's efficient distribution and logistics management operations. Depending on the product involved, PepsiCo chose between the various standard distribution methods employed, such as the Direct Store Delivery (DSD) system, the broker warehouse system, the vending and food service system and the pre-sell method. PepsiCo adopted these systems to the local conditions of the various countries in which it operated. PepsiCo's highly advanced distribution system was well supported by state-of-the-art logistics systems. PepsiCo upgraded its technical capabilities consistently in order to strengthen its logistics management activities. PepsiCo's bottlers employed wireless technologies to strengthen their distribution system and effectively serve the customers in the markets in which they operated. However, with its vast worldwide operational network and good market presence globally, PepsiCo still did not put enough effort into integrating and streamlining the operations

4|Pepsico Sales & Distribution Management

of its various group companies/divisions. So by studying the strategies adopted by Pepsico, we can get practical understanding of the concepts.1

PEPSICO INDIA PepsiCo entered India in 1989 and has grown to become one of the country’s leading food and beverage companies. 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 India and its partners have invested more than U.S. $1 billion since the company was established in the country. PepsiCo provides direct and indirect employment to 150,000 people including suppliers and distributors.

PepsiCo nourishes consumers with a range of products from treats to healthy eats that deliver joy as well as nutrition and always, good taste. PepsiCo India’s expansive portfolio includes iconic refreshment beverages Pepsi, 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, Tropicana100% fruit juices, and juice based drinks – Tropicana Nectars, Tropicana Twister, Nimbooz and Slice. Local brands – Lehar Evervess Soda, Dukes Lemonade and Mangola add to the diverse range of brands.

The group has built an expansive beverage and foods business. To support its operations, PepsiCo has 43 bottling plants in India, of which 15 are company owned and 28 are franchisee owned. 2

PEPSICO HYDERABAD The unit at Hyderabad was initially under a franchisee and was brought under the direct control of PepsiCo only as late as Feb’06. Before this, the Hyderabad unit used to report the CEMU

1 2

http://www.icmrindia.org/casestudies/catalogue/Operations/PepsiCo%20Distribution%20and%20Logistics%20Operations.htm

http://www.pepsiindia.co.in/aboutus_corporateprofile.html

5|Pepsico Sales & Distribution Management

(Central Marketing Unit). As of today, the CEMU has been dismantled and AP is looked after by the Hyderabad unit. It reports directly to the SOMU (South Marketing Unit)

The Hyderabad unit takes care of the Telangana region and a small part of coastal Karnataka while there is another unit taking care of coastal AP.

The territories that this unit is divided into are: Hyderabad I Hyderabad II Secunderabad Warangal Kurnool Nizambad Gulbarga

Each territory has its own sales team headed by a TDM (Territory Development Manager) and an ADC (Area Development Coordinator). Under each TDM and ADC are CE’s (Customer Executives). Each territory is further divided into different areas and each area is headed by a CE. Every CE has a number of PSR\RA’s (Pre Sales Representative\Route Agent) working under him. Every area under the CE is further divided between each PSR. Each PSR has 3 routes with an average of 30 outlets per route. A PSR is required to go on his routes, book orders from the retail outlets and report back to the Depot. The D.A. (Delivery Agents) then delivers these orders the next day.

The marketing department for the entire unit is one and is headed by the MDM (Marketing Development Manager). The MDM and his team have the uphill task of supporting the efforts of the sales team with schemes and offers for both the consumers and the retailers. There are also incentive schemes that are run by the marketing team for the sales teams to achieve certain targets.

6|Pepsico Sales & Distribution Management

FACILITIES AND INFRASTRUTRE PepsiCo India has over thirteen company operated factories (COBO) within SOMU region. Until February 2009, the facilities at the Sanga Reddy Bottling Plant had only five operating lines, with the capacity to produce only glass SKUs and Aquafina drinking water.

After the expansion of the plant and its inauguration in May 2009, the number of lines has increased, with the capacity to produce all the variants under PepsiCo product portfolio. The Sanga Reddy Plant has become the largest bottling plant of PepsiCo India, with state of art facilities in production, packaging, warehousing and material handling.

PEPSICO’S PRODUCT PORTFOLIO

Following are main products of Pepsi co(india) pvt limited.  Pepsi

 Lehar Soda

 Mirinda Orange

 Aquafina

 Mirinda Lemon

 Tropicana

 7 Up

 Gatorade

 Mountain Dew

 Lehar Namkeen

 Slice

 Lays

 Mirinda

Sorbet

(Limited

Edition)  Pepsi Gold (Limited Edition)

 Kurkure  Uncle Chips  Cheetos

 Pepsi Diet

7|Pepsico Sales & Distribution Management

SALES & DISTRIBUTION MANAGEMENT SDM OBJECTIVES:

Sales distribution channel objectives Market/ segment share Profit objective by market segment Channel member allegiance Consumer brand loyalty

