Pepsi Company's Supply Chain Strategies Essay Example (Free)

5/19/24, 11:14 AM Pepsi Company's Supply Chain Strategies Essay Example [Free]
Pepsi Company’s Supply Chain

Strategies
📄 Words: 3599 📝 Subject: Logistics
📑 Pages: 15 💼 Companies: PepsiCo
Introduction
PepsiCo Inc. is one of the leading food and beverage companies
in the world. This American company was started in 1965 after
the merger between Frito-Lay and Pepsi Cola and had its
headquarters in Purchase. Through mergers and acquisitions,
this company has been able to diversify its products to include
snacks and beverages. The company has experienced massive
growth and currently operates in the global market, with about
274,000 employees.
This company exemplifies a perfect demand-driven supply chain
strategy, which is appropriate in the current market. The market
where this firm operates is highly competitive. Other major
players, such as Coca Cola offer stiff competition in the world
market.1 In order to manage this competition, the management
of PepsiCo has realized that it needs to employ superior
strategies in its supply chain strategies. It is always under
pressure to ensure that the products are delivered to the
retailers in a consistent manner to avoid cases of stores running
out of stock.
It also has the responsibility of acquiring the right raw materials
for its beverage products, transporting them to the
manufacturing plants, and ensuring that they are in the right
condition before they can be used to manufacture various
products. This research will focus on the supply chain strategies
used by PepsiCo in its beverage segment. Some of PepsiCo’s
products that we will focus on in this paper include Pepsi, 7 Up,
Mountain Dew, Gatorade, Sierra Mist, and Mirinda. The figure
https://business-essay.com/pepsi-companys-supply-chain-strategies/ 1/17
below shows some of the top beverage brands from this

company.
Figure 1: Mountain Dew. Source (Erickson 1110)

Supply Chain Management
According to Shah (45), companies in the current society have
realized that in order to remain competitive in the current
market, offering high-quality products is not enough. The need
to ensure that the customers have access to the products when
they need them at the right locations has forced PepsiCo to
reformulate its strategies in the supply chain management in
order to maintain efficiency and reliability. The company has
come up with a supply chain management, which is customer-
centric. The following are some of the areas of supply chain
management that this firm has perfected over the years.
Purchasing
PepsiCo has realized that getting the right materials at the right
time is critical in achieving success. According to Jespersen and
Larsen (112), the management of a firm needs to ensure that it
has a team of suppliers who can deliver the needed raw
materials in time.2 PepsiCo has embraced a decentralized
purchasing strategy to improve its efficiency (Ehrhardt and
Edmond 41).3 It operates various production plants in different
locations.
At each plant, the regional head is given the authority to make
the purchasing decision based on the local environmental forces
in that region. Decentralizing the purchasing of raw materials is

an effective way of empowering branches in different locations.
By allowing the plants in these two countries to operate semi-
autonomously, the top management has made it possible for the
managers in these regions to act based on the local forces. The
graph below shows the budgetary allocations to the local and
overseas production units at PepsiCo.
Figure 2: PepsiCo’s Budgetary Allocations to Local and

International Production Units. Source (“PepsiCo: Production
Budgets” par. 1)
The data shows that the percentage budgetary allocation to the
international production facilities has increased to surpass that
of local allocations.
Supplier relationships
Maintaining a positive supplier relationship is needed to achieve
success in this competitive industry. PepsiCo is one of the
companies that have been keen on maintaining a close
relationship with their suppliers. In fact, it has developed a close
relationship with these suppliers to the extent that most of them
feel that they are partners other than mere suppliers (Ehrhardt
and Edmond 35).
This close relationship has been maintained by extending its
various benefits to these suppliers, including loans, when they
prove that it is necessary. Another strategy used by PepsiCo is
organizing sporting events and end-year parties for all its
regular suppliers (Ehrhardt and Edmond 48). Such get-together
forums create a close bond between these suppliers and the
company. This strategy has helped it maintain a pool of loyal
customers, eliminating some of the problems faced by other

