Monday, November 17, 2014

Pepsico - What Supply Chain Model made it grab the Supply Chain Innovation Award

Not long ago, Pepsico won the Supply Chain Innovation award. So what did it do differently? What was so ground breaking about the supply chain network it established and how did it help PepsiCo realize fiscal profits from it? Let’s take a closer look at it.
Firstly, after completion of mergers with Pepsi Bottling Group and PepsiAmericas. PBC – Pepsico Beverages Company came into the being and they were set to change the landscape of their supply chain network to gain more profits and save costs related to storage and handling of the products – bottles.
The executives came to the realization that with product addition in the order of millions every day, the warehouse and distribution centers were reaching their maximum capacity, the only way to turn the situation around was to find a way to source the products out without having to store them for an intermediary time. They decided to implement a direct to store delivery transformation initiative. They benefits they realized from the network model are as follows.
1.      It provided more unlimited SKU growth and also resulted in breakthrough warehouse cost savings.
2.      They initiated a new case picking order fulfillment strategy that combined the utility of the existing order management tools. The automation moved 85 % of the processing to satellite based systems .

 “A typical PBC distribution zones consist of a large manufacturing plant or a distribution warehouse that sends product to five to eight satellite warehouses facilities within a driving distance of 165 miles. Before selecting the zone in Tampa, Florida, PBC assessed 18 different zones to ensure the optimization.”[1]
3. The benefit also extended to the people perspective, where better inventory management translated to easier handling of the products while unloading and stocking in the store. The better designed pallets ensured the stacking in truck could be easily moved in carts and placed in stores directly. This went easier on workers backs and resulted in lesser medical compensations , which in turn reduced costs.

This strategy though very simple resulted in reducing costs in the potential bleeder zones for pricing. Direct to store model resulted in success quickly became a research for most of us to investigate. But the essence here is to understand, this worked for Pepsi at the current time frame, it certainly raises questions for the future.

Is this sustainable in the long run ? Will the profit margin continue being large and how soon will this innovation in supply chain need to be replaced for the sake of competitors who can ape a similar model.

Keep a close eye price and brand wars of Cola and we will soon find out , whether this strategy was for the long run or like most innovations just a competitive edge for the short run.



[1] 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/
Westfalia Technologies, www.westfaliausa.com
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Lightning Pick, www.lightningpick.com

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