Supply Chain Management of PepsiCo

Supply Chain Management of PepsiCo

By: Austin Scheid & Chuansu Tan

In 1965, PepsiCo, Inc. was established through the merger of Pepsi-Cola and Frito-Lay. Today, it is a food and beverage leader in the worldwide. PepsiCo has 22 brands and each one has produced more than $1 billion in estimated annual retail sales, and has earned $65 billion in net revenue in 2012. It also has provided more than 250,000 jobs around the world. Brands like Pepsi, Mountain Dew, and Sierra Mist, are just a few of the products that are sold in more than 200 countries and territories. PepsiCo is still looking forward to becoming a more competitive company even though “PepsiCo is already one of the world’s most popular food and beverage companies” (PepsiCo).

What is unique about PepsiCo’s supply chain is that they use “direct store delivery” (MH&L). The key point of direct store delivery is to “diminish the step in warehousing by trying to get a high-turnover, high-volume in perishable goods such as soft drinks and other snacks into the market” (MH&L). So, what PepsiCo does is they have their suppliers take their products straight to the store. With direct store delivery suppliers, it “frees up warehouse space for retailers, and allows them to have better control on product sales and inventories” (MH&L).  

PepsiCo’s direct store delivery approach has cut cost in the inventory system-wide. The benefits to this approach has cut “direct labor costs in the warehouse by 40 percent, network inventory has been cut by a third, and transport trailer loading productivity has “increased by up to 58 percent.  Delivery productivity has been able to increase by 15 % with more than a 25 % internal rate of return” (SupplyChainBrain).

According to “Supply Chain Index” a case study was done between PepsiCo’s and Coca-Cola’s beverage industries. The case study was done over a twelve year period and looked at the company's Gross Margin and Cash-to-Cash Cycle. The study started in 2000 and ended in 2011 and the data was recorded in a chart. Over the twelve year period PepsiCo stays quite consistent even during the troubling economic times, while on the other hand, Coca-Cola’s Cash-to-Cash Cycle shows large fluctuations during the time. At the end of the twelve year period PepsiCo comes out as a winner because “consistency plays such an important role in supply chain” and PepsiCo “displays such small differences in movement during the period” (Supply Chain Index). 

Another way that makes PepsiCo’s supply chain unique is the way it packages their products. Over the past five years, PepsiCo has reduced the packaging weight of it’s products by more than 350 million pounds. “Over last 5 years the packing weight that PepsiCo has been able to get rid of, is equivalent to avoiding 95 tons of packing everyday” (PepsiCo). This has allowed PepsiCo to save money on the cost of materials that goes into producing and shipping products. After cutting the amount of material that PepsiCo uses to package it’s products, PepsiCo uses a “sustainable stretch wrap system that also reduces waste material. This way of bundling its products has helped guarantee the correct transfer and delivery of products, which reduces the waste by 70%, and cutting costs by 5%. It also cuts down the amount of warehouse space needed” (PepsiCo).

At PepsiCo, they “strive for the “5 Rs” - to reduce, recycle, use renewable sources, remove environmentally sensitive materials and promote the reuse of packaging in the entire process of packaging selection, design and procurement” (PepsiCo).  One of PepsiCo’s brand, “Mountain Dew” has teamed up with “Burton,” a winter sports apparel and action sports company, and has worked together on making t-shirts and even men’s and women’s jackets and pants out of recycled bottles. The t-shirts, pants and jackets are made from “50 percent recycled plastic bottles and 50 percent organic cotton” (PepsiCo). 

When PepsiCo makesit products, just like other companies, it uses a lot of water for manufacturing. PepsiCo optimizes its water use with great care and efficiency. With new innovative processes and new technologies, PepsiCo “has made great strides in reducing its water use in their direct operations” (PepsiCo). By being able to “improve global operational water-use by 20 percent” and from the improvements PepsiCo has made in efficiency, PepsiCo was able to save “nearly 14 million liters of water in 2012 and saved more than $15 million in water costs” (PepsiCo).  PepsiCo’s food industry in “Funza, Columbia” is a prime example of how PepsiCo is “implementing innovative solutions to conserve water” (PepsiCo). The plant in Funza is able to “reuse 75 percent of the water entering the plant while conserving nearly 90 million liters through a high efficiency water reclamation system” (Pepsico).

Additional Information

Conserving water at PepsiCo’s Funza, Columbia Facility
https://www.youtube.com/watch?v=FFpyMaVqf5Y

Case study chart (picture 5)
http://supplychainindex.com/wp-content/uploads/2012/09/Picture5.jpg

Reference

10 Best Supply Chains
http://mhlnews.com/transportation-amp-distribution/10-best-supply-chains

PepsiCo Official Website
http://www.pepsico.com/Company

Direct-to-Store Model Delivers Top-Line Benefits to Pepsi Beverages
http://www.supplychainbrain.com/content/research-analysis/supply-chain-innovators/single-article-page/article/direct-to-store-model-delivers-top-line-benefits-to-pepsi-beverages-1/

Case Study in the Beverage Industry
 http://supplychainindex.com/a-case-study-in-the-beverage-industry/