firms in this industry.
Strategic sourcing
Strategic sourcing is very important in enhancing purchasing
strategies within an organization. The management of PepsiCo
appreciates the importance of maintaining superior purchasing
strategies in order to maintain the flow of raw materials into the
firm. The raw materials needed for the production of these
beverage products include fruits such as pineapple, apple,
orange, mangoes, among others. Other raw materials include
sugar, flavor, and preservatives. These raw materials are readily
available in various markets where the firm operates. The
management at the local levels has partnerships with farmers
who supply these products directly to the firm.
At this firm, Erickson (39) says that there has been a deliberate
effort by the management to improve its purchasing processes
based on the local environmental forces.4 The company has
created an information management system that allows the
regional managers to share new knowledge in the supply chain
so that they can know how to handle various issues in the
market. However, each of them is given the liberty of modifying
such knowledge to suit the local environmental forces within
that particular region. These factors have enabled this firm to be
very successful in the global market (Erickson, 54). PepsiCo is
currently making positive strides as it seeks to capture the
market in the emerging economies, especially in Africa and Asia.
Operations
According to Gattorna (113), efficiency in operations is one of
the most important factors that can help a firm achieve success
in today’s demanding market.5 The management of PepsiCo has
been struggling with the challenge of managing competition
both in the local and international markets. In order to remain
competitive, the management knows that it has to maintain
superior operational strategies that will help in reducing time

and cost of operation in order to cut overhead costs. The
following areas of operation are very important in enhancing
production.
Collaborative planning, forecasting, and
replenishment (CPFR) model used in the firm
CPFR model has become popular in managing the needs of
customers in the market (Gattorna 41). This model makes use of
intelligence about various trading parties in the process of
planning in order to meet the needs of consumers in the market.
As Leeman (82) simply puts it, “The model provides a basic
framework for the flow of information, goods, and services.”6
This model has several rings of players, with the customers
being at the center. The following diagram shows how the model
works.
Figure 3: CPFR Model. Source (Leeman 110)

This model has been very relevant to PepsiCo in improving its
operations in the market. The focus of the firm is to ensure that
its customers are satisfied. It is the responsibility of PepsiCo and
all its distributing agents to ensure that customers are given the
products that meet their needs at the right time. On the other
hand, it is the responsibility of the firm, which is in the outer
ring, to ensure that the retailers have the right products to

deliver to the customers. The retailers are just links between the
manufacturers and consumers. When using this model, the
management needs to follow the steps given in the four
quadrants systematically.
PepsiCo has used this model in order to plan for its operations in
the market. It is in the outer layer of the model, and this means
that it has to meet the needs of the retailers so that the retailers
can ensure that the customers are satisfied. According to
Erickson (29), PepsiCo uses retailers other than specialty shops
to sell its products to the customers.7 It has large trucks, such
as the one shown below, that helps it deliver products to the
retailers at their stores. The retailers will break the bulk and sell
the beverages in single units needed by the consumers. The
graph below shows the sales volume of different types of
beverages that this firm supplies to the global market in 2010.
Figure 4: PepsiCo’s Beverages Sales Volume in 2009-2010.

Source (Smith 78)
The Pepsi drink is the most available PepsiCo’s beverage in the
market, and it remains their most profitable product.
Resource planning systems
PepsiCo is a global company, and having an effective resource
planning system is critical in achieving success in the market.
The financial department is always under pressure to finance
various projects, some of which may be beyond the capacity of

the organization. At PepsiCo, resource planning is done at two
tiers. The first tier of resource planning is done at the
headquarters, where the chief financial officer and his team
draw the overall budget for the firm on a yearly basis.
The second tier of resource planning is done at the regional
level, where the regional manager is expected to draw a budget
for the operational activities within the region. The resource
planning system has been integrated to allow the top managers
at the headquarters to understand the financial priorities given
by the regional heads. Although these regional heads have the
power to make the operational plans within their regions,
sometimes they may need the approval of the top management
before implementing the strategic plans.
The superiority of the model used by this firm lies in the fact
that the regional managers are allowed to make strategic plans,
and the top management at the headquarters only needs to
make the approval. PepsiCo initially tried to use a one-tier
resource planning system that was controlled at the
headquarters. However, this proved futile and the company was
forced out of some of the global markets, especially in the
developing countries in Africa. Upon a careful analysis, the
management realized that using a strategy that is successful in
the United States in other markets is unrealistic. For this reason,
when planning the resources to be used in these regions, the
management realized that it is important to base the strategy on
the local environmental factors that are unique to each region.
Inventory management
At PepsiCo, inventory management is always given priority
because of the nature of the industry within which the firm
operates. Food and beverage industry is one of the most
sensitive industries in every world market. People take the
products in this industry, and any small mistake may force a firm
out of the market. Food poisoning is one of the issues of

