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DONE BY: SALMAN A ASAD

SUBMITTED
TO:MR HARIS ASLAM
STUDENT ID:13048005-030
DONE
BY: SALMAN
ASADASLAM
SUBMITTED
TO:MR AHARIS
STUDENT ID:13048005-030

PEPSICO SUPPLY CHAIN


PERFORMANCE
TABLE OF CONTENTS
ACKNOWLEDGEMENT:............................................................................................ 4
EXECUTIVE SUMMARY............................................................................................ 5
BRIEF HISTORY....................................................................................................... 5
The Early Years................................................................................................... 6
PepsiCo in Pakistan............................................................................................. 6
PEPSICO OPERATIONS IN PAKISTAN........................................................................6
PEPSICO MAIN SUPPLIERS IN PAKISTAN..............................................................6
PEPSICO PRODUCTS........................................................................................... 7
SIZE IN TERMS OF EMPLOYEES AND TURNOVER.................................................8
MAJOR MARKETS SERVED................................................................................... 9
QUALITY MANAGEMENT SYSTEMS.......................................................................9
KEY RAW MATERIALS AND SUPPLIERS.................................................................9
SUPPLY CHAIN STRATEGY AND DESIGN..................................................................9
COMPETITIVE STRATEGY................................................................................... 10
SUPPLY CHAIN STRATEGY.................................................................................. 10
SUPPLY CHAIN DESIGN...................................................................................... 13
MANUFACTURING........................................................................................... 13
MARKETS SUPPLIED....................................................................................... 14
STORAGE....................................................................................................... 14
DISTRIBUTION................................................................................................ 14
OTHER MEASURES......................................................................................... 15
OUTSOURCED ACTIVITES.................................................................................. 15
SIPOC MODEL PEPSICO..................................................................................... 15
SUPPLY CHAIN PERFORMANCE............................................................................. 16
FLEXIBILITY....................................................................................................... 16

PRODUCT INNOVATION............................................................................16

DEMAND VARIATIONS.............................................................................. 16

POOR MANUFACTURING PERFORMANCE.................................................16

POOR SUPPLIER PERFORMANCE..............................................................16

POOR DELIVERY PERFORMANCE..............................................................16

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OUTPUT............................................................................................................ 17

SALES...................................................................................................... 17

ORDER FILL RATE.................................................................................... 17

ON TIME DELIVERIES............................................................................... 17

CUSTOMER RESPONSE TIME....................................................................17

SHIPPING ERRORS................................................................................... 17

CUSTOMER COMPLAINT HANDLING.........................................................17

RESOURCES...................................................................................................... 18

MANUFACTURING COST...........................................................................18

INVENTORY HOLDING COST....................................................................18

DISTRIBUTION COST................................................................................ 18

STRATEGIC FIT..................................................................................................... 19
CHALLENGES AND RECOMMENDATIONS..............................................................21
THE CHALLENGE OF BENCHMARKING...............................................................21
IMPROVING THE METRICS PERFORMANCE........................................................22
CONCLUSION FINDING A SOLUTION TO OUR PROBLEM..................................23

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ACKNOWLEDGEMENT:
I would like to take this opportunity to express my profound gratitude and deep regards to my
Resource Person, Mr. Haris Aslam for his mentoring, monitoring and constant encouragement
throughout the course of this project.
I am indebted to him for his sincere help and guidance that allowed me to understand the
supply chain dynamics of performance measurement and how companies use performance
metrics to achieve higher supplier chain profits.
I would also like to acknowledge Mr. Khalid Bhatti, Business Unit Manager Key Accounts at
Riaz Bottlers who took out time from his busy schedule and put in enough energy and effort
to engage in discussions and answer my questions. I thank Mr Haris Aslam and Mr Khalid
Bhatti for their patience and effort.

