PepsiCo's Supply Chain Management Strategy

This assignment analyzes PepsiCo's supply chain management strategy. It evaluates the company's current practices, highlighting their strengths and weaknesses in areas like distribution, sourcing, and sustainability. The analysis also identifies potential challenges and provides recommendations to further enhance PepsiCo's supply chain performance and maintain its competitive advantage.

RUNNING HEAD: Supply Chain Management
Supply Chain Management

Supply Chain Management 1
Contents
Introduction......................................................................................................................................2
Analysis of the Key Flows in the Supply Chain of Pepsi................................................................2
Product Flow................................................................................................................................2
Cash Flow....................................................................................................................................4
Information Flow.........................................................................................................................4
Return Flow..................................................................................................................................4
Recommendations........................................................................................................................4
The Make Process of Pepsi..............................................................................................................5
Long term capacity planning........................................................................................................5
Medium term Aggregate Planning...............................................................................................5
Short Term Planning (MPS & MRP)...........................................................................................5
Very Short Term Plans.................................................................................................................6
The Supply Chain Forecasting.........................................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................9

Supply Chain Management 2
Introduction
Supply Chain Management can be defined as the proper organization of the entire system of
interrelated businesses which are engaged in the movement of products and services from the
point where they are originated to the point where they are consumed (Cetinkaya, et. al., 2011).
This assignment will discuss about PepsiCo, Inc. as the international corporation having its
headquarters situated in Purchase, New York. PepsiCo also produces a variety of snacks and
food items like Lay’s, Cheetos, Fritos Corn chips and many more but its top selling product is
Pepsi.
The recipe for the soft drink Pepsi was developed for the first time in the 1880s and then was
given the name “Pepsi-Cola” in the year 1898 (PepsiCo, 2017).Slowly and gradually, its product
lines expanded with the introduction of Diet Pepsi and acquisition of Mountain Dew. Later on,
the Pepsi-Cola Company decided to merge with Frito Lay, Inc. and resulted in PepsiCo, Inc. in
the year 1965.
As a supply chain manager of PepsiCo, Inc., the deep analysis provides an overview of the
various processes followed within the supply chain of the organization. The main product of the
organization is Pepsi and therefore its productivity, quality and efficiency of the operations are
analyzed in the following report (Zucchi, 2015). Moreover, some recommendations have been
made for making some alterations in the processes which are currently followed for the purpose
of betterment.
Analysis of the Key Flows in the Supply Chain of Pepsi
The supply chain management is concerned with the management of all the flows that are
essential for the movement of goods from the manufacturer to the ultimate consumer. There are
four important flows in the supply chain of Pepsi - product flow, cash flow, information flow and
return flow (Coyle,et.al., 2012).
Product Flow
The product flow of Pepsi consists of a supplier, manufacturer, distributer, wholesaler, retailer
and the consumer (Schutt, 2004).

Supply Chain Management 3
Supplier- The raw materials used in the production of Pepsi includes carbonated water, sugar,
citric acid, flavorings, additives, emulsions, etc. These are supplied to PepsiCo by 1st tier (third
party suppliers) and 2nd tier suppliers accordingly. Some ingredients are also arranged by the
company from the other companies or nearest locations in order to reduce the costs.
Manufacturer- The next step is concerned with the delivering of the ingredients to the
manufacturer and the starting of the manufacturing process. Some bottling plants are owned by
PepsiCo themselves while some are provided authority by PepsiCo for the manufacturing of
finished beverages. The raw materials such as glass, silica and aluminum are utilized for the
purpose of manufacturing of bottles in which the drinks are bottled after production. They are
then directed towards the warehouse so that the further dissemination of the bottles can be
initiated.
Warehouse and Distribution- The drinks are then delivered to the warehouses. For the purpose of
distribution of its products in the market, PepsiCo follows a three channel process- direct store
delivery, third party distributer networks and customer warehouse (Bailey, 2014).
Wholesalers and Retailers- The distributers further distribute the stock available with them to the
wholesalers and suppliers operating in different regions of the country.
Customer- The drinks then reaches the consumers residing in the different parts of the country
through the supply from these wholesalers and retailers.

