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Scm project.pdf
1. A SUPPLY CHAIN MANAGEMENT REPORT
ON
COMPARATIVE STUDY OF THE SUPPLY CHAIN OF PEPSICO
AND COCA COLA
SUBMITTED TO
Dr. J. PRINCE VIJAI
ASSISTANT PROFESSOR, OPERATIONS & IT AREA
IBS HYDERABAD
SUBMITTED BY
GROUP-7
NAME ENROLLMENT NUMBER
Shubham Gupta 20BSPHH01C1563
Pavan Bhatia 20BSPHH01C0835
Mohammed Abdullah Afridi 20BSPHH01C0707
2. DECLARATION
This project report has been submitted as part of partial fulfillment of the MBA
program (2020- 2022) of ICFAI Business School, Hyderabad. The information
presented in the report is a true research result of ours and we acknowledge it to
present in the report in full discretion. We have taken help from different research
articles, journal papers and website articles for preparation of the project report.
Dated: 14/09/2021
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3. ACKNOWLEDGMENT
It's our great pleasure and privilege to express our sincere gratitude to Dr. J. Prince Vijai
who has very kindly guided and supported us. We are grateful for his constant
encouragement and inspiration which very much helped us during the preparation of this
project.
We would also like to extend our significant gratitude to “IBS Hyderabad” for expanding
this opportunity and giving each and every imperative resource required.
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4. TABLE OF CONTENTS
Sr No. Topic Page no.
1 Introduction 4
2 Supply chain of soft drink Industry 5
3 About Coca-Cola 6
4 About PepsiCo 7
5 Problem identification in supply chains of
Coca-Cola and PepsiCo
9
6 Comparative Performance Analysis of
Coca-Cola and PepsiCo
10
7 Managerial Solutions 12
8 Performance Improvement Suggestions 13
9 References 14
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5. 1. INTRODUCTION
Supply chain management is the process of controlling materials, information and finances as
they move through different stages from procuring raw materials for the product to sale of the
product i.e through supplier to manufacturer to wholesaler to retailer and finally to consumer.
The three major flows of the supply chain consist of product flow, information flow and finance
flow. These three flows occur in three main stages that are strategy, planning and operation
stages. Supply chain includes managing all these flows within the company and also among the
partners of the supply chain
Supply chain management is an endless process that involves planning, implementing and
executing the core supply chain elements with an ultimate aim to satisfy the customers to the
fullest.
Core Elements of supply chain:
There are many supply chain models like continuous model, Agile model, Fast chain model,
flexible model etc. All these supply chain models focus on two factors, They are responsiveness
and efficiency of the supply chain. Responsive supply chain model prioritises satisfying
customer requirements over any other parameter whereas Efficient supply chain prioritises
efficient use of resources and reducing the operational cost above all other parameters.
For example, when a company’s main business is delivering grocery products, they have to
prioritize customers' needs first and also the shelf life of grocery products is less, the company is
expected to deliver the product quickly. In this case the company follows a responsive supply
chain over an efficient supply chain. Likewise, every company follows the supply chain model
that suits them best.
In this report, the supply chains of two beverage companies Coca-Cola and PepsiCo are studied,
learned the problems in their supply chains and how they are affecting the companies, a
comparative analysis of both companies supply chain will be done and in the end, the solutions
that can improve the performance of the supply chains of both companies will be proposed.
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6. 2. SUPPLY CHAIN OF SOFT DRINK INDUSTRY
India has a 50 billion rupee soft drink industry that is growing at a rate of 6-7% annually. It is a
huge industry with more than 20 companies competing for market share. It has around 110 soft
drink producing units that are divided into two segments of the markets, cola and non cola
drinks. The cola segment alone has a market share of 62% and the rest is the non cola segment
that includes soda, clear lime and flavoured drinks.
There are two methods in which a soft drinks company produces their products. The first way is
the company directly sells the finished products that are made by the company's own bottling
plant and sell those products to retailers through distributors. The second way is that companies
sell their soft drink concentrate and syrups to bottling plants where the finished product is made
by combining concentrate with carbonated water. The drink is then packed and distributed to
outbound logistics partners for sale.
There has been a constant increase in stock keeping units and this increase has been straining the
supply chain’s capacity. The soft drink business constantly produces logistical challenges for the
company as it includes seasonal demand fluctuations, requirement of temperature control
equipment, specialised packing as the products are fragile and heavy loads of shipments that are
causing trucks to load out quickly. In these ways, manufacturers, distributors and retailers are
facing distribution challenges.