Ultimate consumer needs satisfaction required by ultimate consumer: Cost/ value Convenience Availability Choice

Customer Satisfaction

Sellers channel requirements required to achieve distribution channel and marketing objectives: High penetration factor High service levels Wide range Promotion Market intelligence Market development Reseller support programmes

Distribution requirements- compensation expected by resellers for providing seller support Satisfaction rate of stockturn Gross margin and overhead contribution contribution – ROI on inventory/ selling area Promotional allowances and other below-the-line benefits Distribution exclusively Continuity Market development Credit Figure 1 : Sales & Distribution Objectives

8|Pepsico Sales & Distribution Management

As is clear from the figure on the previous page, marketing channel decisions are key decisions which involve the choice of an intermediary and detailed consideration of the physical distribution implications of all the alternatives. Thus, before choosing to implement any of the distribution channels, as in the case of PepsiCo pre sales and ready sales, its imperative to do a cost effective analysis of all the components going into the system and in the end choosing that system which is not only more reliable but also more realistic and easily manageable without compromising on customer satisfaction and service. Also the needs of all the intermediaries have also to be accounted and there is also a cost attached to it. These costs have also to be kept in mind before choosing a particular channel.

SALES OFFICE FUNCTIONS: The sales office has four main functions Finance Marketing Sales Market Equipment

Finance usually maintains the accounts of the customers / distributors and takes care of credit management and receivables. Finance also assess the investment capabilities and infrastructure facility that a new customer or distributor need to posses, to open an account with PepsiCo. Marketing department executes promotion of various schemes and offers. Product launches, promotional events, and branding of products is taken care by this department. They also ensure the purity of visi-coolers and the visibility of the product in the market. Sales department ensures that the product is available in the market and also that the sales targets are achieved. They are also responsible for maintaining relationship with traditional trade and managing distributors. They work towards increasing sales by adding more number of retail outlets within their territories. Market Equipment Management (MEM) has the responsibility of procuring, placing and maintaining the visi-coolers in good condition at the retail outlets. They also have to track the number of visi-coolers placed in a year and maintain VPO (volume per outlet).

9|Pepsico Sales & Distribution Management

Human Resource for operations like Merchandising, Pre-sales execution and order punching is allocated on the basis of contract labor, outsourced to HR agencies. The information systems at Sales office and Factory are SAP enabled.

SALES PROCESS Sales and Distribution is a prime driver to a business in beverages industry. The scope of PepsiCo International, Hyderabad is limited to the sales & distribution to the twin cities of Hyderabad and few other defined geographical segments in the Up-Country of Andhra Pradesh. The districts of Raichur and Gulbarga in Karnataka, also falls under the Hyderabad Unit.

This unit follows Hubs and Spokes model of sales & distribution. The entire market is divided into geographical segments called territories. The Unit supports eight such territories, which in-turn comprises of distributors. The distributors are the private businesses who partner with PepsiCo to ensure that all retail outlets under their territory are met with supplies. Thus distributors are the direct customers to PepsiCo.

SALES STRUCTURE Sales at each territory are executed by a team, headed by Territory Development Cocoordinator (TDM). The distributors that fall under the respective territories have a Customer Executive (CE) representing the company, to coordinate the sales. The pre-sales representatives (PSR) are appointed to collect the order form the retail outlets and ensure various discount schemes are executed at their end. The Distributor consolidates the list of order that he would place to the company. This marks the beginning of order service execution. The sales team setup is represented as below –

10 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

Sales Office

TDM, ADC

ADC, CE

CE, PSR, Merchandisers

Distributor

Retail Outlet

Distributor

Retail Outlet

Retail Outlet

Retail Outlet

Figure 2 : Sales Team Setup

TDM – Territory Development Manager

CE – Customer Executive

ADC – Area Development Co-coordinator

PSR – Pre-sales Representatives

Pre-sales Representatives at PepsiCo International, Hyderabad are the temporary employees, under the contract, to a HR agency. The agency takes up the responsibility of training the PSRs for their job. The job of a PSR is to visit retail outlets in his route and book orders. They also ensure that the purity of the visi-cooler is maintained and that all the SKUs are available at the retail outlet. The Merchandisers are also the contract labors, who ensure that the visi-coolers are kept clean and that all the stock is charged inside the cooler. The Customer executives are under the direct payroll of PepsiCo. They manage the sales at the distributor point and also lead the team of PSRs, to drive the sales. TDMs and ADCs have CEs reporting to them. Through the CEs, they ensure that the projected sales under Annual Operating Plan (AOP) are met by generating business through distributors.

