PepsiCo CASE STUDY

Headquartered in New York, the US-based PepsiCo is one of the world's leading beverage and snacks food companies. In its 2002 annual report, the company claimed to have the largest share in the US beverage markets. PepsiCo served diverse markets with its six group companies - Frito-Lay North America, Frito-Lay International, Pepsi-Cola North America, Pepsi Beverages International, Gatorade/Tropicana North America and Quaker Foods North America. For the fiscal year ended December 2002, PepsiCo Inc. (PepsiCo) reported revenues of $25.11 billion, an increase of 6.8% from the 2002 revenues of $23.51 billion.

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 used third party foodservices and vending distributors to distribute its snacks, foods, and beverage to restaurants, schools, stadiums, businesses, and other locations. As of 2011, PepsiCo was continuing with its efforts in the direction of having a well-managed supply chain and of strengthening its relationship with all its supply chain partners. In January 2011, PepsiCo changed the distribution system of its Gatorade products from warehouse delivery to Direct to store at convenience stores through both company-owned independent bottlers in the US and Canada.

PepsiCo adapted 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 of its various group companies/divisions.

This was undoubtedly a difficult task, but the then CEO Roger Enrico (Enrico) announced the launch of the 'Power of One' program through which, he said, the company would achieve this streamlining of operations, in 1998. PepsiCo would generate savings worth millions of dollars if the program was implemented well. However, the program had not got off the ground even by early 2004.

Since its inception, PepsiCo attached a lot of importance to its distribution operations. Each day, the company's products such as snack foods and beverages, were distributed through various retail channels in the US and across the world. PepsiCo's distribution system was aimed at making available all or most of the products in its portfolio within a distance easily reachable by consumers. PepsiCo was conscious of the need to adapt its distribution systems according to the needs and preferences of global customers. Based on its experience, PepsiCo had developed various distribution models to offer its products and services to customers in the US. These included the Direct Store Delivery (DSD), Broker Warehouse Distribution (BWD) and Vending & Food Service (V&FS) systems.

In order to manage its distribution systems effectively, PepsiCo had put in place advanced logistics systems. PepsiCo sold beverage concentrate to bottlers, who added carbon dioxide, sweetener and water to make beverages and beverage syrup. Syrup was either sold directly to the fountain accounts or was combined with carbonated water for bottling. Bottling companies were (with a few exceptions) owned and operated by local companies in the countries where PepsiCo operated.

Through their use of the most modern technology in recent years, PepsiCo and its bottlers were able to improve their distribution and logistics management operations significantly. To further improve the market penetration of its products globally, PepsiCo launched two new distribution methods in the initial years of the new millennium. These were the chilled DSD system and the hybrid system. The chilled DSD system was a relatively small distribution method, created for items which required continuous refrigeration. This was primarily created for the fruit juices product line.

Questions:

1. Conduct an analysis of the strategies of PepsiCo in managing demand, orders and inventory. What other methods could have been used by PepsiCo for managing demand and inventory?
2. Assess the distribution operations, and the distribution channels strategies of PepsiCo for improving supply chain efficiency.