Solution for this problem is that the soft drink companies need to reprofile their warehouses as
having a wider variety of SKUs limits the important floor space of the distribution center. Also
breaking down cases becomes more costly, extra labour hours are required, carries risk of
breakage of products and there is a constant requirement of replenishing pick faces.
These challenges are making soft drink companies to automate the supply chain fromprocess like
forecasting to last mile delivery through transportation and warehousing. The companies are
developing forecasting tools that can be used to manage production schedules more efficiently.
The soft drink companies are using communication, collaboration, forecasting and trust all
strategies to improve the efficiency of the supply chain. Increasing transportation costs are
forcing the companies to concentrate more on scrutinizing their transport operations and improve
the transport management system to provide better visibility, control the cost incurred and to
provide best efficient routing for inbound and outbound packages.
Some soft drink companies are connecting their forecasting and transportation systems to
transport the product directly to retailers from the production unit bypassing the distribution part
entirely.
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7. 3. ABOUT COCA-COLA
The Coca-Cola Company is an American multinational beverage corporation headquartered in
Atlanta, Georgia and formed under Delaware's General Corporation Law. Nonalcoholic beverage
concentrates and syrups, as well as alcoholic beverages, are manufactured, retailed, and marketed
by the Coca-Cola Company. Coca-Cola, the sweet drink for which the corporation is best known,
was created in 1886 by pharmacist John Stith Pemberton. Since 1889, the corporation has run a
franchised distribution system. The company primarily makes syrup concentrate, which is then
distributed to various bottlers with exclusive territories across the world.
3.1 SUPPLY CHAIN PROCESS OF COCA-COLA
Coca-Cola beverages go through the following destinations in their journey:
● Manufacturer
● Distributor
● Retailer
● Consumer
Workflow of Coca-Cola supply chain
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8. ● The Coca-Cola Company headquarters in Atlanta manufacture the concentrated
syrup and sell it to Coca-Cola Enterprises (CCE) or another bottling partner, which
is responsible for selling the product in North America and Canada.
● The syrup is sent to a production plant, where it is combined with other ingredients
including purified water and sweeteners. The bottler then packages and distributes
the finished product to retail partners (stores, restaurants, vending machines, etc.)
● The Coca-Cola Export Corporation (TCCEC) works with local bottlers all over the
world to distribute the beverage to the appropriate markets.
Logistics
Logistics is an integral part of any supply chain, and Coca-Cola’s logistics expertise definitely
contributes to its supply chain success. Here are some of the logistics-related best practices
implemented by Coca-Cola:
● Manufacturing products on a more frequent basis, e.g. once a week
● Implementing weekly meetings between the teams worldwide
● Moving the production plants closer to customers
● Introducing daily interaction between the main sites
● Introducing seamless processes that are shared between all supply chain participants
4. ABOUT PEPSICO
PepsiCo, Inc. is a worldwide food, snack, and beverage firm based in Harrison, New York, in the
Purchase borough. PepsiCo's operations span the entire food and beverage industry. It is in
charge of product manufacture, distribution, and marketing. In 1965, the Pepsi-Cola Company
and Frito-Lay, Inc. merged to establish PepsiCo. PepsiCo has subsequently grown from its
namesake beverage, Pepsi Cola, to a vast array of food and beverage businesses. Tropicana
Products in 1998 and the Quaker Oats Company in 2001, which added the Gatorade brand to the
Pepsi portfolio, were the two largest and most recent acquisitions.
4.1 SUPPLY CHAIN PROCESS OF PEPSICO.
PepsiCo's supply chain management had been based on the idea of collaboration and integration.
The company took several initiatives to have a more collaborative and integrated supply chain,
which would become a source of competitive advantage.
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9. Procurement of raw materials
The raw materials used in manufacturing PepsiCo's beverage and food products were: apple,
pineapple juice and other fruit juice concentrates, corn, aspartame, corn sweeteners, flour,
flavoring, grapefruits, oats, oranges, rice potatoes, sucralose, sugar, vegetable and other oils, and
wheat. Raw materials also included packaging material — plastic resins such as polyethylene
terephthalate and polypropylene resin used for plastic beverage bottles, film packaging for snack
foods, aluminum for cans, and also fuels and natural gases.
Manufacturing Operations
When PepsiCo noticed that production flow was not smooth due to frequent equipment
breakdowns and mismanaged inventory, it implemented a variety of technologies at its
manufacturing site. At PepsiCo plants, production began with the conveyor unloading of empty
bottles from trucks and moving them to the depalletizer.
