PepsiCo Supply Chain, Research Paper Example

Abstract

Supply chain management is an ongoing process that must constantly be evaluated and adjusted to enable corporations to improve efficiency and decrease costs.  Currently, PepsiCo has made several adjustments to its transportation, technology and communication processes within its supply chain.  This paper seeks to evaluate these proposed changes and determine potential barriers to changes that may cause problems for the company as it ships products internationally.  Furthermore, the continued evolution of the “green” movement has sparked PepsiCo’s interest and several changes to the supply chain have been made or will be made to provide strong public relations and decrease the overall carbon footprint of the organization.  The potential increase or decrease in current costs is also analyzed for PepsiCo supply chain.

Supply Chain

Pepsi Company has made an international name for itself by selling soda brands and the famous tortilla with cheese chips brand called Doritos.  These two main products have been a staple for the company to rely on and build a sustainable future.  However, as the culture and economic outlook changes around the world, Pepsi Company has also made plans to change its future plans for the supply chain used to produce these goods.  While the company will continue to sell and be widely known for selling soda pop and unhealthy snack foods, the image of Pepsi Company is going to change over the next decade due to changes in the supply chain.  The future outlook for the company will continue to remain strong, but the company is going to enter a new era of health foods and beginning to engage in creative new ways to enter the “green” energy-efficient movement that has become extremely popular throughout the world as of late.  In addition, it appears that the Pepsi Company will seek to stray away from its major flagship brands and attempt to engage in the even larger bottling industry that its subsidiary company, Pepsi Bottling Company, is prepared to gain a large share of the market.

The nutrition industry has continued to grow and people are placing a strong importance on the healthy nature of foods as opposed to the taste, look and enjoyment of them.  Junk food has faced a downward spiral in the past decade and Pepsi Company is working to increase its share in the new healthy foods market that has gained momentum and continues to show signs of improvement.  “Currently, about 18 percent of PepsiCo’s revenue comes from the lines it considers healthier, including Tropicana, Dole, Quaker and Tazo teas. [PepsiCo CEO Indra] Nooyi wants to triple $10 billion in revenue from such brands to $30 billion by 2020” (Fredrix, 2010).  Therefore, the first element of the supply chain for PepsiCo is the Plan.  In order to change the viewpoint that the public has for the unhealthy nature of its products, the company must begin by changing the plan for the supply chain in order to emphasize the development and advancement of its more healthy products throughout the world.  Managers and quality management must seek to increase the overall production while decreasing the energy cost and carbon footprint that the supply chain maintains for producing its goods.  This may not be the easiest plan; however, as PepsiCo already has a standard process in place for producing its good in a cost-efficient manner.  Changing this process may cause problems in the implementation of the plan; nevertheless, the “green” movement is rampant throughout the world and consumers now consider the environmental impact that companies such as PepsiCo have around the world.

Another component of PepsiCo supply chain is the formal processes involved in making its products.  Just as the health craze has run rampant throughout the world, so too has the emphasis on changing from energy wasteful behaviors to more energy efficient, or “green” efforts.  Frito-Lay, another subsidiary of Pepsi Company, has taken steps to ensure that its factories and suppliers are engaging in green efforts.  Solar panel technology has been utilized to make the production of Pepsi Company products more energy efficient and has already provided the organization with an ability to be energy self-sufficient (Burn, 2007).  The implementation of solar panel technology for the supply chain has gone a long way towards showcasing the PepsiCo products as environmentally friendly and decreasing the overall carbon footprint throughout the world.  However, implementing this solar panel technology has increased production costs and company overhead that has not shown direct revenues.  Nevertheless, the PepsiCo executives maintain the green policies and can afford to take a hit on their annual revenues in 2010 to increase the popularity and public relations for the Pepsi brands around the world.