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EXECUTIVE SUMMARY
This report provides an analysis and evaluation of the supply chain performance of PepsiCo
and its operations and bottling units in Lahore. The purpose of this report is to provide a brief
understanding of the supply chain dynamics of performance measurement and how PepsiCo
uses performance metrics to achieve higher supply chain profits
The company is described in terms of its product portfolio and other descriptions like number
of employees, annual turnover, major suppliers and major markets catered to. I also included
a small section on a few quality management systems used by PepsiCo Lahore. Then the
major strategies employed by PepsiCo internationally and in Pakistan have also been
discussed.
The first step to analyze PepsiCo was to interview a person who was knowledgeable about
the operations. I was supposed to interview the chosen person using a questionnaire based on
Benita Beamon model which uses three primary measures of flexibility, resources and output.
Methods of analysis used are comparisons between stated strategies and actual performances
according to the Beamon model. A simple scoring formula is used to find out the percentages
of each of the Beamon measures and the metrics used in each measure respectively.
A strategic fit is described as to indicate how and in what segment PepsiCo is more
responsive and where it is more efficient and how demand uncertainty s handled. The
findings confirmed that PepsiCo was facing intermittent delivery issues in Lahore which has
to be looked at further.
Finally a recommendation section tries giving a solution to our problem metrics by
highlighting root causes and possible solutions. The conclusion gives details about what tools
are used by supply chain executives and in what manner to achieve strategic goals. Finally, it
is shown how the top supply chain companies use performance measurement tools and
metrics to achieve a supply chain that achieves profitable perfect order, balancing service
with end-to-end cost.

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INTRODUCTION A BRIEF HISTORY

THE EARLY YEARS


Caleb Bradham, a pharmacist, is credited with having invented a soft carbonated drink which
boosted energy levels and aided in digestion as well. He invented this drink in 1893. The
recipe contained the digestive enzyme pepsin and kola nuts. Thus he named his drink Pepsi
Cola. Pepsi was sold at his drugstore from where he moved to a bottling warehouse and as
they say the rest is history.
From a pharmacy in Delaware to becoming a multinational, PepsiCo, Inc is a leading global
food and beverages manufacturing company with well established brands that have become
regular household names throughout the world. PepsiCo manufactures, markets, sells and
distributes a huge portfolio of grain-based snack foods, beverages, and other products, using
authorized bottlers, contract manufacturers and other third party partners.
With its global headquarters in New York, United States of America, PepsiCo operates in
more than 200 countries and in 45 languages, selling more than 500 products, employing
100,000 routes worldwide, serving 10 million outlets around the world. PepsiCos local level
management has a very strong grip of the markets it covers, the needs it fulfills and this is
what basically tells PepsiCo what to do, how to do and when to do, thus effectively building
PepsiCos worldwide strategy.

PEPSICO IN PAKISTAN
Several Pakistani people hold key executive positions in PepsiCo, one of them being Mr.
Qasim Khan. Mr. Qasim Khan heads PepsiCos North Asia South Asia business unit. NASA
is a geographical based business unit which includes Pakistan, Indonesia, Malaysia, Korea,
Japan, Thailand, Philippines and Singapore. Another highly distinguished name in PepsiCo is
Dr. Mehmood Khan, who holds two key positions, Executive Vice President or EVP and
more importantly, Chief Scientific Officer or CSO. As CSO, he is responsible for research
and development work in PepsiCo, with emphasis on research.
PepsiCo was one of the first multinationals to start operations in Pakistan. Establishing its
operations in 1967, it has become the largest food and beverage company in Pakistan in terms
of annual retail turnover beating the revenues of 65 billion rupees generated by Unilever as of
financial year 2012.

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PEPSICO OPERATIONS IN PAKISTAN


PEPSICO MAIN SUPPLIERS IN PAKISTAN
PepsiCo has setup, through franchising, 14 bottling plants across different sites in 11 cities for
production of their beverages. One of these is the PepsiCo concentrate plant setup in Hattar
which was a first for Pakistan as it brought in a lot of Foreign Direct Investment. PepsiCo
operates in the following cities with its headquarters located in Gulberg, Lahore:

Hattar
Islamabad
Lahore
Faisalabad
Multan
Sahiwal
Dera Ghazi Khan
Quetta
Hydrabad
Sukkar
Karachi

Each of these cities has a bottling plant and Hattar also serves as central concentrate
production site. The five of its biggest franchised bottlers are listed along with their cities
below:

Pakistan Beverages, Karachi


Hydri Bottlers, Islamabad
Punjab Beverages, Faisalabad
Riaz Bottlers, Lahore
Shamim and Company, Multan

Together these five franchises from a major chunk of the total production of beverages in for
PepsiCo in Pakistan.