11 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

DISTRIBUTION STRATEGIES: PEPSICO DISTRIBUTION SYSTEM A COMBINATION OF CHAIN SYSTEM AND HUB AND SPOKE SYSTEM

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS AREA DISTRIBUTORS SUB DISTRIBUTORS AREA DISTRIBUTORS

AREA DISTRIBUTORS

SUB DISTRIBUTORS SUB DISTRIBUTORS

AREA DISTRIBUTORS

AREA DISTRIBUTORS

HYDERABAD UNIT SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS

SUB DISTRIBUTORS SUB DISTRIBUTORS AREA DISTRIBUTORS

AREA DISTRIBUTORS

SUB DISTRIBUTORS AREA DISTRIBUTORS

SUB DISTRIBUTORS

Figure 3 : Hub and Spoke Model

12 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

PepsiCo follows a combination of chain distribution system and Hub and Spoke distribution system in Hyderabad. The PepsiCo’s head office is located at Somajiguda in Hyderabad. It acts as a central unit with several other distributors forming a chain network. All the coordination and supervision activities are carried out at the head office. Every distributor has a clearly marked area or territory for which he’s responsible for carrying out the distribution activities. PepsiCo has its bottling plant in Sangareddy district where cleaning and refilling of the glass bottles takes place. The distributors place the orders for the stock (called Primary Stock) at the PepsiCo’s Head office which in turn, after receipt of payment (made either through a demand draft or cheque) forwards the same to the bottling plant. The bottling plant is then responsible for delivering the primary stock to the respective depot within 24 to 48 hours. The distributors are expected to order a certain amount of Primary stock each month which is known as the depot’s Primary target. The Primary target is decided by the T.D.M or Territory Development Manager of the territory under which the depot falls. The target for each depot varies according to seasonality and is also based on demographic, geographic, climatic and present market conditions. Thus, in order to achieve the given Primary targets the distributors have to place a certain amount of stock in the market every month. This is known as the depot’s secondary target. This is also decided by the T.D.M. It is the task of the Customer Executive that the depot’s primary targets and secondary targets are being achieved. Thus the C.E is the coordinating link between the company and the distributor. PepsiCo follows two types of distribution techniques: Pre sales On Spot delivery system

PRE SALES In pre sales technique, there are two front level roles. One is of P.S.R or Pre Sales Representative and the other is of R.A or Route Agent. For every route one P.S.R and one R.A is allotted. The R.A has loaders with him to help him load the stock at the depot and to unload the stock at the outlet and also to load the empty glass cases collected from the outlets for refilling. The job of P.S.R is to visit each and every outlet in the assigned route and collect orders from the outlets. The R.A or the Route agents’ job is to deliver the orders which were 13 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

taken by the P.S.R the previous day. For example if the market is divided into two routes namely A and B then the execution will be as shown below:

Day

Monday Tuesday

Wednesday

Thursday

Friday

Saturday

Route A

PSR

RA

PSR

R.A

PSR

R.A

Route B

RA

PSR

RA

PSR

RA

PSR

Table 1 : Pre Sales Market Execution System

Thus for Route A, the PSR will take the order on Monday and this will be delivered by the RA or route agent on Tuesday. The different tasks which the P.S.R performs on a given working day are systematically described as under: 1. Check availability at the depot The PSR has to check the opening stock available at the depot every day before going to the market to visit the assigned outlets. This helps the PSR to have a rough idea of the tock available at the depot. Thus while taking the orders the PSR knows his limit for taking orders of a particular SKU depending on the availability. This helps in preventing such situations where the orders were undelivered due to unavailability of stock thus increasing the efficiency of sales execution. 2. Visit outlet on the assigned routes Every PSR has an assigned market which is divided into routes depending on market size. The job of the PSR is to visit each and every outlet in his assigned route. 3. Check availability at the outlet The PSR has to check the availability of the different SKU’s at the outlets. 4. Suggest / take orders Depending on the availability of the SKU’s at the outlet, his responsibility is to suggest appropriate stock at the outlet and to take the orders for the same. 5. Sales order entry The PSR has to maintain sales order entry of each outlet he visited during the day and has to produce the same to the RA for delivery of orders the next day.

14 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

The different tasks which the R.A performs on a given working day are systematically described as under: 1. Check sales order entry taken by the PSR the day before. 2. Check availability at depot i.e. whether sufficient stock is available or not. 3. Pick and pack the orders. 4. Visit only those outlets for which there is an order posting: a) Deliver the goods b) Post the goods issue. c) Give the invoice to the customer. d) Receive the payment. e) Receive the empty glasses for refilling. The complete Pre Sales order distribution system is shown as under:

Check Availibility at Reciept of Empty Depot Glass

Figure 4 : Pre Sales Distribution

ON SPOT DELIVERY SYSTEM OR READY SALES This system of distribution is often referred to as the traditional technique of sales distribution. This is also the distribution technique being used in the sample area of the study. Except the sample area, in all others parts of Hyderabad the distribution technique have been upgraded to Pre sales. 15 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