Supply Chain Management 4
Cash Flow
The Cash flow is concerned about the financial flows of the organization from the customers
towards the suppliers of raw materials after the setting off of various expenses involved in the
process (Li, Chen & Wang, 2011). Here the money flows upwards along the supply chain from
the customer after the deduction of their margin towards PepsiCo which is then utilized for the
purpose of setting off of the dues of the raw material suppliers.
Information Flow
Information flow is key element in the process of supply chain as the product flow is possible
only after information flow takes place. The inside information of PepsiCo is transmitted among
the various representatives, executives, managers and officials for proper decision making.
Moreover, proper flow of information is maintained among the suppliers, manufacturers and
retailers regarding the order, forecasts and demand of the product. The customers are provided
information regarding the product and various offers by the way of marketing and
advertisements on radio, television, newspapers, banners, pamphlets and many other ways.
Return Flow
Return flow in case of PepsiCo consists of returning of the bottles back to the company (New &
Westbrook, 2004).The empty bottles are returned back to PepsiCo by the retailers which are
picked by the secondary trucks from them. These empty bottles are carried further by the primary
trucks towards the bottling plant for the purpose of cleaning so that they can be reused.
Recommendations
The analysis of the key flows of supply chain of PepsiCo results in the conclusion that the
organization follows well-defined processes in terms of the production of their products. But
some improvements are still recommended in some areas for the achievement of better results.
The sales of almost every soft drink company nowadays are reducing at a significant rate due to
the increasing consciousness and awareness among the consumers for their health. Moreover, the
excessive use of pesticides and harmful components used in Pepsi for the preservation of the
product has become a serious threat for the health of its customers. Therefore, standardization of
quality is strongly recommended in the manufacturing of the products by PepsiCo. Moreover, the
company must also provide proper instructions on the plastic bottles regarding its disposal so that
some steps can be initiated towards the protection of environment.

Supply Chain Management 5
The Make Process of Pepsi
Long term capacity planning- Pepsi engages in the yearly forecasts for the next 5 to 10 years
on the basis of probable yearly growth rate of the products and these expected quantities are
compared with the existing capacity planning. This is done in order to meet the demands for the
products and accordingly launch new products in the market such the revenue for the company
can be increased.
Medium term Aggregate Planning- The process for aggregate planning involves the estimation
of the total quantity required on a monthly basis of all the sizes in which Pepsi is available.
Accordingly, the hiring and working hours of the workers are adjusted to meet the requirements
of production.
Since the customers prefer soft-drinks mostly in summers, Pepsi is a seasonal product.
Therefore, chase strategy can be adopted where the production department makes adjustments in
its capacity to meet customer’s demands by adopting the some reactive alternatives. Some
adjustments in the workforce can be made such that the employees are hired on contract basis in
peak seasons i.e. summers and are fired in slack seasons. Some incentives for vacations can be
provided during the slack seasons. Moreover, there is no requirement for overtime during the
slack seasons.

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Short Term Planning (MPS & MRP) - After PepsiCo makes the decision regarding the
monthly production level, its disaggregation is made in the Stock Keeping Units and Distribution
level so that the production can be made as per the selling units. The warehousing space and
manpower is managed in accordance with the demand. The demand and supply planners agree
upon the part quantity and schedule receipt date at the Distribution Centre. This is the Master
Production Schedule (MPS) of PepsiCo. It is a statement regarding the no. of units to be
produced along with the manner and time of production (Kerzner, 2009). The MPSs are prepared
on weekly basis.
The raw materials are specified on the Bill of Materials (BOM) along with the packing
items required to produce one unit. The BOM includes the end item as a case of bottle, the
intermediate and sub-assembly items such as bottles and syrups along with the purchased tem i.e.
raw material.
PepsiCo orders the required quantities of raw materials after variable periods of time.
After the calculation, the purchase orders are placed to the suppliers on the basis of lead time.
Lead time is the time taken by the suppliers in order to produce and deliver the required raw
materials to the Pepsi plant. Sugar is the item with high lead time while carbon dioxide is the
item with lowest lead time. This is the Master Requirement Plan (MRP) of Pepsi.
Very Short Term Plans- Comparison of the output with the plans made by Pepsi is made such
that the day to day production activities can be easily monitored for production control.
The Supply Chain Forecasting
Forecasting is essential for every organization for the purpose of estimating the future sales by
considering various factors affecting the demand of the products (Michael, 2011). PepsiCo can
make the use of both qualitative and quantitative methods of forecasting so that the results can be
analyzed and appropriate changes in the processes can be initiated with further decision making
in this regard.