concern to the managers of the regional units of this firm.
If it is proven that, any of its products had ingredients that are
not permitted within a given region, the firm may not only risk
having its certificate of operation cancelled, but also it may face
litigation. Customers are also very sensitive about the quality of
beverages they take. Because of the numerous alternative
products in the market, any complaint about the value of the
products they receive from one company may make them switch
to a different company in mass. Given the sensitivity of this
industry, the management of PepsiCo has been very keen on
managing its inventory.
Once the raw materials are inspected to be of the right quality,
they are always stored under the right conditions and with
proper supervision to avoid any possibility of contamination.
Before being used to make the products, the raw materials are
once again inspected to ensure that they are of the right value.
Once the products have been manufactured, they are always
packed in bottles and cans to enhance their safety. This
strategy has enabled this firm to operate in the global market
without facing any major complaints from the customers about
their products being contaminated.
Inventory management in the beverage industry comes with
numerous challenges, top of which is the fear of possible
poisoning or contamination. PepsiCo has installed superior
infrastructures at its production plants to deal with this issue. It
has some of the modern storage facilities for its raw materials to
help in expanding their lifespan. The new systems also help in
detecting any contamination and presence of wrong ingredients
in the raw materials. This automated system has eliminated
some of the mistakes experienced in the past such as failure to
detect contamination at the right time. When contamination is
detected in the final product, the loss to the company will be
huge. It explains why it is important to use these automated
systems that stops the entire operation system once an

irregularity is detected.
Process management approach
Process management is another aspect of operation that
specifically deals with the activities of transforming the raw
materials into the finished products needed by the consumers in
the market. Shah (67) defines process management as “The
ensemble of activities of planning and monitoring the
performance of a process.”8 As mentioned in the section above,
production of beverages is a very sensitive process because the
products will be consumed. Pepsi drinks are always consumed
directly without being taken through any further processing by
the customer. This means if any products have any defect; the
customer will ultimately be affected. This has forced the
management to install the sophisticated automatic machines
such as the one shown in the diagram below.
Figure 5: Automatic Cola Processing Machine. Source (Gattorna

79)
This machine is instrumental not only in improving the quality
and safety of the products, but also in reducing the cost of
labor. What this machine can handle within a day may require
several employees whose cost may be very high for the
company. The machine does the processing and bottling of the
products at a very high speed, and produces standardized
products. Using tools such as the total quality management
enhances the quality of the supply chain.
Logistics and Distribution
When the company has successfully completed the production
process, the next important stage is the logistics and
distribution of the products. Any food product has a short
lifespan despite some of the preservatives that may be used.
Once the PepsiCo’s products are ready, this firm must use the
shortest time possible to ensure that they are delivered to the
market. The global logistics and distribution strategies used by
this firm are unique. PepsiCo has the responsibility of ensuring
that its beverage products are delivered to the retailers in the
regions where it operates.
This may seem to be an expensive process, but is one of the
reasons why this firm has been very successful in the world
market. Most retailers do not have problems of stocking their
products because they are assured that the products will be
delivered to them other than having to incur the transportation
cost. The following are some of the areas of logistics and
distribution strategies used by this firm that has enhanced its
superiority.
Domestic and international logistics
Managing domestic and international logistics may be a
challenge, especially for a firm with wide a market coverage
such as PepsiCo. However, this firm has been able to manage its
local and international logistics very effectively. The United
States remains the major market for PepsiCo’s products. It has
special tracks that it uses to deliver its products to its domestic
customers. The track below shows a typical truck used to

distribute the products of this firm.
Figure 6: Truck Distributing PepsiCo’s Products. Source (Biswas

and Anindya 78)
In the international market, this firm uses various types of trucks
to ensure that their products reach the retailers within the right
time. The chart below shows the growth of income of PepsiCo
from the international market, which shows that the logistical
demand, is on the rise.
Figure 7: PepsiCo’s Income from the Emerging Markets. Source

