PepsiCo’s Operations Management, 10 Decisions, Productivity

PepsiCo is the second biggest player in the global food and beverage industry. To maintain this
position, PepsiCo’s operations management (OM) practices must effectively address business
needs in the 10 strategic decision areas. These decision areas refer to the aspects of business that
need to be streamlined together to achieve optimal performance. PepsiCo’s continuing
international growth and expansion also warrant continuing reforms in such operations
management practices. However, PepsiCo’s operations management approaches are generally
appropriate for the global organization. Thus, PepsiCo’s policies and approaches effectively
address the main issues and concerns linked to the 10 strategic decisions of operations
management.

PepsiCo has an integrated approach to the 10 strategic decisions of operations management

(OM). This approach considers variations in PepsiCo’s business areas and markets, as well as
different productivity requirements based on product, market conditions, and other variables.

Operations management is concerned with the processes involved in the production and
distribution of goods and services (Slack, Chambers and Johnston, 2010, pp 34-60). Operations
management entails all the steps involved in the creation of the products and services until they
reach to the consumer. The goal of any operation manager is to make this process effective and
efficient (Hill and Hill, 2017, pp 18-54). Besides operations, management encompasses other
related disciplines such as inventory control, procurement and supplies, quality analysis and
stock keeping. The operations management process employed by a company depends on the
nature and type of good the company is producing (Heizer, 2016). Thus, operations management
covers the entire production system. It is present in banking systems, hospitals, and automobile
industries among others. Operations management includes both the daily operations of a firm and
the strategic operations of the firm (long-term). A company’s operations manager is tasked with
oversight of the production and distribution process of the goods and services of a firm.

Pepsi Company is an American multinational company that specializes in the production of

beverage products. It is the primary competitor for Coca-Cola Company. Pepsi is renowned for
its beverage products Pepsi Cola, Mirinda, Tropicana among others. Caleb Braham pioneered
the company’s operations when he invented Pepsi Cola. Caleb hoped his product would replicate
the success of the rival product coca-cola. The product quickly gained popularity, which led to
Caleb branding it in 1898 and incorporating the Pepsi Cola Company in 1902. However, the
world war one proved detrimental to the operations of the company. During the world war one,
Pepsi Cola Company was repeatedly reincorporated in a bid to ensure it became profitable
(Thain and Bradley, 2014, pp 18-22). At the beginning of 1931, the company was bought by
Charles G. Guth. He merchandised the operations of Pepsi Company. He employed the
knowledge and skills of qualified chemists to come up with new and better drinks. Guth also
held leadership positions in Loft Inc, a company that specialized in the production of candies.
Several legal battles ensued which led to Guth losing the leadership position of Pepsi company.
In 1941 loft, Inc and Pepsi Company formed a merger and adopted the name Pepsi Cola
Company. During the 1950’s Alfred Steele, a former C.E.O of Coca-Cola Company assumed the
leadership position in Pepsi Company. Alfred emphasized on sales promotions and market
expansions. Alfred’s effort led to significant growth in Pepsi Company revenues and assets. In
subsequent years, the company embarked on mergers and acquisitions, for instance, the merger
with Frito Lay in 1965. Currently, Pepsi Company has productions departments in over two
hundred countries. The tremendous growth of Pepsi Company is attributable to the uniform
standards of its products.Pepsi Company has revolutionalized the operations of beverage
industries in the World. The company has various investments ranging from beverage industries
and cereal industries. Thus, the work of an operations manager in Pepsi Company cannot be
underestimated.

PepsiCo’s Operations Management, 10 Strategic Decision Areas

1. Design of Goods and Services. The objective in this strategic decision area of operations
management is to match goods and services, organizational capacity and market demand and
preferences. PepsiCo’s operations management does so through market-based research and
development and product innovation. For example, PepsiCo conducts market research about
current trends, such as consumer lifestyles. The results of such research are used to determine
future directions of PepsiCo’s products, such as future variants of Pepsi.

2. Quality Management. This strategic decision area has the objective of optimizing quality
based on business and consumer expectations. PepsiCo’s operations management aims to
provide the highest quality products under the company’s “Human Sustainability” goals. For
example, new PepsiCo products are usually improved variants, such as low-calorie Pepsi
products and less-salt Frito-Lay products.