Unlike in Pre sales technique, there is no PSR in ready sales. Thus the role and responsibility of R.A is vital. The different tasks being performed by a R.A daily are mentioned as under: 1. Stock loading at the depot: the stock which is available in the depot is distributed equally between all the RA’s and they have to carry maximum possible stock every day during their visits. 2. Visit every outlet, (not like Pre Sales where the RA visits only the outlets for which the order has been posted) 3. Take stock order depending on the availability of the stock at the outlet. Here RA- outlet owner is crucial as it largely impacts the order placed. 4. Deliver the goods, post receipt of goods, receive cash from the owner and move to the next outlet. The

complete

ready

sales

or

on

spot

delivery

system

is

shown

below

VISIT OUTLET

TAKE STOCK ORDER

RECIEVE CASH

POST RECEIPT OF GOODS

Figure 5 : Ready Sales Distribution

TYPE OF DISTRIBUTION The distributors in Hyderabad follow two types of distribution: Traditional ( Unorganized Retail) Modern Trade (Organized Retail)

16 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

TRADITIONAL (Stand Alone Model) The stand alone model mainly comprises of the small retail outlets in the market place. It includes about 34,000 retail outlets which mainly comprise of the kirana stores, the Pan shops, small roadside eating joints and other such small retailers. These small retail outlets are the ones who provide the maximum revenue and account for approx 90% of the distributor’s revenue. They also provide much visibility and reach required for the product. MODERN TRADE Modern trade includes big retail stores like Spencer’s, Big Bazaar, Food World and others that generate large volume for the FMCG concerned. These stores are a very important channel for selling as in Hyderabad 30% of the entire retail industry as it is known is organized into these very modern trade. Still these outlets do not provide much revenue in terms of sales to the distributors when compared to the traditional retail outlets.. But with the huge floating population that Hyderabad has, these stores will in few years become a great source of revenue for the distributors.

ORDER PLACEMENT PROCESS The Customer Executive (CE) or the Distributor faxes the order to the (Customer Order Processing Cell) COPC. The fax contains the photocopy of DD (in case of out station distributors) or Cheque (in case of Local Distributors). The COPC enters the order quantity data in an excel sheet, which generates the tonnage weight and Order value details. He verifies if the tonnage requirements matches the full load capacity of the truck. If the requirement does not match, the COPC executive increases the quantity of the order, after the consent of the distributor. The excel sheet summarizes the day’s sales and categorizes it based on different SKUs, territories and trade (Modern Trade / Traditional Trade).

When COPC executive punches the order into the SAP system, the system generates message if the distributor has a Credit block or a bottle block. The order gets cleared or processed if the order value is within the credit limit and if there is no bottle block on the side of the distributor. Such orders are tagged as fully cleared. If there is credit constraint or Bottle blockage, the same is shown in the system, and only the order that falls within the limits of these two categories, gets processed. Such orders are tagged as partially cleared. Partially cleared orders get fully cleared 17 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

when the payment is received from the distributors and when the requisite number of glass is obtained from them. Sometimes, the orders get released on the basis of claims (due to them) that the distributors avails from the company.

The orders for different SKUs are accepted based on their availability, which is projected in the stock reports updated every morning. The stock reports shall have the quantity of stock of various SKUs in hand, less the pending orders that are due to be serviced. The consolidated list of orders from the distributor is punched into the SAP system after the financial credential and glass limits are verified and approved by the Finance. The marks the e completion of order processing. The order placement process is represented pictorially below. 1) PSRs collect the order quantity from the retail outlets

5) Production Manager schedules the production

2) Distributor consolidates the requirement and places an order to the Sales Office

4) Sales Office consolidates the requirement and intimates to the Factory

3) Sales Office checks credit block & glass block Figure 6 : Order Processing System

ISSUES OF ALLOCATING TERRITORIES OVERLAPPING OF TERRITORIES: Although the territories are clearly demarcated but still the overlapping occurs. Like region Hyderabad Central is in Secunderabad and Ameerpet area is in Hyderabad-1 territory almost opposite to each other. Since, the distance between the places is not much, the distributors usually cross the boundaries. 18 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

ISSUES IN PLACING ORDER: Different territories have different distribution points. Secunderabad has distribution

point at Begumpet and Hyderabad-1 has in Kukkatpally. At

times retailer himself orders as per his liking to the respective distributor. So this also causes dissatisfaction among the distributors. DISTANCE FACTOR FOR TERRITORY ALLOCATION: Salespersons are located in the centroid of their territory and have to travel to head office in other cities frequently. Distances from centroids and head office are important parameters to be taken into account to equate their time and efforts. POTENTIAL OF AREA TO BE CONSIDERED: Selling of PepsiCo products requires frequent and regular customer and territory coverage. So the potential is calculated based on the population of customers in a specific area. Decisions with regards placing of stock replenishment order must take into account the selling capacity of the outlet, the kind of channel and the location of the outlet. For example, if an outlet is located in a busy area-market place, near school or college or offices, etc, the sales volume is expected to be on the higher side. According to the kind of Residential Locality, the sales volume of a particular outlet should be determined. Also the channel category in which outlet belongs should be used in making estimates about the outlet. If the outlet belongs to the Eatery channel then it is expected to sell more glass bottles than PET bottles. If it is a Small Grocery in a residential locality then more PET bottles are expected to sell. GEOGRAPHIC CONDITIONS: Territory allocation must also consider factors like connectivity and size. Salesmen abstain from going to territories having poor connectivity. The work allotted to salesman in such an area should be less compared to other areas. BASIS

