Introduction
Pepsi Company serves as one of world leader producers of food and non-alcoholic beverages. The company has got branches in North America such as Frito-Lay which deals with snacks and Pepsi Quaker Foods dealing with the sale of beverages. Generally the competition within the industry is intensive with major players being Pepsi, Coca-Cola and Cadbury Schweppes.
Pepsi controls around 20% of the total market share with its constituent branches also controlling major segments. Frito-Lay controls approximately 60% of the total snack-food market within the United States (Pepsi Company Overview). The industry is characterized by stiff competition with Coca-Cola and Pepsi being the dominant companies.
Other players within the market include; Snapple, Cott, National heritage, Hansen natural, Red bull, Big red, Rock star and others with Coca-Cola being the leading producer and Rock star the least contributor with market coverage of less than 1% (Pepsi Company Overview).
Effective and efficient management of customer requirements within the rich beverage market environment calls for shortening of product life cycles through virtual operation of respective supply chains (Cachon and Fisher, 2000). Integrated supply chain should have the ability to seamlessly respond to changing demand and customer requirements with minimal disruptions and costs.
Both theory and practice suggest that a truly integrated supply chain has the potential of assisting firms in achieving significant cost savings, while at the same time creating value for supply chain members and their respective stakeholders.
Reaching the goal of an integrated supply chain is difficult, due to the fact that there are multiple lines of definitions describing this concept. Much of the previous research has primarily addressed either the supplier domain or the customer domain portion of the supply chain.
Research problem
Supply Chain Management approach involves integration and coordination across organizations and throughout the supply chain. It means that supply chain management requires internal and external integration. This makes it clear that the role of supplier and supply management practices is relevant in this context.
However, the integration of supplier in supply chain is always different depending on the nature of industry in question. Recent development in SCM offers the opportunity to reduce costs and ultimately increase profit margin. The remaining challenge is to link the novel approaches together for the purposes of gaining competitive advantage of continuous flow of Supply Chain.
Creating collaborations outside and across-company in the process of designing appropriate tools for the purposes of meeting market demand poses many challenges. Designing supply chain involves four stages which should be the center of focus, namely, supply chain network, internal supply chain, distribution systems, and the end users (Barrat, 2004).
The problem here is on how PepsiCo can design an integrated supply chain capable of efficiently performing on a global scale and at the same time essential for the purposes of optimizing business operations and meeting the market demand.
Proposition
There have been lots of issues affecting the efficient management of the supply chain within PepsiCo. The Company has undergone tremendous changes in the past in an effort to leverage its global presence and also benefit from synergies within its factories. The proposition in this case study presents a defined prospect subject to proof and consideration.
In this case the whole issue involves development and initiation of appropriate models capable of delivering results within the supply chain. Some of the changes included initiation and implementation of above market business model in the United States. The model incorporates diverse reporting structures where several operating companies and regions report to the main company headquarters in the United States.
This resulted in specialization and greater division of activity within multiple locations which is contrary to the norm where operating companies could concentrate on vast activities as stand alone. The new operating model resulted in end markets i.e. customers relying on supply hubs for product delivery.
The whole process of supply chain integration requires widespread research interest in information and communication technologies (ICTs). According to Christopher 2000, ICTs are crucially important for sustainable development in developing countries. Sila and Ballard, 2010, notes that for the past two decades most developed countries have witnessed significant changes that can be traced to ICTs.
These multi-dimensional changes have been observed in almost all aspects of life: economics, education, communication, and travel. In a technology driven society, getting information quickly is important for business operations. ICTs have made it possible for quick and efficient dissemination of information.
The various technological changes brought by implementation of IT have positively influenced business processes within companies.
Challenges experienced made beverage business significantly costly as exceptional costs resulting from airfreights and write-offs of both raw materials and finished product are on the rise. This had a direct impact on companies’ profit margins. Due to this Pepsi management team virtually got involved in tackling supply chain issues directing their efforts in the operational rather than strategic matters.