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PEPSICO PRODUCTS
PepsiCo produces a vast portfolio in Pakistan with power brands Pepsi and 7up leading the
market share. Other brands include Mirinda, Sting, Slice and Aquafina.
Tetrapa
k
200
ml
Pepsi
Cola

SSRB
250
ml

7up

Pepsi
Diet
Mountain
Dew

Tin
250
ml

7up
Diet

PET
250/30
0
ml

Sting
Strawberr
y

PET
1000
ml

PET
1500
ml

PET
2250
ml

21
Liter

7up
Lemonade
Mirinda
Orange

PET
500
ml

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Sting
Gold Rush
Slice
Mango
Slice
Orange

Aquafina
Water

In Lahore, Riaz Bottlers alone produces up to a 100,000 bottles of product each day. It
produces CSDs or carbonated soft drinks in SSRBs or standard size returnable bottles, PET
or Polyethylene Teraphthalate and Tin Can packaging. It produces Juices in Tetrapak and PET
bottles. It also produces stale drinks like Aquafina Water in PET and Sting in PET, SSRB and
Tin Can packaging.
Cases can be summarized as:

24 SSRB per case,


12 250/500 ml PET per case,
24 200ml tetrapak per case,
6 1500 and 2250 ml PET per case.

SIZE IN TERMS OF EMPLOYEES AND TURNOVER


The size of PepsiCo in Pakistan in terms of number of employees is 20000 employees. In
terms of annual turnover, PepsiCo generated annual turnover of more than 66 billion rupees
in 2011 and that is their benchmark figure as of 2013. PepsiCo has so far invested more than
1 $Billion in Pakistan as of 2013.

MAJOR MARKETS SERVED


PepsiCo is available all over Pakistan, in all major cities and most urban and rural areas. It is
the preferred choice of most people living in rural areas. PepsiCo also owns KFC and Pizza
Hut fast food chains and also acts as their choice CSD supplier so that all branches of these
fast food restaurants have ample stock of Pepsi, Pepsi Diet, 7up, Mirinda and Aquafina water.

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QUALITY MANAGEMENT SYSTEMS
In terms of implementation of quality management systems, PepsiCo has yet to implement
the lean/six sigma protocols in Pakistan which have helped in changeovers in other
countries, improving changeover time from 65 minutes to 25 minutes among other important
measures. But most of PepsiCo bottlers in Pakistan are ISO 9000 certified and have or are in
the process of being certified ISO 14000.
ISO 9000 is a quality management standard that helps in increasing business efficiency and
customer satisfaction. ISO 14000 help in systemizing and improving environment
management.
PepsiCo had also asked its bottler in Lahore to implement a Pre Sales Order Booking
System to streamline order fulfillment which it has successfully implemented.

KEY RAW MATERIALS AND SUPPLIERS


The major raw materials PepsiCo requires for packaging include plastic resins like
polyethylene terephthalate from which PET bottles are made, polypropylene, plastics for
cases, film packaging and labeling material, aluminum used for cans, glass bottles, closures
cardboard and paperboard cartons.
The major raw materials PepsiCo requires for its beverages are juice concentrates like
mangoes and oranges, flavorings and aromas, corn starch, corn sweeteners, aspartame,
sucralose, sugar and carbon dioxide and most importantly, water.
Petrol, Diesel and Furnace Oil are also considered very important in PepsiCo operations for
boilers and in trucking and logistics. PepsiCo employs specialist personnel to ensure adequate
and nonstop supply of all these critical items. PepsiCo purchases many of its supplies in the
open market, minimizing risk through the usage fixed price contracts, purchase ordering and
pricing agreements. In certain raw material cases, risk is managed through procuring from
different geographical locations and suppliers.