OF

TERRITORY

ALLOCATION

FOR

DIFFERENT

STORES

WITH

DIFFERENT OBJECTIVE Geographic method is the basis of territory allocation adopted by company for superstores with the objective of ensuring display to satisfy impulse buying of Pepsi. Breakdown method of territory allocation is adopted for General stores where the objective is to satisfy the demand. This method sets the sales target for each distributor based on the sales volume to be generated. 19 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

CHANNEL DESIGN AND CHANNEL PARTNERS The logistics channel explained below considers only the outbound logistics design and its partners. The channel design can be represented as below

Prodcution Line Warehousing at the Factory / Company Warehouse Transportation to the Distributor Point Warehousing at the Distributor point Transportation to the Industrial Outlet

Figure 7 : Channel Design – Outbound Logistics

The above channel comprises of following Channel Partners – Shipping and Product Availability Department Labor Contractors (for loading and unloading at the factory and at Distributor Points) Transporters and Logistics Providers (for primary and Secondary distribution) Distributors Route Agents for Secondary Distribution Industrial outlets The channel decisions involved are as follows – Warehousing – Stock Storage and Availability decision o FIFO Order servicing Decision o Quantity to be dispatched o Batches to be dispatched 20 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

Transportation Decision o Route allocation o Transport selection Warehousing – Stock Storage and forecasting decision Order servicing decision o Industrial outlets to be serviced Transportation Decision o Type of Vehicles to be allotted o Routes to be taken o RA to be allotted o Receipt of empties The

diagram

below

represents 1) Production at the Factory

the

Channel

2) Storage at the Warehouse located in the factory premises

3) Shipping of SKUs to the distribution centres

7) Shipping of empty bottles to the factory

4) Distribution of SKUs to the retail outlets. Also, collection of empty bottles

6) Shipping of empty bottles to the factory 5) Shipping of empty bottles to the factory

Figure 8 : Channel Process

CHANNEL MEMBER SELECTION METHOD PepsiCo has two channel members. They are: Distributors Merchandisers

21 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

processes.

DISTRIBUTORS PepsiCo has outsourced its distribution to third parties and has not set up its own distribution system like Coke. PepsiCo’s holds a tender to select its distributors for different areas. For becoming the distributor of PepsiCo some requirements are to be fulfilled. These requirements are checked by the company’s Customer Executives who visit the interested parties. The main areas checked are: The Infrastructure of the party interested Warehouse requirements in order to keep proper inventory Logistic capability. Past few years financial statements. On the basis of these criteria, the best suited party is selected from among the ones who filed for the tenders. The Distribution can be given for a period of one year to around 5 years after which the term can be renewed or if the distributor is not generating good sales then his license as a distributor can even be cancelled when the term is over.

MERCHANDISERS Merchandizing plays an important part in making sure that the products of Pepsi have better visibility. Thus, this helps in increasing the customer base as impulse shoppers often end up buying products visible to them.

PepsiCo has outsourced its Merchandising operations on the basis of contract labor to a HR company called Poorvakriti. Poorvakriti is responsible for all the merchandising operations of PepsiCo for the whole of India. Even for choosing its merchandisers PepsiCo holds a tender where it selects the merchandiser mainly on the basis of: The price quoted Task doing capacity ( checks the past work done by the company)

SCOPE OF INNOVATION IN CHANNEL MANAGEMENT Channel management involves more than just distribution, and has been described as management of how and where a product is used and of how the customer and the product

22 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

interact. Channel management covers processes for identifying key customers, communicating with them, and continuing to create value after the first contact. With the use of modern technology in recent years PepsiCo has been able to manage their distribution and logistics management operations significantly. Innovation in the distribution methods: The company launched two new distribution methods to improve the market penetration of its products globally these were chilled DSD system and Hybrid system. Chilled DSD System was for items which required continuous refrigeration. Hybrid system was formed by pooling various distribution networks of Pepsi. They employed wireless technologies to strengthen their distribution system and effectively serve customers in markets which they operated. Setting up “Rules of Engagement” between channel partners: Laws for engagement between vendor and partner defining the scenarios and do's and don'ts for the sales representatives of partnering companies. Company should go in for great effort to publish and socialise these law books to the partner community by means of "deal registrations" through a web portal. Approvals on these DRs were done on the basis of predefined set of requirements to avid subjective rulings. Channel motivation: Motivating the owners and employees of the independent organizations in a distribution chain requires great effort. Incentives are an important device for achieving such motivation. The supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors' sales personnel, so that they are tempted to push the product. ERP solution deployment: Ensure that the Business Process Transformation Vision is enabled through the implementation of the ERP initiative.