3. Process and Capacity Design. Capacity utilization and process efficiency are the emphases in
this strategic decision area of operations management. PepsiCo aims to maximize its
productivity-cost ratio in this area. For example, the company’s manufacturing facilities are
designed with high-output assembly lines. Also, many of PepsiCo’s production processes are
automated for optimal efficiency.

4. Location Strategy. PepsiCo has many company-owned facilities and partner-owned facilities
in strategic locations. Such an operations management approach is based on this strategic
decision area’s objective of maximal reach to target markets. In PepsiCo’s case, such facilities
are located in key areas near most retailers. PepsiCo is especially interested in large retail outlets
and food service establishments with high sales volume.

5. Layout Design and Strategy. Efficient movement of people, materials and information is the
operations management concern in this strategic decision area. In PepsiCo’s case, spaces are
designed with efficiency and productivity in mind. For example, layout design in PepsiCo
production facilities is centered on the principles of assembly line production and total quality
management (TQM).

6. Job Design and Human Resources. PepsiCo’s human resource management addresses this
strategic decision area through a combination of global corporate HR practices and divisional
HR practices. The main operations management objective in this area is to ensure the adequacy
of PepsiCo’s workforce. For example, PepsiCo has an HR policy and job design process for
 Frito-Lay, and separate HR policy and job design process for Quaker Foods. However, all of
these policies and processes comply with PepsiCo’s corporate standards and “Talent
Sustainability” policy.

7. Supply Chain Management. This strategic decision area focuses on operations management
practices that optimize the supply chain to match demand for materials and intermediary
products. PepsiCo’s approach is to diversify and distribute its supply chain hubs. For example,
the company operates supply chain hubs for each regional market. In this way, PepsiCo
optimizes response times to fluctuations in demand.

8. Inventory Management. PepsiCo’s inventory management emphasizes automation.

Adequacy, scheduling, and cost minimization are the key objectives in this strategic area of
operations management. PepsiCo does so through computerized monitoring of inventory.
Inventory managers can access real-time data to help them make decisions.

9. Scheduling. Facility and human resource schedules are the primary concern in this strategic
decision area of operations management. PepsiCo facility managers implement human resource
schedules based on local data. However, automated scheduling is also used for some of
PepsiCo’s production space schedules.

10. Maintenance. PepsiCo’s maintenance concerns are widely varied, considering the
company’s wide array of products and markets. This strategic decision area of operations
management focuses on adequate workforce and other resources that grow with the business.
PepsiCo continues to hire individuals and promotes from within the organization to grow its
workforce. Facilities are expanded, constructed or acquired to support PepsiCo’s growth.

Productivity at PepsiCo

PepsiCo’s operations management practices ensure high performance and productivity. The
company uses different measures or criteria to evaluate actual productivity. The following are
some of the productivity measures used at PepsiCo:

1. Batches per facility per day (PepsiCo production facility productivity)

2. New product ideas per year (product R&D productivity, such as for Pepsi)
3. New accounts per year (marketing productivity)

References

 Kachwala, T. T., & Mukherjee, P. N. (2009). Operations management and productivity

techniques. PHI Learning.
 Lawrence, K. D., & Weindling, J. I. (1980). Multiple goal operations management planning and
decision making in a quality control department. In Multiple Criteria Decision Making Theory
and Application (pp. 203-217). Springer.
 Liu, S., & Jiang, M. (2011). Providing Efficient Decision Support for Green Operations
Management: An Integrated Perspective. INTECH.
 Najdawi, M. K., Chung, Q. B., & Salaheldin, S. I. (2008). Expert systems for strategic planning
in operations management: a framework for executive decisions. International Journal of
Management and Decision Making, 9(3), 310-327.
 PepsiCo 2014 Annual Report.
 PepsiCo Inc. (2012). PepsiCo Announces Strategic Investments to Drive Growth.
 Schrunder, C. P., Galletly, J. E., & Bicheno, J. R. (1994). A fuzzy, knowledge ‐based decision
support tool for production operations management. Expert Systems, 11(1), 3-11.
 Verdaasdonk, P. (1999). Defining an information structure to analyse resource spending changes
of operations management decisions. Production Planning & Control, 10(2), 162-174.
 Verdaasdonk, P., & Wouters, M. (2001). A generic accounting model to support operations
management decisions. Production Planning & Control, 12(6), 605-620.
 Wild, R. (1983). Decision-making in operations management. Management Decision, 21(1), 9-
21.

ackground of PepsiCo

PepsiCo is a large company dealing with food, snacks and beverages; it is approximated to be
worth $39 billion and has employed 185, 000 employees. The company comprise of three main
divisions located in Latin America, North America and its international subsidiaries. Operational
management is an important aspect in the modern corporate world; it an important part of an
organization and a strategic department in the organizational structure.