SUPPLY CHAIN STRATEGY AND DESIGN


COMPETITIVE STRATEGY
PepsiCo focuses on innovation and strong go-to-market excellence. Because of such a
strategy, PepsiCo became the market leader in Pakistan 1982 and since then, has retained the
number 1 position. PepsiCo has the power to innovate and enter new markets with new
products through diversification which PepsiCos main strength. Matching customers
expectations with good quality, safe beverages is essential to satisfying our customers and
making them loyal.
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Today, Pakistan is the 6th largest market for PepsiCo worldwide. PepsiCo has developed an
extensive beverage portfolio which not only competes with Coca Cola, its main rival on a
head to head basis, it leaves its rival behind in terms of volume contribution in sales. PepsiCo
is selling 11 beverage brands in Pakistan to date of which CSDs (carbonated soft drinks)
make up a large part.
What PepsiCo says regarding its competitive strategy?
Our beverage, snack and food brands compete on the basis of price, quality, product variety
and distribution. Success in this competitive environment is dependent on effective promotion
of existing products, introduction of new products and the effectiveness of our advertising
campaigns, marketing programs, product packaging, pricing, increased efficiency in
production techniques, new vending and dispensing equipment and brand and trademark
development and protection. We believe that the strength of our brands, innovation and
marketing, coupled with the quality of our products and flexibility of our distribution
network, allows us to compete effectively.

SUPPLY CHAIN STRATEGY


PERFORMANCE WITH PURPOSE
Performance with purpose is the overall strategy PepsiCo uses to satisfy customer needs. All
strategies come from Performance with Purpose. What is this strategy? According to
PepsiCo:
Performance with Purpose is our goal to deliver sustained value by providing a wide range
of foods and beverages, from treats to healthy eats; finding innovative ways to minimize our
impact on the environment and lower our costs through energy and water conservation as
well as reduce use of packaging material.
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Supply chain strategy of PepsiCo stems from the above mentioned and described purpose.
There are two aspects to the PepsiCo supply chain strategy:

THE POWER OF ONE


DIRECT STORE DELIVERY

THE POWER OF ONE


The POWER OF ONE allows PepsiCo to operate its beverage and food businesses as one
company attaining critical competitive advantages. The Power of One begins with PepsiCos
unique ability to connect with consumers.
When customers buy a beverage, they also want to buy a snack, and when they buy a snack,
they also want a drink. Thus PepsiCo capitalizes on the idea of purchase of its two iconic
brands Pepsi Cola and Lays chips together by customers. This idea has become more
powerful as it has grown and caught on globally.
The significant attribute of POWER OF ONE strategy is that it extends to areas throughout
the value chain. PepsiCo aims to double its productivity by harnessing the full potential of
POWER OF ONE globally which includes Pakistan. It allows PepsiCo to increase
efficiencies and speed across the whole value chain while reducing costs.

DSD DIRECT STORE DELIVERY


PepsiCo markets its products through direct-store-delivery (DSD), customer warehouse and
distributor networks. The distribution system used depends on customer needs, product
characteristics and local trade practices.
Direct-Store-Delivery
PepsiCo, its independent bottlers and distributors operate through DSD systems. These
systems deliver snacks and beverages directly to retail stores where the products are sold and
stocked by PepsiCo bottlers. DSD allows for maximum visibility and appeal. DSD is
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especially well-suited to products that are restocked often and respond to in-store promotion
and merchandising. A key component of DSD is the use of planograms which shows the
retailer the arrangement of the PepsiCo products in specific order. PepsiCo snacks for
example are supposed be stacked besides PepsiCo beverages on the same shelf space side by
side.
Customer Warehouse
Some of PepsiCo products are delivered directly from manufacturing plants and warehouses
to customer warehouses and retail stores. These less costly systems generally work best for
products that are less fragile and perishable, have lower turnover.
Distributor Networks
When PepsiCo needs to deliver products to its fast food eateries, other restaurants, schools
and stadiums, it distributes many of its products through third-party distributors. Third-party
distributors are effective when greater distribution reach can be achieved by including a wide
range of products on the same delivery vehicles.