TYPICAL ISSUES OF CHANNEL CONFLICT Channel conflict may be defined as a situation in which one channel member perceives another channel member or members to be engaged in behavior that is preventing or impeding it from achieving its goals. 23 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

Goal incompatibility- Aligning bottler incentives with goals of Pepsi: The channel principal and channel partners have incompatible or misaligned goals particularly in the area of new product introduction, where the incentive conflict seems to cause a lot of problems. Pepsi is acquiring its major bottling groups in an attempt to better control the incentive conflict between Pepsi and its bottlers and over pricing, new product introduction, promotion, and quality. Communications difficulties - goal incompatibility, perceptual differences and role incongruities may be caused by communications problems: The Merchandiser's meeting is unorganized and they are informed without giving adequate time to reach the meeting therefore the whole process of transforming the whole information is not 100 percent. Issues of profit margin for retailers: Retailers have issues with the margins that they get on the glass bottles. They are often reluctant to take orders unless they get good margins and may stock the product of the competitor. Like the MRP of Coke is Rs. 12 while for Pepsi its Rs. 10 for 300 ml bottle but retailers get better margins on Coke bottles. The addition of new distribution channels: Channel conflict occurs because now there is another type of distribution channel that is perceived by the existing channels to be chasing after the same customers with the same brand. From the manufacturer's perspective, channel conflict becomes destructive because the existing distribution channels react to channel migration by reducing support or shelf space for the manufacturer. They may now prefer to keep another beverage like Coke. Problems between the team leader and merchandiser: The team leader often uses abusive language to the female merchandiser which is leaving them de-motivated in performing their work. Indifferent attitude of merchandisers towards retailers: Retailer often complaint that the merchandise removes cold stock and fills in warm stock by which the retailer loses sale. Due to hot weather the retailers do not allow the merchandisers to open the coolers for more than 10 minutes because the cooling of SKU's is being hampered. Therefore Planogram implementation becomes difficult.

24 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

Structural factors - badly designed channel structure and alignment to customer segments: The use of multiple channels (direct and indirect) and the inclusion of new or emerging channels without appropriate planning is an issue. The convenience stores complain to the manufacturer about the prices at which Big Bazaar is selling their products. It has to be explained that there is no way that a convenience store can compete with Big Bazaar on prices for the price seeking customer. Instead the convenience store has to compete on saving the consumer time vis-à-vis travel, shopping and transaction processing, all at a reasonable price premium. Inequitable treatment of retailers by the manufacturer: Some retailers may be upset if the prices at which they purchase from the manufacturer are higher than those charged to other retailers or the direct sales force. There is often the feeling that the manufacturer is favoring other channels at their expense. Poor channel management-Unstructured channel management processes, such as partner recruitment, incentive systems and promotional strategies: Pepsi may like to increase its sales by offering a discount on its cans. However, the retailer knows that overall soda sales will not go up much when Pepsi is put on sale because the consumers who bought other brands will just switch, for the most part. Therefore, the retailer might like to "pocket" any discount that Pepsi offers. Lack of coordination between channel partners – Affecting Decisions regarding stock replenishment order: The Distributor along with the Customer Executive makes estimate of the amount of stock that needs to be maintained and the Brand- Pack combination that needs to be maintained. Based on the Customer Executive’s estimate about the selling capacity of the outlet, the kind of channel and the location of the outlet, these decisions have to taken. For example, if an outlet is located in a busy area-market place, near school or college or offices, etc, the sales volume is expected to be on the higher side. Also the channel category in which outlet belongs should be used in making estimates about the outlet. If the outlet belongs to the Eatery channel then it is expected to sell more glass bottles than PET bottles. If it is a Small Grocery in a residential locality then more PET bottles are expected to sell.

