Supply Chain Performance Final Project
Supply Chain Performance Final Project
Supply Chain Performance Final Project
SUBMITTED
TO:MR HARIS ASLAM
STUDENT ID:13048005-030
DONE
BY: SALMAN
ASADASLAM
SUBMITTED
TO:MR AHARIS
STUDENT ID:13048005-030
PRODUCT INNOVATION............................................................................16
DEMAND VARIATIONS.............................................................................. 16
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OUTPUT............................................................................................................ 17
SALES...................................................................................................... 17
ON TIME DELIVERIES............................................................................... 17
SHIPPING ERRORS................................................................................... 17
RESOURCES...................................................................................................... 18
MANUFACTURING 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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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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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:
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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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:
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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:
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MARKETS SUPPLIED
Key markets supplied from Lahore are Lahore city, its outskirts and Kasur.
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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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36 40 million cases
CUSTOMIZATION
LEAD TIME
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
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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.
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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
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.
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.
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.
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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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.
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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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