SUPPLY CHAIN DESIGN


PepsiCo is one of the largest foods and beverages company in the world. Also, the products it
produces are fast moving so it can also be classified as a FMCG or fast moving consumer
goods company. Today, in a globalised world where competition is fierce and there are no
chances of making mistakes or being inefficient, consumers are more aware, they want their

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products more quickly, conveniently and they require products which are durable and of
unprecedented quality.
Looking at the ever changing dynamics of consumer markets, PepsiCo needs to be very
efficient in its production while at the same has to be extremely responsive to meet consumer
demand and expectations. To do this, the supply chain model which has to be designed and
implemented has to keep in mind production and inventory efficiencies to reduce costs and
has to modify logistics, warehousing and distribution networks to gain responsiveness in
accordance with the markets it caters to.
I visited Riaz Bottlers, the franchised bottler of PepsiCo in Lahore and interviewed Mr.
Khalid Bhatti to gain an insight into the operations and supply chain performance of PepsiCo.
Mr. Bhatti was kind enough to provide me the key details which were required and he obliged
me to the best of his knowledge. There are certain trade secrets that employees of any
company are bound to protect but he gave me a clear understanding of how things are done in
PepsiCo Lahore.
MANUFACTURING
Single Central manufacturing factory located in Gulberg Lahore. Production is done batch
wise and the metric used for each product is the run time. Fast moving products have longer
run times looking at their utility and sales. There are five bottling units and a smaller water
bottling plant. Two units are dedicated to the SSRB (standard size returnable bottler) and it
runs continuously. 1 unit is dedicated to the 1.5 liter PET (polyethylene teraphthalate) which
has a major contribution in sales revenue. 1 unit is dedicated to other PET bottling runs.
Juices have their own manufacturing line as well as the Aquafina, which runs on a separate
line in the same plant. On a daily basis, almost 100,000 cases are produced of all packs.

MARKETS SUPPLIED
Key markets supplied from Lahore are Lahore city, its outskirts and Kasur.

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STORAGE
The main PepsiCo owned central ware house is located in the Quaid E Azam Industrial
Estate. Its average capacity is 1 month of inventory or 3 million cases.
DISTRIBUTION
PepsiCo uses both direct and indirect types of distribution. In Direct distribution, PepsiCo
uses its own fleet of trucks to transport products from the bottling plant directly to the sub
warehouses of the distributors who then use their own trucks to deliver to retailers.

Using the Indirect distribution which PepsiCo prefers owing to its use of DSD or Direct Store
Delivery, the central warehouse is used where outsourced trucking is used to deliver directly
to the retailers.
The capacity of each truck is 6 to carry a minimum of 6 pellets. Each pellet can hold an
average of 50 cases. So on a given day, each truck carries 300 cases of PepsiCo beverages.

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OTHER MEASURES
ANNUAL CAPACITY

36 40 million cases

CUSTOMIZATION

Fully automated bottling plant

LEAD TIME

24 hours average to retailer and distributor

PRODUCTION DELAYS
5 10 % increase in time on average when delayed.
Usually occur due to increased operating cost because of increasing energy prices.

OUTSOURCED ACTIVITES

All vehicles in the indirect distribution


Shelf loaders and pellet loaders
Market signage
Printing of labels
Freezers and coolers

SIPOC MODEL PEPSICO

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SUPPLY CHAIN PERFORMANCE


FLEXIBILITY
The purpose of using this measure of supply chain performance is to gauge how responsive a
supply chain is in uncertain environments. The aim of this measure is to help achieve a high
responsiveness level.

PRODUCT INNOVATION
PepsiCo is far ahead in innovation. They have a high product range, have identified,
targeted and catered to every segment by maintaining a proper product portfolio in
every identified segment.
There are currently no competitors to Mountain Dew and Sting Brands in the market
which are the star products of PepsiCo, generating high sales figures revenues.
Coca Cola has an advantage over PepsiCo in structure and distribution. They employ
a single distributor which a Turkish logistic company. They have a single bottler
across Pakistan in 7 territories. Supply chain policies are uniform as they have a
single supply chain head. Coke started their invoicing before PepsiCo.