Supply Chain Management 7
As far as qualitative forecasting is concerned, PepsiCo should go for “intention surveys” so that
subjective opinions can be obtained regarding the products. Moreover, such surveys will help the
organization in determining the changes in taste of the customers over the period of time and will
enable them to meet the demands after making the necessary alterations. These surveys can be
performed by the way of three methods- expert opinion’s poll (opinion of experts or sales
representatives regarding the perception of the customers regarding various products), Delphi
method (opinion of group of experts regarding the expected future demand of a product) and
market experiment method (consumer behavior is studied so that information can be collected
regarding future demand) (Arlbjorn, 2010).
The time series forecasting can also be used as the quantitative method of forecasting in which
historical data related to the demand is analyzed for making predictions regarding the future
demand of a product (Brownlee, 2016).Time-series forecasting will allow PepsiCo to provide a
satisfaction level to customers on the basis of proper analysis of their needs and demands over
time (Time-Critical Decision Making for Business Administration, 2015). Moreover, it will
allow PepsiCo to diversify the risk in the supply chain by engaging multiple suppliers for raw
materials. Also, the forecasting method will help the company in attaining higher level of profits
by making the suitable changes for meeting customer demands.
Emerging markets and demands can be easily detected through the use of recommended
forecasting methods. Survey and time-series method will serve the purpose of qualitative and
quantitative forecasting and provide the benefit of two aspects i.e. historical data trend and
current opinion of customers.

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Conclusion
Pepsi is one of the leading soft drinks in almost every country and its credit also goes to its
effective supply chain so that continuous supply is facilitated in every part of the company
without any delay. Still improvements are recommended in some areas and processes so that the
expectations and needs of the consumers are continuously met with standardized products.
It is recommended that some changes must be made in the manufacturing process of Pepsi by the
way of innovation in taste so that the customers of other competitive brands can also be attracted
and cause an increase in its sale (Venkataraman, Summers & Venkataraman, (2017). Its
competitor Coca-Cola frequently comes up with attractive advertisements which may affect the
supply of Pepsi. Moreover, good relations with the franchisees, suppliers and distributers must be
maintained so that the supply is not hindered at any stage of the product (Gardner, 2004). Total
quality management must be emphasized with continuous meeting of quality standards along
with improved performance. At the end, it can be concluded that the processes followed by
PepsiCo has resulted in making it a leader of the beverages. The supply chain has been
effectively managed in the global market and enabled it to defeat all its competitors (Closs,
Speier & Meacham, 2011). The recommendations will allow PepsiCo to continuously hold its
position in the future and further enhance its processes and working.

Supply Chain Management 9
References
Arlbjorn, J. S. (2010). Supply Chain Management. Academica.
Bailey, S. (2014). PepsiCo’s three-channel distribution network. Retrieved November 16, 2017,
from https://finance.yahoo.com/news/pepsico-three-channel-distribution-network-
170022730.html
Brownlee, J. (2016). What Is Time Series Forecasting?. Retrieved November 16, 2017, from
https://machinelearningmastery.com/time-series-forecasting/
Cetinkaya, B., Cuthbertson, R., Ewer, G., Wissing, T. K., Piotrowicz, W. & Tyssen, C. (2011).
Sustainable Supply Chain Management: Practical Ideas for Moving Towards Best
Practice. Springer Science & Business Media.
Closs, D. J., Speier, C., & Meacham, N. (2011). Sustainability to support end-to-end value
chains: the role of supply chain management. Journal of the Academy of Marketing
Science, 39(1), 101-116.
Coyle, J. J., Langley, C. J., Novack, R. A. & Gibson, B. (2012). Supply Chain Management: A
Logistics Perspective. Cengage Learning.
Gardner, D. L. (2004). Supply Chain Vector: Methods for Linking the Execution of Global
Business Models with Financial Performance. J. Ross Publishing.
Kerzner, H. (2009). Project Management: A Systems Approach to Planning, Scheduling, and
Controlling. John Wiley & Sons.
Li, J., Chen, J. & Wang, S. (2011). Risk Management of Supply and Cash Flows in Supply
Chains. Springer Science & Business Media.
Michael, G. C. (2011). Sales Forecasting. Marketing Classics Press.
New, S. & Westbrook, R. (2004). Understanding Supply Chains: Concepts, Critiques, and
Futures. OUP Oxford.

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PepsiCo. (2017). Our History. Retrieved November 16, 2017, from
http://www.pepsico.com/company/Our-History
Schutt, J. H. (2004). Directing the Flow of Product: A Guide to Improving Supply Chain
Planning. J. Ross Publishing.
Time-Critical Decision Making for Business Administration. (2015). Time-Critical Decision
Modeling and Analysis. Retrieved November 16, 2017, from
http://home.ubalt.edu/ntsbarsh/Business-stat/stat-data/Forecast.htm
Venkataraman, S., Summers, M., & Venkataraman, S. (2017). PepsiCo: The Challenge of
Growth through Innovation. Darden Business Publishing Cases, 1-22.
Zucchi, K. (2015). Job Description & Salary: Supply Chain Management. Retrieved November
16, 2017 from
http://www.supplychain247.com/article/job_description_and_salary_supply_chain_mana
gement