The company offers a wide variety of products in order to meet customer demands, needs and
preference. They select product choices that promote healthy lifestyles. PepsiCo is headquartered
in the city of New York. Operations management is the design, operations and the improvement
of an organization’s systems that facilitate the creation and the delivery of a company’s products
and services. The company deals in the production of beverage products:

Diet Pepsi, Gatorade mountain dew, thirst quencher, Tropicana and Aquafina bottled mineral
water, the company also deals with savory food snacks like Fritos corn chips, cheetos and lay
potato chips; other products of the company are food products which include cereals and cakes.
(Scribd, 2011, p. 4)

Operations Management at PepsiCo

Operations management is defined as the planning, scheduling and controlling of all the
activities that can transform organizational inputs into finished goods and services. Operations
management focuses on effective planning in an organization and the control of manufacturing
through the application of such concepts as engineering, quality management, production
management, accounting and management system.

Operational management entails the making use of all the resources available to produce finished
products or services and to meet customers’ needs in a cost-effective manner. Operations
management places a lot of focus on the management of the processes involved in production
and distribution of the products. The processes involved in operations management are the
creation and distribution of products (Heizer, & Render, 2011).

Other activities that are related to operations management are the management of purchases,
controlling of inventory, quality control, storage and overall logistics. All these can be realized
through efficient and effective processes (Heizer, & Render, 2011). Conclusively, it can be said
that operations management is the set of all the activities which enhance the creation of goods
and services by transforming inputs into outputs (Scribd, 2011).

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Supply Chain

The supply chain in a company is aimed at maximizing the value of products generated. Supply
value chain is considered as the difference between the value final products and the costs
incurred at the time of filing the customer’s request.

The supply chain at PepsiCo is determined by the location and capacity of production,
warehousing facilities and the products to be manufactured, storage and transportation. A good
supply chain should be well planned and a firm supply chain strategy should be implemented. In
PepsiCo, an important decision is where the production plant should be situated. PepsiCo has
ensured that the production process is automated for efficiency.
The company also manages the transportation for the delivery of their products and they also
have arrangement for third party for product procurement. The shipping department of the
company is responsible for orders while the transport department decides matters of delivery to
ensure that goods reach safely. In the company, material sourcing and planning is also an
important stage of supply chain.

Regarding the source and the supply of raw materials, PepsiCo has identified both local and
foreign suppliers who can supply raw materials at negotiated prices. At the stage of raw material
supply, capacity building is necessary since the forecasting of sales and the planning of
production depends on the capacity of this stage. All supplies to the company are audited by the
quality control section. Distribution rests with the company’s decision and it depends on the past
performance of the distributor.

The alignment between the supply chain strategy and PepsiCo’s business strategy is achieved
through proper utilization and the deployment of supply chain drivers. Managing the supply
chain process involves overseeing the relationship between suppliers and customers, controlling
inventories and forecasting demand as well as getting feedback concerning what is happening in
whichever link of the chain (Scribd, 2011).

Competitive Strategy

PepsiCo operates in a competitive and a challenging environment and it achieves its competitive
edge by providing customized products and services that meet the tastes and preferences of its
consumers. Competitive strategy examines how a company strives to achieve competitive
advantage; competitive advantage is that extra edge that a firm has over other industry peers. The
company’s capability to manage its operations can only be transformed into their competitive
advantage if they identify and tap their resources.

There are three main aspects that give PepsiCo a competitive advantage in order to favorably
compete at the international market, these are: muscular brands, proven ability for innovation
and their powerful market systems. The company has a mission to increase the value of the
investment of its shareholders and it tries to achieve this through sales growth, control of costs
and investment of resources wisely.

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The company believes that its commercial successes and competitiveness rest with provision of
quality and value for its customers. It provides products that are safe, economically efficient and
healthy. PepsiCo strives to maintain its competitive strategy by ensuring sufficient production of
their goods, selling of their goods at reasonable prices and also ensures that the products are
much available in the market (Bachmeier, 2009).