DEMAND VARIATIONS
Changes due to seasonality are one the most significant factors in ascertaining
demand. Off season sales are low but not very low. Below a certain threshold it is
never crossed even in winters. Seasonality does not offset the consolidated financial
results.
Employees are not laid off because it can cause quality depletion. Production is
curtailed through decreasing plant run and closing 1 of the 3 SSRB plants.

POOR MANUFACTURING PERFORMANCE


Faults can occur in batches. These faulty batches are lifted from the market as
PepsiCo does not compromise on quality.

POOR SUPPLIER PERFORMANCE


There are a minimum of 3 suppliers for every SKU. In case of fuel shortages, PSO
fulfills orders as PepsiCo is a major client. PSO obliges by providing a 15 days worth
of furnace oil.

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POOR DELIVERY PERFORMANCE


It takes time, not very long, but takes time change as decision making is done on a
hierarchical basis. Information has to be passed up along the chain from the sales
team to higher executives.

OUTPUT
The purpose of using this measure of supply chain performance is to gauge the acceptable
level of output which maintains the customer base. The aim of this measure is to help achieve
a high customer service level.

SALES
25 % higher sales than rival Coca Cola

ORDER FILL RATE


PepsiCo used to have issues in fulfilling orders having a lower fill rate than Coca Cola
in Lahore. They changed their strategy by employing order booking before sales and
pre invoicing. This is done through the sales representative who gets the load demand
from the retailer and transfers the orders to the shipping department. PepsiCo is now
head to head in order fill rates according to Mr. Khalid Bhatti.

ON TIME DELIVERIES
PepsiCo uses the same day delivery benchmark. This means that an order has to be
fulfilled within 24 hours. And PepsiCo has achieved this to 95% level due pre order
booking. This is actually higher than Coca Cola.

CUSTOMER RESPONSE TIME


The same delivery benchmark has improved the average lead times to less than 24
hours.

SHIPPING ERRORS
During peak season, which is during the summers, a lot of shipping errors occur.
There are high pressures to meet demand through high production volume. Because of
this, dumping occurs and production starts to exceed demand. And routes are busy
due to heavy traffic; sometimes the orders are filled based on areas and not on order
priority.
During off season, in winters, very few errors occur. The ones that do occur are
because a retailer either buys more stock than he ordered, rendering the next retailer
order unfulfilled, creating a backlog or refusing to accept replenishment because of
space restrictions.

CUSTOMER COMPLAINT HANDLING


UAN number is available to all retailers and customers alike for any complaints.
Usually during peak season, record complaints of coolers and chiller units breaking
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down which are duly fulfilled through maintenance teams who either repair or replace
the defective units.

RESOURCES
The purpose of using this measure of supply chain performance is to gauge how efficiently
resources are being managed such resources which are critical to profitability. The aim of this
measure is to help achieve a high level of efficiency.

MANUFACTURING COST
PepsiCos labor costs per case are 2 PKR. The total manufacturing cost per case of
SSRBs is 384 PKR per case. Our costs are lower than our competition.

INVENTORY HOLDING COST


PepsiCo looks at inventory from the perspective of fast moving goods and expiry
dates. SSRBs have a shelf life of 9 months but are very fast moving. PET bottles have
a shelf life of 6 months but are also fast moving. Aquafina water has a shelf life of a 1
year, that too to because the water requires ample storage time to develop its unique
taste.
In case of DSD, PepsiCos average holding cost is at the mid level because the
warehouses it uses are owned by the bottlers. The only added cost is handling which
is 2 PKR.

DISTRIBUTION COST
Distribution cost varies from channel to channel. Direct distribution has higher costs
because of maintaining the fleet and fuel purchases. Indirect distribution has lower
costs from 20 to 25 PKR per case. PepsiCo prefers to use indirect distribution because
of it DSD strategy and in Lahore uses it up to 65%.

