Tuesday, September 25, 2012

Going Lean and Green: The Coke Way

This speech by Rick Frazier, VP-Supply Chain at the Coca-Cola Company, got me intrigued. The first thing that caught my eye was the sheer size of their supply chain in monetary terms. Ok, I knew it would be big but I did not know it would be THIS BIG - $64 billion! Apparently, they have introduced a vision 2020 which includes revamping their supply chain in a big way.

First of all, let’s talk about the lean. They want to move to a more responsive Demand-Driven Supply Chain. In my previous blog post, I’d spoken in detail about this and about the main components needed for this type of supply chain to optimally work. I’m sure Coke must have, if it did not already have, put in place a solid information sharing platform throughout its supply chain. This includes all the stakeholders – the large players, the small players and the local players.

Considering the magnitude of the scale of operations, it isn’t surprising to see them having implemented many lean strategies already to cut costs related to inventory management. How can they go leaner then? First of all, in a significant change, Rick talks about moving from a “push” to a “pull” system. This surely means that they’re getting good PoS data, easily sharing it (or soon planning to) throughout their supply chain and have tried, tested and approved various demand forecasting models. The challenge, I think, would be for them to incorporate these changes keeping in mind the diversity of their product portfolio and the subsequent actions needed to alter the complex supply chains. Also, their breakup of different branches[i], in terms of work function and information sharing, makes a lot of sense in order to keep their competitive advantage intact (which is, not surprisingly, one of the strategic objectives they want to achieve using this new system).

Now, the green. Coke had introduced a new kind of PET bottle which was sourcing 30% of its raw materials from sugarcane-based products as opposed to oil-based products. 

This meant that it could lower its carbon footprint in the PET bottle production by up to 25%. Also, through its wholly owned subsidiary – Coca-Cola Recycling – it has invested more than $300 million in huge recycling plants in major countries of operation. It has not only increased the recycling ability of the supply chain (automatically making it green), it also has concentrated on the most critical component of its operation – water. This is important not only to improve its image but also, in some countries with low water tables, to be able to continue production. Reducing water inefficiencies throughout the supply chain to a target of 20% by 2020 (at 2004 baseline) is their top priority in this area. I think that having additional things like zero waste in all their promotion and packaging materials would add value if they’re serious about this initiative.

This brings me to a few interesting questions that I’d like to know your thoughts on:
1.       How can Coke forecast for hidden costs associated with these lean and green initiatives?
2.       What more can it do in countries where the water table is precarious?
3.       What pressures this places on competitors (read Pepsi) and their suppliers if this system turns out to be impactful and cost-effective? What if it goes the other way?

[i] Slide 43. “Cola-Cola: Lean, Green and Love”. Web. Accessed 9/25/12. <http://gartner.mediasite.com/Mediasite/Play/2835c59b281e4c50a809ec0899d96d3a1d >

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