25 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

WAREHOUSING The facility available for the temporary storage of the finished goods is called warehousing. Warehousing plays an important role for following reasons – Ensures the space availability for the stocks produced Provides a strategic location for the ease of distribution Eases the process of monitoring the stock availability Eases the process of forecasting the demand and supplies

PepsiCo Hyderabad has three warehouse facilities, with one available at the plant at Sanga Reddy District. The facilities comprise of bays, for the unloading and loading of SKUs to the trucks, forklifts for material movements and stacks for the storage of pellets. The warehouse management falls under the scope of shipping department. The First In First Out (FIFO) system is adopted and executed for the deliveries of finished SKUs. The warehouses that are located outside the plant premises, stock the SKUs that arrive from other PepsiCo Plants. These SKUs comprises of the following – Pet Bottles of all the variants of PepsiCo Tins and Cans Tetra packs The above SKUs are supplied to the distributors through these warehouses. The ware house at the plant stocks the following – All Glass SKUs of PepsiCo, except Tropicana Twister and Nimboos Pet Bottles of Aquafina The above SKUs are manufactured at the plant and are supplied to the distributors from here. Warehouses are also available at the distributor points. These are owned by the distributor and are used for stocking his SKUs. They do not have facilities like the company owned warehouses, because the quantum of material stored is less as compared to the factory. However, the company norms requires that these warehouses have closed storage facilities, that meet various cleanliness and hygiene factors, as laid down by PepsiCo.

26 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

LOGISTICS & TRANSPORTATION 3

Logistics is flow of material, information, and money between consumers and suppliers.

Transportation on the other hand is the movement of material from one point to another. Thus transportation forms an integral part of logistics. Logistics and Transportation at PepsiCo can be explained under two separate headings as – Primary Logistics Secondary Logistics

PRIMARY LOGISTICS The logistics involved for the supply of finished goods to the distributors can be termed as primary logistics. The transportation involved in primary logistics starts from the factory or the ware house to the distributor point.

Factory

Warehouse

Distributor Point

Figure 9 Primary Logistics

The orders placed by the distributor against the availability of the finished goods are executed from the plant. SAP system provides for the details of the orders and also the delivery schedules. The shipping department generates the loading sheet that describes the types and quantities of SKUs to be loaded in a truck. Ones the loading is done, the invoice is generated and the gate pass for the exit of vehicle is issued. The material is received at the distributor’s end against the receipt of the invoice. Damages up to 0.01% of the total stock are acceptable by the distributor, beyond which he shall claim back from the company. The freight is borne by PepsiCo and thus the stocks are supplied on door delivery basis. The primary logistics is the responsibility of PepsiCo, Hyderabad and hence executed by the shipping department at the factory. PepsiCo, Hyderabad, does not have its own fleet of vehicles for the distribution. They have contractors or the transporters who provide them with trucks, 3

EDWARD H FRAZELLE, Ph.D, 2004, Supply Chain Strategy. New Delhi: TATA McGraw-Hill Company limited

27 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

when required. The company has three such approved transporters. The vehicle used for the supplies at the primary comprises of – LCVs HCVs Turbos The transporters have allotted certain truck that shall exclusively serve the distribution of PepsiCo. These are called system vehicles. There are over hundred such system vehicles that are available during the peak season. The vehicles that cater to the supply of goods to the Up Country or other PepsiCo units outside Hyderabad are called Location Vehicles. The routes for the movement are fixed. Transit happens on point to point basis, either as single point transportation or multipoint transportation. The placement of vehicles takes place under following criteria – Location of the delivery point Quantity of SKUs to be delivered Traffic restrictions at a particular route Time of vehicle placement Duration of transit

SECONDARY LOGISTICS Logistics involved in the supply of finished goods to the industrial outlets is termed as secondary logistics. The transportation involved in secondary logistics starts from the distributor point to the industrial outlets.

Distributor Warehouse

Industrial outlets

Figure 10 Secondary Distribution

The orders placed by the industrial outlets are processed at the distributor points. The goods are loaded in the truck based on the route it needs to travel. The route agents ensure that the SKUs are delivered to the industrial outlets and that the payment is collected against the invoice they

28 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

carry along with them. The route agent also collects the empties from the industrial outlets. The stocks are supplied only against the empties received by the RAs.

Secondary logistics is the responsibility of the distributor and thus the cost of transportation is borne by them. Few distributors have their own fleet of vehicles and the rest hire them from the market, based on the need. The types of vehicles used for secondary transportation are – LCVs Tempos Small Carriage Vehicles These are best suited for the movement within the traffic and also in the by lanes. The routes for the distribution are fixed and transit happens on multipoint basis. The criteria for the selection and allocation of distributor vehicles is as follows – The route to be taken Number of industrial outlets to be covered Time of Distribution Traffic Restrictions

ISSUE OF WAREHOUSING Poor Infrastructure: Due to improper infrastructure, at times it leads to space constraint creating difficulties in bifurcation of SKU. There may even be cases where stocks are placed without roof Hygiene & Cleanliness: For sensitive items like beverages & juices, the surroundings have to be kept clean to ensure that the bottles that the consumer receives is in a fresh condition.