Supply hubs are on the verge of being extinct due to the escalated operation costs experienced across board as a result of above market model means and ways of working. Pressure exerted on the supply hubs is immense since their existence requires some mode of justification. This requires solution at some point since the escalated costs incurred need to be addressed for the purposes of avoiding further losses.
Units of analysis
Supply chain management (SCM) executives face unique challenges, with respect to integrating supply chain specific strategies with the overall corporate business strategy. In recent years, given changing business realities related to globalization, the supply chain within the Company has moved up on the chief executive officer’ s (CEO’s) list of priorities. But it’s not always for the right reasons.
In many cases, CEOs only pay attention to the supply chain when they want to cut costs or when something is wrong. Since the supply chain essentially moves the lifeblood of the organization, process efficiency on a global scale is essential for the purposes of optimizing business operations.
The importance of global integration lies in the differential advantage derived from the abilities to exploit differences in capital and product markets, transfer of learning and innovation throughout the firm, and management of uncertainty in the economic or political environment within different countries or regions.
However, the general understanding of the business environment in most industries is that competition has increased and the conditions under which business are made seem turbulent.
The supply chain logistics problems facing multi-site companies like Pepsi can be complex, involving multiple stakeholders and constraints across the entire enterprise. The complex nature of the supply chain makes it more difficult for companies to answer basic questions involving the nature of goods to be purchased, the means of transport, facilities to be involved in processing and the kind of business components to involve.
In many cases, different departments or divisions within company’s trade, supply chain planning, operations and blending have a hand in these decisions, but communication among these entities is not always clear or consistent, and each may optimize to their own objectives without regard for others. Hence the results drastically affect the level of profitability (Cottrill, 1997).
Companies gain flexibility to quickly realign the supply/demand mix to satisfy changing global demand. Switching as well as coordination of costs presents potential barriers to flexible operations. Switching costs can be reduced if all supply chain partners standardizes their products and processes globally which presents some degree of challenges.
Coordination costs can be significant for global integration of cross-functional supply processes. A well-structured global demand forecasting and planning process is an important mechanism for global coordination across functions. Regional representation to ensure all relevant input is considered is also important.
A globally integrated process with regional representation requires costly resources, information infrastructure, and travel. Globally integrated information systems are critical to reduce the cost of communications and to make relevant information readily accessible or to reduce coordination costs (Fisher, 1997).
The forces of globalization and commoditization in business within beverage industry are not easy to control. Globalization and commoditization have created a challenge for companies that are as tough as it is clear that price control is a challenge. During the industrial revolution, companies looked for new markets, new sources of raw material and new sources of labor.
The revolution was fuelled by globalization and companies thrived by taking advantage of economies of scale. Senior executives now understand that they can’t just focus on supply chain operations to create efficiencies. The challenge is to integrate supply chain execution with the overall corporate business strategy, and to use the supply chain as a catalyst for business transformation or business reinvention.
Information integration refers to the sharing of information among members of the supply chain. The ability to seamlessly connect with customers, partners, and co-workers is vital for success; yet most enterprises store and exchange data in dissimilar formats, such as databases, EDI systems, text files, and, increasingly, XML-based applications.
The ability to map between these different formats is critical in the pursuit of the company’s mission. This includes any type of data that could influence the actions and performance of other members of the supply chain.
The meaning of all data items should be understood and the same data item should have the same definition across multiple applications both within and outside the firm. To make the integration process worth the effort, the data should be of high quality, timely, accurate and relevant (Sila and Ballard, 2010).
From inside the organization the decision to outsource business processes and create a supply chain outside of the organization is clearly one which requires an assessment of where the boundary of the organization should reside. As such, an economic assessment is required of the various supply/demand mix to satisfy changing global demand.
Thus, decision is based on a transaction costs approach where there is an “examination of the comparative costs of planning, adapting and monitoring task completion under alternative governance structures”.