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STRATEGIC FIT
To analyze the performance of PepsiCo supply chain in Lahore market, which is a huge
potential for PepsiCo but which at the moment is not leading Coca Cola, we need to look at
the Strategies that PepsiCo uses for its competitiveness and supply chain and look at our
findings in the section above. We need to compare and reconcile what the strategies aim to
achieve and what is actually being achieved and how the supply chain is actually behaving.
Being a food and beverage company with most of its products like Pepsi, 7up and Mountain
Dew in the mature stages of their life cycle where the brand equity and awareness is firmly
established, PepsiCo understands the pressures of process innovation like it understands
product innovation. A mature functional produce has more certain demand and supply is
predictable. Margins are on the lower side due to stiff competition. Price is the deciding
factor when consumers make choice.
There is saturation in the market with new entrants facing stiff competition from the
established brands. Likewise giants like PepsiCo faceoff with giants like Coca Cola. The
competition is fierce and no stone is left unturned. But unlike Coca Cola, PepsiCo has
diversified much more than Coca Cola. And as Jack Welch has said: change or die PepsiCo
understands that theirs is a culture of challenging and questioning the status quo: constantly
improving, and then improving some more.
Pepsi produces functional products for which it needs to have an efficient supply chain. But a
highly efficient supply chain compromises responsiveness and a highly responsiveness eats
away the efficiency and cost leadership. Todays markets and consumers demand highly
responsive supply chains which make available a product quickly.
So there has to be a point where a strategic balance is achieved being where efficiency is not
compromised, neither is responsiveness. Identifying this point and achieving it is not easy.
ASSESSING THE STRATEGIES
For manufacturing, Pepsi needs to know that cost is the main lever and driver that matters
and that being efficient is the most important aspect of the segmented supply chain.

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For distribution and delivery, Pepsi needs to know that lead time is the main lever and driver
and that being responsiveness is the most important aspect of this segment of the supply
chain.
This is exactly what their POWER OF ONE and DIRECT STORE DELIVERY strategies
state. POO says that through its implementation, PepsiCo increases its efficiencies and
reduces cost. Again, DSD says that delivering directly to the retailers with any intermediary
make the distribution aspect responsive.

ASSESSING AND ANALYZING THE PERFORMANCE


When we look the flexibility measure, we find that PepsiCo is:
Responsive in innovation and new product development.
Fairly responsive in demand variation
Flexibility in manufacturing performance
Flexibility in supplier performance
Fairly flexible in delivery performance
If each metric is scored out of 0, or 1 we have an aggregate score of 4 out 5 or 80%. This
result gives PepsiCo a flexible supply chain. (Exception in demand variation and delivery
performance.)
When we look at the output measure, we find that PepsiCo is:
High customer service level in sales
Medium customer service level in order fill rates
High customer service level in on time deliveries
High customer service level in customer response time
Medium customer service level in shipping errors
High customer service level in customer complaint handling
If each metric is scored out of 0, or 1we have an aggregate score of 5 out 6 or 83.3%. This
result shows that PepsiCo is very able in retaining its customers and is offering a high
customer service level. (Exception in order fill rates and shipping errors.)
When we look at the resource measure we find that PepsiCo is:
Manufacturing costs are low due to high efficiency in manufacturing
Inventory costs are low which again gives us a high efficiency.
Distribution costs are on the higher side which gives us a medium efficiency.
If each metric is scored out of 0, or 1we have an aggregate score of 2 out 3 or 83.3%.
This result shows that PepsiCo is achieving high efficiencies and a high profitability.
(Exception in distribution costs.)
Total score out of 14 metrics that PepsiCo is achieving is 11 which in terms of percentage
would give 82%.
This goes on to show that the overall performance of the supply chain is above satisfactory.
PepsiCo is successful in reconciling and achieving its supply chain strategy goals up to 82%.
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Also, we can analyze from the above results that the demand uncertainty present in this
supply chain model is absorbed by PepsiCo as it needs to have a responsive distribution
network. The suppliers are absorbing lesser demand uncertainty and are efficient. The
retailers in this case are absorbing the least amount of demand uncertainty.
Therefore, Pepsi is successful in achieving its strategic fit between the strategies deployed
and the actual performance. The manufacturing efficiency is sufficiently high to say that the
strategy of POWER OF ONE is successfully working. It also safe to say that responsiveness
is being achieved through DIRECT STORE DELIVERY.