(Ehrhardt 28)
According to Bachmeier 78), PepsiCo has an elaborate transport
and logistics unit that has won several awards in the United
States for its effeciency. In the United States and Europe, this
firm has enough trucks that it uses to transport its products. It

also has warehouses that are strategically located along the
highways to help in the storage of its perishable products before
they are delivered to the market. The same trend is now being
used in the developing economies.
Customer relationship management
Managing customer relationship is one of the most important
activities for the marketing unit. PepsiCo has a heavy market
presence through regular advertisements in the global market.
The following is the brand logo that this firm has been using to
identify itself to the customers.
Figure 9: PepsiCo’s Logo. Source (Erickson 38)

The firm has managed its brand in the domestic market, and has
rolled out ambitious programs to penetrate the global market. Its
interactive social networking strategy is specifically meant to

enhance its relationship with the international market.
Global location management
As stated before, PepsiCo operates in the global market, and
this means that it requires effective global location management
strategies. Unlike its archrival Coca Cola Company that
outsources most of the activities in the production and
distribution processes, PepsiCo has established its own plants in
the global market. The production process takes place at these
plants, which in most of the cases also house the administrative
offices. This gives the firm the total control of its production
process. The firm is also directly responsible for the distribution
of the products to the market. This eliminates the intermediaries
whose actions may increase the prices of the products.
Although this location management strategy is expensive, it
gives the firm the full control of its own market operations.
Service response logistics
The consumers have become very demanding, and firms are
forced to deliver products that meet their demands. Service
response logistics is a relatively new concept that seeks to
ensure that a firm delivers the products needed by the
customers at the time of need. It involves basing the logistic
strategies on the responses received from the customers.
Erickson (19) says that PepsiCo has embraced this new strategy
of using the social media platform that enables it to capture the
response of its customers about its products and the delivery
approach.9
Sustainability
Sustainability is an issue that many business entities have been
struggling to achieve. According to Leeman (49), sustainability
has three pillars, which include the environment, society, and
customers.10 PepsiCo has shown its commitment to the
environment through various programs that are meant to

conserve forests and reduce green gas emissions. Its annual
reports also indicate that it has been working closely with the
members of the society to enhance the living standards of
people by sponsoring sports and education of children from
poor families. The firm has been keen on maintaining the quality
of services to its customer, which has earned it a pool of loyal
customers.
According to Bachmeier (39)11, PepsiCo is currently running an
initiative in Belgium, France, Iberia, Germany, and Holland to
support sustainable agriculture among the fruit famers. The
initiative, which is part of PepsiCo’s sustainable programs, is
meant to support these farmers to ensure that the raw materials
used in producing the beverages are protected. In order to
support the farmers, PepsiCo, in collaboration with Cambridge
University, has been creating awareness among its farmers to
help them understand the benefits of renewable energy in their
farming practices (to Bachmeier 56).
This program aims at lowering the cost of production for the
farmers. This will help them sell their produce to PepsiCo at fair
prices but still make good profits. Water is the most important
raw material that Pepsi uses to produce beverages. In some
countries, this firm has experienced shortage of clean water
that it can use in its production process. In India, this firm has
been facing the problem of clean water shortage (Bachmeier
41). In 2009, PepsiCo introduce Positive Water Balance Initiative
in India to help it address the issue of clean water scarcity in this
country.
This sustainability program helped PepsiCo replenish more
water than the amount it used in its production process. This
was done through water conservation programs and protection
of water catchment forests in India (Kanani 1)12. In 2010, the
company introduced water-recycling policies at all its plants,
including those in India. This helped in reducing water
consumption by over 30%. Currently, the firm is closely working
with farmers to embrace drip irrigation system because of the