ISSUES OF LOGISTICS Timely Delivery: It is a very big issue. As the distributor for Pepsi is selected by the company which does not include people directly under the control of Pepsi so there are cases where there are delays in the delivery to the small retailers. Delay in Refill: Our discussion also revealed that where Coca cola ensures that the refills are done by 9 am on a particular day whereas the Pepsi distributor takes time for its refill which is completed by 11 am. Due to this the retailers tend to choose Coca cola over Pepsi. For example 29 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

Most of the small retail shops in the by lanes are closed in the afternoon and hence the delivery is done on the next day leading to shortage in stock of the retailer, which in turn helps competitor like Coca cola in capturing the markets. Fuel Consumption: At times the distributor in order to reduce the fuel consumption sends single trucks on multiple routes leading to failure in deliveries on time.

PROFILE AND OPERATIONS OF A TYPICAL HYDERABAD OPERATOR The Hyderabad office is a sales unit with its operations limited to twin cities of Hyderabad and Secunderabad and few other upcountry locations of Andhra Pradesh. The company has over 33 distributors and over 34000 industrial outlets in the twin city of Hyderabad and Secunderabad. Distributor Area: A.S Rao Nagar in Secundarabad Customer Executive: Mr. Bala Krishna

Sales and Distribution Function of an operator: PepsiCo follows a combination of chain distribution system and Hub and Spoke distribution system in Hyderabad. The PepsiCo head office is located at Somajiguda in Hyderabad. It acts as a central unit with several other distributors forming a chain network. All the coordination and supervision activities are carried out at the head office. The distributors place the orders for the stock (called Primary Stock) at the PepsiCo’s Head office which in turn, after receipt of payment forwards the same to the bottling plant at Sangrareddy district. The bottling plant is then responsible for delivering the primary stock to the respective depot within 24 to 48 hours.

The distributors order a certain amount of Primary stock each month which is known as the depot’s Primary target. The Primary target is decided by the Territory Development Manager (T.D.M) of the territory under which the depot falls. In order to achieve the given Primary targets, the distributors have to place a certain amount of stock in the market every month. This is known as the depot’s secondary target. This is also decided by the T.D.M. It is the task of the Customer Executive that the depot’s primary targets and secondary targets are being achieved.

30 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

A distributor at PepsiCo can follow two types of distribution techniques: Pre sales and On Spot delivery system. PRE SALES: In pre sales technique, there are two front level roles. One is of P.S.R or Pre Sales Representative and the other is of R.A or Route Agent. For every route one P.S.R and one R.A is allotted. The R.A has loaders with him to help him load the stock at the depot and to unload the stock at the outlet and also to load the empty glass cases collected from the outlets for refilling. The job of P.S.R is to visit each and every outlet in the assigned route and collect orders from the outlets. The R.A or the Route agents’ job is to deliver the orders which were taken by the P.S.R the previous day. ON SPOT DELIVERY SYSTEM OR READY SALES: Unlike in Pre sales technique, there is no PSR in ready sales. The different tasks being performed by a R.A daily are mentioned as under: 1. Stock loading at the depot: the stock which is available in the depot is distributed equally between all the RA.s and they have to carry maximum possible stock every day during their visits. 2. Visit every outlet 3. Take stock order depending on the availability of the stock at the outlet. Here RA- outlet owner is crucial as it largely impacts the order placed. 4. Deliver the goods, post receipt of goods, receive cash from the owner and move to the next outlet.

RECOMMENDATIONS TRANSPORTATION 1) The number of vehicle should be increased in primary distribution by one of the following ways – Acquiring company vehicles Hiring vehicles on lease Increasing the number of approved transporters who can place any number of vehicles when required. 2) Allot some incentives to the transporters on servicing the order within a stipulated time 31 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t

3) System vehicles shall be tracked and made available stationed at the plant ones the order is serviced. 4) Allocate some vehicles specific to the distributor for its primary supplies. 5) Support the distributors in acquiring vehicles for the secondary supplies. 6) Allot time slots for the loading and dispatch of vehicles which has to suplly to the city. This will ensure that the vehicles leave the plant at the time, when the city is open to lorry traffic. WAREHOUSING 1) Make available more number of forklifts at the dispatch section 2) Allot token system for parking of vehicles at the bay. By doing so, the vehicles which need to be given a priority could be loaded first. 3) The information flow between the bay and the shipping department shall be made wireless for ease of communication. 4) Stipulate a time limit to the movement of vehicles inside the plant. Thus any vehicle that enters the plant shall leave out within the stipulated time. This would help in reducing the idle time of vehicles inside the plant.

DISTRIBUTOR POINT 1) The number of loaders should be increased both for route and the primary. 2) Add more number of vehicles for the by lanes. 3) Distributor should allot his own vehicle for acquiring primaries from the factory. 4) Route agents could be incentivized for achieving targets set for the supplies.

REFERENCES 1. Kotler, Philip,2004. Marketing Management, 11th Edition, Delhi: Pearson Education Pvt Ltd. 2. Mr. BalaKrishna, Customer Executive Pepsi - Secunderabad

32 | P e p s i c o S a l e s & D i s t r i b u t i o n M a n a g e m e n t