CHALLENGES AND RECOMMENDATIONS


THE CHALLENGE OF BENCHMARKING
The challenge for any supply chain is to meet a certain standard and/or achieve benchmark
levels of efficiency and responsiveness. Below is a diagram which shows the benchmarks that
are set for a supply chain in any situation and environment. Achieving 95% in the Perfect
Order Index is a phenomenal task. And PepsiCos overall and segmented supply chain score
is nowhere near this benchmark.

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An average score of 82% is no doubt very high but room for improvement is much more. I
think PepsiCo should at least review its performance in 4 of the metrics found which were
under performing. Demand variation and delivery performance, order fill rates and shipping
errors, and distribution costs.

IMPROVING THE METRICS PERFORMANCE


To improve these metrics we will look at the Hierarchy of supply chain metrics which helps
us in deciding which way to travel and how.
Operational excellence includes delivering as promised to customers and keeping costs under
control. These metrics are relatively easy to measure and they are very clear as regards their
business value. We recommend a hierarchy of metrics, at the top of which are perfect order
rate and total supply chain costs, to monitor this dimension.

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To further our understanding of this hierarchy, we start by identifying and ascertaining the
demand. On that demand forecast we then assess our perfect order rates which measures
responsiveness and SCM costs which measure efficiency. The next step is to analyze the cash
to cash cycle which gives a clear picture of total inventory, accounts payable and receivable.
The last step is correct any of the above 11 measures shown, from supplier quality to perfect
order detail, which could have issues.
Using these metrics effectively rather than focusing on one metric at a time, we understand
that what it really is; looking at the bigger picture through analyzing the relationships
between these metrics is what makes the metrics workable. I recommend PepsiCo in Lahore
to adopt this model of operational excellence to have a better understanding of what is going
on which needs to be changed and what performance metric is meeting the set benchmarks.

FINDING A SOLUTION TO OUR PROBLEM


To demonstrate how we will solve our problem, we wish to look at two of our metrics which
do not meet performance criteria.
Delivery performance
Shipping performance
Distribution cost performance
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We need to find out the root causes for under performance for each metric independently.
Once this is done, then each identified root cause has set course of action. Lets analyze
delivery performance
DELIVERY PERFORMANCE ROOT CAUSE
Week scheduling, carrier selection and discipline are identified as issues.
COURSE OF ACTION
Parcel shipping systems or preparing shipment, rating and tracking.
For truckload, TL and less than truckload, LTL shipments, a truck management
system or TMS simplifies mode and carrier selection scheduling and in transit
tracking
SHIPPING ERROR ROOT CAUSE
Loading and carrier errors
Product identification
COURSE OF ACTION
Shipping errors can be minimized by implementation of Automatic Identification and
Data Capture or AIDC and Warehouse Management System or WMS
Outbound shipments must be RFID tagged and/or bar coded to facilitate internal and
eternal tracking.
DISTRIBUTION COST ROOT CAUSE
Ill planned logistics shipping.
COURSE OF ACTION
Locate facilities strategically.
TMS can reduce costs
A certain location may offer lower operating and labor costs.

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CONCLUSION
The best supply chain performers of the past many years have understood that there are
different portfolios of metrics for different objectives and levels. They know and judge that
there has to be tight alignment across all these levels.

At the first level, supply chain executives need only a small number of metrics for
informational purposes and to assess the overall performance of their supply chains. In the
second tier are the mid-level, cross-supply chain metrics that allow managers to analyze the
performance of the end-to-end supply chain and make tradeoff decisions. The third level
contains the detailed functional-specific metrics such as procurement, manufacturing, and
logistics, allowing deeper root cause analysis and correction.
But what really makes a difference is to know how to align all the levels. To know and
understand that the goal of the supply chain is not just to have high efficiencies or high
responsiveness is also very important. The goal of the supply chain is a profitable perfect
order, balancing service with end-to-end cost.

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References:
SUPPLY CHAIN MANAGEMENT REVIEW
PEPSICO GRI AND ANNUAL REPORT 2013
GARNTNER
TRANSYSTEMS
RIAZ BOTTLERS

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