minimal amount of water that is used (Kanani 1).
Strengths and Weaknesses of the
Firm
The main strength of this firm lies in its financial capacity and
many years of experience in this industry. It understands the
market dynamics, which gives it an edge over other market
competitors. However, the slow pace in implementing the
emerging technologies, especially in marketing, is one of its
main weaknesses (Erickson 19).
Conclusion
The management of PepsiCo has made an effort to ensure that
its supply chain management for its beverages is very effective
in order to maintain high quality products in the market. This
management has been keen on acquiring quality raw materials,
transports them to the firm, transforms the materials to final
products, and delivering the products to the clients in the
market. In its supply chain, the firm has always emphasized on
maintaining quality at all the stages using various quality
management tools such as Total Quality Management. It is clear
that PepsiCo is one of the best examples of firms that have used
the modern methods of supply chain management to enhance
their operations in the market. Although the market is very
competitive, this firm has been able to remain very competitive
because of its ability to access quality raw materials, use
efficient production processes, and deliver quality products to
the customers in time.
Works Cited
Bachmeier, Kristina. Analysis of Marketing Strategies Used by
Pepsico Based on Ansoff’s Theory. München: GRIN Verlag
GmbH, 2009. Internet resource.
Biswas, Arijit, and Anindya Sen. Coke vs Pepsi: Local and Global
Strategies. Economic and Political Weekly 34.26 (2007): 1701-
1708. Print.
Ehrhardt, Moses and Brigham Edmond. Corporate Finance: A
Focused Approached. New York: Cengage Publishing, 2014.
Print.
Erickson, Gary. Advertising Competition in a Dynamic Oligopoly
with Multiple Brands. Operations Research, 57.5 (2009): 1106-
1113. Print.
Gattorna, John. Gower Handbook of Supply Chain Management.
Aldershot: Gower, 2008. Print.
Jespersen, Birgit, and Tage Larsen. Supply Chain Management:
In Theory and Practice. New York: Cengage, 2005. Print.
Kanani, Rahim 2013. Why PepsiCo is a Global Leader in Water
Stewardship and Sustainable Agriculture.Web.
Leeman, Joris. Supply Chain Management: Fast, Flexible Supply
Chains in Manufacturing and Retailing. London: McMillan, 2010.
Print.
PepsiCo: Production Budgets 2014. Web. Shah, Janat. Supply
Chain Management: Text and Cases. Upper Saddle River:
Pearson Education, 2009. Print.
Smith, Andrew. Drinking History: Fifteen Turning Points in the
Making of American Beverages. New York: Columbia University
Press, 2013. Print.
Yahoo Finance: Historical Prices 2014. Web.
Footnotes
1. Biswas, Arijit, and Anindya Sen. Coke vs Pepsi: Local and
Global Strategies. Economic and Political Weekly 34.26
(2007): 1701-1708. Print.

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5/19/24, 11:14 AM Pepsi Company's Supply Chain Strategies Essay Example [Free]

Pepsi Company’s Supply Chain

below shows some of the top beverage brands from this

Figure 1: Mountain Dew. Source (Erickson 1110)

in that region. Decentralizing the purchasing of raw materials is

Figure 2: PepsiCo’s Budgetary Allocations to Local and

customers, eliminating some of the problems faced by other

superior operational strategies that will help in reducing time

Figure 3: CPFR Model. Source (Leeman 110)

ring, to ensure that the retailers have the right products to

Figure 4: PepsiCo’s Beverages Sales Volume in 2009-2010.

various projects, some of which may be beyond the capacity of

out of the market. Food poisoning is one of the issues of

systems that stops the entire operation system once an

Figure 5: Automatic Cola Processing Machine. Source (Gattorna

customers. The track below shows a typical truck used to

Figure 6: Truck Distributing PepsiCo’s Products. Source (Biswas

Figure 7: PepsiCo’s Income from the Emerging Markets. Source

firm has enough trucks that it uses to transport its products. It

Figure 9: PepsiCo’s Logo. Source (Erickson 38)

interactive social networking strategy is specifically meant to

environment through various programs that are meant to

with farmers to embrace drip irrigation system because of the

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