Furthermore, Pepsi Company seeks to set itself aside from the rest of the competition by increasing its share in the supply chain bottling.  Currently, the Pepsi Bottling Company holds 55% of the entire company’s total gross profit (FoodProductionDaily.com, 2002).  Now, reports have come about that the Pepsi Company is seeking to purchase its two greatest competitors in the bottling industry in a $6 billion deal (Mitchell, 2009).  This greatly changes the supply chain as the bottling and supply resources will be coming directly from PepsiCo’s own subsidiaries through this international acquisition.  The company is working to continue to build upon its flagship brands by engaging in purchasing behaviors and economic trends to increase its total market share in the international bottling industry.  This will place Pepsi Company and its subsidiaries with a strong economic power position and should be able to control costs and bottling prices by gaining a large share in the industry that borders on becoming a monopoly.  In the end, by decreasing the cost of third-party vendors for supply resources, PepsiCo will be able to appeal to the general public by offering lower prices on the same popular products it already produces.  The only drawback to this component of the supply chain is the immediate costs in acquiring the current competitors; however, this is a cost that will only improve the supply chain efficiency and decrease overall production costs for PepsiCo for the long run.

While the benefits of purchasing competitors and increasing its stake in the bottling processes for its current products, PepsiCo is able to accomplish greater successes in the supply chain than simply decreasing supply costs.  The remaining elements of the supply chain that are worthy of great consideration are the transportation costs and communication efficiency that is available to PepsiCo production plants with these excellent supply chain acquisitions.  The $6 billion deal in acquiring the bottling competitors will decrease the costs in paying for shipping and transportation expenses that are currently incurred through paying for third-party vendors (Mitchell, 2009).  This has multiple benefits as the supply chain information systems and communication will be controlled by PepsiCo; therefore, there will be fewer delays and errors in shipments.  Oftentimes, many of the supply chain errors come in shipping inefficiencies, which will be decreased greatly by this change in the PepsiCo supply chain.  Finally, many third-party vendors must charge higher rates to adjust for the direct fuel costs for transporting shipments to its client companies.  Now, PepsiCo will be able to decrease its transportation costs as it will handle its own fuel expenses.  While this will prove to be an increase in current transportation costs, the expected savings from eliminating third-party vendors will enable PepsiCo’s supply chain to be more efficient and cost-effective.

In the end, supply chain management can have a great impact on the overall appearance, effectiveness and efficiency of the production and transportation processes for a company.  PepsiCo provides products to thousands of countries throughout the world and the benefits of the aforementioned supply chain changes are important to take into consideration.  Not only will the company be able to decrease its shipping and transportation costs, but the corporation will also be able to improve its overall appearance throughout the world as an environmentally friendly production company.  Through advancing the technology and communication processes within the supply chain, PepsiCo will reap greater benefits than its current layout.  However, none of this would be possible without the constant self-analysis of the supply chain and being able to effectively adjust the supply chain plan.

References

Burn, D. (2007) “PepsiCo Charts Path To Sustainable Future – Advertising and Marketing Blog – AdPulp.com.” AdPulp: Daily Juice from the Ad Biz. http://www.adpulp.com/archives/2007/11/pepsico_charts.php

FoodProductionDaily.com. (2002) “Pepsi Bottling Report Paints Bright Future.” Food Production Daily Food Processing & Packaging Materials (food Equipment, Processing Machinery, Packaging Materials for Food Processors). http://www.foodproductiondaily.com/Processing/Pepsi-Bottling-report-paints-bright-future

Fredrix, E. (2010) “PepsiCo Aims for a Healthier Future: Seeks Bigger Share of Health Food Market over next 10 Years.” The Buffalo News. http://www.buffalonews.com/2010/03/23/996469/pepsico-aims-for-a-healthier-future.html

Mitchell, D. (2009) “Pepsi Giving Up Soda?” The Big Money. http://www.thebigmoney.com/blogs/daily-bread/2009/04/20/pepsi-moves-seize-its-supply-chain