With the boom experienced in the food and beverage market, PepsiCo has developed a strategic
plan which will enable them to at the top of their competitors by selling their goods at affordable
and friendly prices, providing more healthy meals options and great and quality services for their
customers. Health and safe foods are necessary especially in this era where people are
increasingly becoming health conscious. This will give PepsiCo an upper hand over its
competitors.

PepsiCo operates in a competitive and a challenging environment; it achieves its competitive

edge by providing customized products and services. Without strategies, a company can not
withstand the competition at the market. To maintain its competitiveness, PepsiCo employs
competitive strategies that enable it to compete with seasoned players in the market like Coca-
Cola.

It can only achieve this through ensuring that its marketing strategy is effective, its pricing is fair
and that there is efficiency and quality in its production. The company’s competitive and supply
chain characteristics are demonstrated below.
(Scribd, 2011)

Marketing and Distribution Strategies

The central reason as to why companies do not perform well is due to the strategy that they
apply. Marketing strategy is one of organizational characteristic and it is instrumental to the
performance of the company. For a company to respond effectively to market competition, good
marketing strategies are a necessity.

PepsiCo has a well designed and developed local and international programs for marketing,
promotion and advertising programs which have the potential to support its various brands and to
enhance their brand image. The company also has an effective quality control department which
is responsible for ensuring that quality of the products is maintained.

The promotion of programs is also charged with the responsibility of packaging and coordination
of selling efforts. PepsiCo’s competitive strategy exists to provide a lot of products quickly and
consequently, their supply chain materializes the availability of these products. The company
employs various marketing and promotional strategies so as to enhance its volume of sales. The
company, for example, contracted Tiger Woods to run a promotion on a Gatorade brand called
Gatorade tiger.
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Other notable promotional strategies are: the Pepsi throwback campaign which involves offering
a drink with a sugar content of the original product. They also run a promotion with the NFL and
super Bowl particularly to market Pepsi and Doritos. One mega promotion by the PepsiCo was
the running of a promotion dubbed Pepsi stuff promotion which involved accumulation of points
by the customers upon the purchase of any Pepsi product (Scribd, 2011).

Distribution Strategies

Concerning distribution, PepsiCo utilizes two main distribution strategies: direct and indirect
distribution channels.

Direct distribution: this concerns the handling of important accounts; these important accounts
are the different wholesalers, the restaurants and hotels, for example, Pizza hut, metro and KFC
which are critical points of sale. These accounts are fundamental in terms of competition. Direct
distribution also involves export parties.

Indirect distribution: this is achieved though several base market distributors as well as outstation
distributors. Before settling for a distributor, there are guiding principles which are adhered to in
assessing the capability of any distributor. These criteria include the fleet of vehicles which are
run by the distributor, the number of cases of empty bottles and cash deposit to be used as a
security.

In product distribution and manufacturing, the company utilizes distribution channels from the
bottling plants up to the truck lines. PepsiCo has attempted to develop a system of product
differentiation so as to distinguish their products from that of coke. Its main target market was
the American teenage market.
It has focused its efforts on developing campaigns that enhance the culture of soft drinks in
schools. It has sought to achieve this by developing and building contracts with America schools.
The company distributes its products by use of vending machines (Bachmeier, 2009).

Inventory Methodology

Inventory management is a critical operation in any organization. This is because it involves

identifying and selecting the best method of inventory control. Before selecting an organization’s
method of controlling inventory, it is imperative to factor in mind the product demand.

There are different modes that companies consider in selecting their inventory methods but the
common denominator is that companies should ensure their mix of inventory types can satisfy
the demands of the customer and that it should deliver the needed profit and cash flow
(Bachmeier, 2009).

Since PepsiCo operates in the food industry, inventory controls can be quite challenging due to
the perishable nature of the goods; improper handling may lead to food-borne disease, this makes
it necessary to have food-services inventory controls that can tract the movement of the goods,
raw materials and products.

The inventory should be in position to tract several products at a go and particularly an entire
quantity of stock from their destination, the inventories can also be tracked in batches, this is
necessary since batches can be assigned codes or numbers that will facilitate the keeping of
relevant data regarding the production process.