Distribution network and Logistic Management
Depending on product qualities, local trade customs, and customer needs, PepsiCo used several
distribution tactics to get its products to market. From its manufacturing plant and warehouses to
client warehouses and retail locations, it supplied fragile and perishable products that were less
likely to be impulse purchases. PepsiCo distributed its snacks, foods, and beverages to
restaurants, schools, stadiums, workplaces, and other locations through third-party food services
and vending distributors.
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10. Pepsico’s relationship with retailers
PepsiCo also improved its supply chain by working with its retailers in a collaborative manner.
One example was its retail partnership with Wegmans. PepsiCo approached Wegman's with a
proposition for the Frito-Lay brand, which had a two-fifths share of the global market for salty
snacks and PepsiCo products.
5. PROBLEMS IDENTIFICATION IN SUPPLY CHAIN OF
COCA-COLAAND PEPSICO
CHALLENGE 1: GAPS IN DEMAND AND SUPPLY
One of the two big challenges faced by Pepsi as well as Coca Cola is the gap in supply and
demand. This is mainly a result of lack of presence in the market and its heavy reliance on
outsourced distribution. When a corporation fails to meet demand through distribution, there are
demand gaps in the supply chain. In the instance of Pepsi Cola International, an entire rural
segment of customers is left out of distribution, demonstrating the supply chain's lack of focus on
customer service. Ignoring the rural consumers may be a disaster for both the companies in terms
of losing out on access to a larger market share in the country.
CHALLENGE 2: CHANNEL CONFLICT
Channel conflict is another big challenge faced by Pepsi and Coca Cola in the Country. It is the
result of the high level of interdependence in the supply chain between different parties and
channels and the lack of power and control exercised by them in the supply chain.There are
various cut sellers involved in the supply chain which creates the channel conflict between the
company and the distributors as well as the wholesalers.Also the involvement of cut sellers as
well as supermarkets who sell at a cheaper price creates a rift between the companies and the
retailers as customers prefer these sellers over the retailers. This is a challenge; it is partly the
result of carelessness on the part of them for outsourcing the supply chain entirely and showing
no sign of taking authority and control of any part of the marketing channel.
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11. 6. COMPARATIVE PERFORMANCE ANALYSIS OF OF COCA-COLA
AND PEPSICO
METRIC COCA-COLA PEPSICO
ROE 36.42% 52.54%
ROA 9.94% 8.45%
ROFL 26.47% 44.09%
Profit Margin 26.30% 11.16%
Asset Turnover 0.37818457 0.757356
APT 1.20529385 1.622958
ART 10.5006361 8.373632
INVT 4.11298224 7.621524
PPET 3.06337571 3.293182
C2C -0.49130828 -0.36553
SG&A/REVENUE 29.48% 40.49%
The above table is calculated by taking values from annual reports 2020 of the respective
companies.
Return on Equity(ROE) shows how much returns did the shareholders get from their investment.
From the view of shareholders ROE basically shows the performance of the company. The ROE
of PepsiCo (52.54%) is greater than the ROE of Coca-Cola (36.42%). Thus we can say that
PepiCo has performed better than Coca-Cola in 2020 .
Return on assets show how much returns did the company generate while investing in assets. The
coca cola (9.94%) has generated more returns on assets when compared to pepsico (8.45%).
Return on financial leverage shows the amount of ROE accounted to financial leverage of the
company. Both cocalola’s and pepsico’s financial leverage came from accounts payables, not
from debts.
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12. In 2020, Coca-Cola had an accounts payable turnover (APT) of 1.205, whereas Pepsico had APT
of 1.622. When converting these values into weeks, we can see that Coca cola was able to use
the money it owed to suppliers to finance its operations for about 52/1.205= 43.15 weeks
whereas pepsico financed it for 52/1.622= 32.05 weeks. In this regard we can say that coca cola
was able to manage better when compared to pepsico.
Coca cola was able to achieve a higher profit margin than Pepsico while the asset turnover ratio
of pepsico was greater than that of coca cola. Profit margin can be increased by decreasing the
expenses incurred in the supply chain. We can say that coca cola managed its supply chain better
than pepsico in terms of cost occurring in the supply chain.
Coca Cola was able to collect the money from sales quicker with Asset Receivable Turnover
(ART) of 10.50 when compared to PepsiCo, which had ART of 8.37. In Terms of Inventory
Turnover Ratio (INVT), PepsiCo was able to turn the inventory into sales quicker than Coca cola
(7.62 vs 4.11).
Property, plant and equipment turnover (PP&E) of Coca cola and PepsiCo had minute difference
as coca cola earned $3.06 for every dollar invested in PP&E, whereas PepsiCo earned $3.29.
Another important metric to gauge a company's supply chain is Cash to Cash cycle (C2C). C2C
measures the average time when cash enters as a cost and again returns as a collected revenue.