Operational Policies

Managing PepsiCo is a heavy task and being in charge of its daily operations is enormous duty
and quite challenging. To achieve and to manage PepsiCo successfully, it is imperative that there
should be adequate infrastructure and up to date information and communication technology.
Fruits availability is at the centre of PepsiCo company policies since it is its primary product.
The company communicates its policies to all those in the supply chain including their animal
welfare policy.
PepsiCo has very strict corporate standards which guide their operations and accountability of its
employees. PepsiCo polices take care of areas like corporate governance, human, environmental
and talent sustainability. Human sustainability policies, for example, are programs like food and
safety, responsible marketing and healthcare reforms. The company has tight environmental
policy that guides its agriculture and packaging programs (PepsiCo, 2011).

Technology and Operations at PepsiCo

PepsiCo Company also utilizes technology in its operations. The launch of Social Vending
System which is an interactive vending technology has facilitated the company’s connection with
the customers at the purchase terminus. This technology enables the customers of PepsiCo to
make gifts to their friends through the internet connection.

The use of telemetry has reaped a lot of benefits for the company’s operation. It facilitates close
management of levels of inventory by the customers which can enable them to deliver schedule
via a remote station without having to travel (PepsiCo, 2011). The company also signed a three
year contract with Combine Net to use its Truckload manager so as to advance its truckload
transportation network and to enhance efficiency in transportation (CombineNet, 2007).

Organizational Structure

PepsiCo is considered the pioneer and the king in the production of beverages. It is well known
all over the globe for its trademark drink Pepsi and other Quaker products. In the year 2007, the
company changed its organizational structure from two to three units. The company before 2007
had two units PepsiCo North America and PepsiCo international. After the restructuring, the
company added one unit and the three units were “Pepsi America Foods, PepsiCo America
beverages and PepsiCo international” (Scribd, 2011, p. 1).

PepsiCo is considered an organization fit for adaptation. The company is in continuous exercise
of improvement and innovation so as to ensure their products fit the demand of the customers
and furthermore maintain relevance in the market.
The organizational structure of the company is a decentralized one and decisions regarding
operations are executed by different business units but are guided by the company policies and
corporate ethics. The company is headed by a Chief Executive Officer (CEO). Under the CEO
are Vice presidents who are in charge of various departments and all are answerable to the
chairman and the board. The expansion from two to three units was as result of its rapid growth.

The company also has Scientific Advisory Board which report on the company’s corporate social
responsibility and undertakes research relating to the challenges facing the company. The
company also has regional advisory boards in its operations outside US who guide the
company’s health, safety, compliance and innovation. The overall Chief Executive Officer
(CEO) also doubles as the chairman of the company (PepsiCo, 2011).

Conclusion

Operations management is an important function in an organization since it concerns the

relationship with the organization’s strategy. Operations management plays a key role in the
development of a company strategy hence enhancing competitive advantage of the company. An
example is the planning process which assists the organization in minimizing costs while gaining
advantage in competitiveness and cost.

It is therefore necessary for an organization to manage its operations as a measure of boosting its
organizational strategy. From the analysis of PepsiCo operation strategy, it is evident that
consistency in production, innovative products and the quality of products are order winners
whereas speed, cost, efficiency and innovation are the order qualifiers. This has resulted in an
enhanced market share and massive consumer buying power.

PepsiCo is a market leader and a household name in the food and beverage industry. It has strong
marketing strategy covering all its subsidiaries which are placed under the supervision of the
mother company. Its prices, quality of the products and marketing brand enhance its
competitiveness. Due to the strong nature of competition in the industry and shrinking market,
there is need for a firm to have well designed strategies so as to maintain its market position.
References

Bachmeier, K. (2009). Analysis of Marketing Strategies Used by PepsiCo Based on Ansoff’s

Theory. New York, NY: GRIN Verlag.

CombineNet. (2007). PepsiCo Chooses CombineNet’s Advanced Sourcing Technologies for

North American Transportation. Combine Net. Web.

Heizer, J., & Render, B. (2011). Operations management (10th ed.). Boston, MA: Prentice-Hall.

PepsiCo. (2011). PepsiCo Introduces Social Vending System, the Next Generation in Interactive
Vend Technology. PepsiCo. Web.

Scribd. (2011). Operations management problem in Pepsi. Scribd. Web.

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