The C2C of Coca cola is -25.55 weeks and C2C OF PepsiCo is -18.77 weeks. Coca cola
collected the sales revenue 25.55 weeks prior to the date when it had to pay to its suppliers,
whereas PepsiCo collected sales revenue 18.77 weeks prior.
Selling, general and administrative (SG&A) is one of the major components of expense. In this
case, the pepsico had a higher SG&A cost of 40.49% for the revenue earned, whereas coca cola
had SG&A cost of 29.48% for the revenue earned.
When comparing the financial performance of both soft drink giants, the Coca Cola had an
advantage in terms of better ROA, increased profit margin, better APT and ART, reduced C2C
cycle and better management of SG&A costs, whereas PepsiCo had an advantage in better ROE
generation, improved Return on financial Leverage, Asset and Inventory turnover better than
Coca-Cola.
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13. 7. MANAGERIAL SOLUTIONS
SOLUTION 1: REDUCING DEMAND AND SUPPLY GAPS
A successful distribution strategy is one that is specifically created and tailored for each target
category. Both businesses must modify their distribution to match the needs of rural customers. It
must first divide its market into two sorts of consumers: rural and urban. Rural customers want to
purchase brands as they become more aware of advancements in the metropolitan population.
This is a component that makes it simple for local and global firms to enter the market using
low-cost marketing models. Coca-Cola, for example, has entered African remote towns by
building its own refrigeration system in stores to give cool drinks to customers. To accommodate
local demand, it frequently delivers its product by hand to individual customers.
SOLUTION 2: REDUCING CHANNEL CONFLICT
Relationship marketing must be used in conjunction with transferring power and control away
from locals and giving it to in-house supply chain managers to reduce channel conflict. Instilling
efficiency in supply-chain management is aided by relationship marketing. Commitment and
trust have been found to be useful tools for establishing healthy and positive relationships in the
supply chain channels.This is one cause of conflict that can be resolved through building trust
between the interdependent channels. Another way of resolving this type of channel conflict is
by segmenting the whole market and then assigning specific customers and territories to all the
members involved in the supply chain channels. In this way the companies can maintain
transparency in its distribution system while keeping in mind the interests of all the channels.
(NOTE: Y-axis of Decision Matrix is IMPORTANCE)
2X2 DECISION MATRIX
Focusing on Rural
Markets
Reducing Channel
Conflict
Sustainability Integration
Low Urgency High
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14. 8. PERFORMANCE IMPROVEMENT SUGGESTIONS
Rural population is 45% and 65% across the world and India respectively. Both Coca Cola and
PepsiCo have lots of scope to improve their markets in these regions. Coca Cola has some
presence in indian rural markets but Pepsico has very low presence in these markets. To improve
the sales in these regions, Coca-cola and Pepsico have to improve their supply chain in these
regions. They need to improve their underlying infrastructure like warehouses and stock keeping
units to improve their logistics in that area. The companies need to redefine their supply chain
strategies to gain presence and create connect with these customers. As the geographical area is
large, this work cannot be done in a few days. Thus focusing on rural markets is important but
both the companies Coca cola and Pepsico can take time to develop the their supply chain in
rural markets across the world
In general, the beverage industry has a lot of channel conflicts like geographical conflicts,
procurement conflicts, revenue conflicts etc. Due to these there is a constant change in power
between supply chain partners. Coca-Cola and PepsiCo need to follow good relationship strategy
to maintain this supply chain. The company needs to create a clear geographical demarcation for
distributors so that there is no confusion among them. These conflicts need to be addressed in
urgency or this may cause problems in the supply chain like delayed orders. They also need to
readdress their pricing structure and compensation policies so that they benefit the channel
partners equally.
There is a lot of influence of the bullwhip effect in the supply chains of pepsico and coca cola,
due to this coca cola and pepsico are paying lots of costs to store the inventory. Coca cola and
Pepsico need to focus on channel integration to improve the communication between supply
chain partners. Improving the communication greatly reduces the costs for the companies.
Coca cola and Pepsi should focus more on channel integration where correct information can
flow throughout the supply chain.
Sustainability is a constant challenge for the supply chains of Cocacola and Pepsico. Cocacola is
focussed on supply chain sustainability practices like water conservation, climate protection,
sustainable packaging and energy management. Pepsico is focussed on practices like plastic
recycling and maintaining carbon emission commitments. Both the companies are facing
challenges in maintaining sustainability as sustainability is easily affected by external and
internal factors. The companies should focus on sustainability issues in the supply chain as this
work indicates high quality commitment towards finished goods and companies will gain good
brand value for their ethical business commitments.
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