The outsourcing decision focused primarily on the management of recurrent transactions; the key dimensions of this context are the uncertainty and asset specificity germane to the transaction. Since these dimensions will vary, this creates a variety contexts and the result will be diversity within governance structures (Chan and Qi, 2003).
If supply chain management is to be considered an essential component of long-term business competitiveness, it is sensible to consider how it relates to strategy concepts. An effective supply chain should be able to cope with uncertainty; it follows that it should also be flexible.
Therefore, supply chain management will be one of the organizational processes, or functions, that are a key to strategic success if an organization is to achieve its mission in an adaptive and changing environment. Customers are becoming more demanding and their expectations evolving towards greater levels of service and responses with higher degrees of product and service customization.
Value chain partners which include suppliers and service providers should be integrated for the purposes of providing differentiated segment products and at the same time superior customer service levels. Increased profitability is the top driver of customer order management performance.
This centered attention on profitability is probably resulting from the economic market conditions of the past few years, but may be a short-term view. Customer responsiveness leads to customer retention and revenue growth. In the longer term view, concentration customer-facing initiatives and improvement will be significant to profitability achievement (Christopher, 2000).
The logic linking the data to the propositions
The integration of supply chain processes can provide an effective means by which costs can be reduced and customer service levels improved (Cottrill, 1997).
In the context of a highly volatile global business environment, dynamic supply chain planning is essential in building agility into supply chain operations and ensuring visibility across the entire supply chain. This can be achieved using standardized technology platforms and integration of systems and data.
It has also been demonstrated that the implementation of Enterprise Resource Planning systems and the resultant standardization of business processes and information across the organization enables supply chain integration through automation and streamlining of planning, scheduling and execution at every link in the supply chain.
Electronic commerce has not only created new distribution channels for consumers but also revolutionized the industrial marketplace by facilitating inter-firm communication and by creating efficient markets through trading communities. Moreover, combination of enterprise information infrastructure and the internet has paved the way for a variety of supply chain optimization technologies (Cox, 2004).
The criteria for interpreting the Findings
This section presents the methodology that will be used to carry out the research. It presents the research design, the target population, sampling procedures, data collection procedures and instruments and data analysis.
Research Design
The research design in this case is a study of management level staff of Pepsi. The employees will be drawn from different departments/divisions. Proportional sampling technique will be used to select the sample size of each department/division.
The population of this study will be 37 management level employees, drawn from different departments/divisions in the organization. The sample size will be the 37 staff in management level as follows;
Data Collection
Primary data will be used in this study; a structured questionnaire will be used to collect data. The questionnaire will contain both closed-ended questions and few open ended. The questionnaire will consist of two sections.
Section one is designed to obtain general information on person and organizational profile, while section two consists of consists of questions on the application of information technology in supply chain management. The questionnaire will be administered through “drop and pick later” method (Fisher,1997).
Data Analysis
Before analysis, the data will be checked for completeness and consistency. Descriptive statistics will be used to analyze the questionnaire. Data will be summarized and presented in form of tables and charts. The mean, standard deviation, frequencies and percentages will be used.
Conclusion
This study will be important to the manufacturing industry players in beverage industry as it will assist them to asses their supply chain management strategies and realign them with the changing IT trends. The study results will also inform other industries that are adopting information technology in supply chain management on its practicality, success and challenges which arise with its use.
Scholars/researchers will find it important as the study will increase to the body of knowledge in this area as the findings will act as basis for further research.
This study will also highlight the inter-dependence between integration (technologies, logistics, and partnerships), a strategic view of supply chain systems, and implementation approach. All three need to inform and underpin each other in order for management of supply chains to be able to deliver on the promise of benefits for all trading partners
The level of concentration of firms within the beverage industry majorly defines three major firms Pepsi, Coca-cola and Cadbury Schweppes which accounts for over 80% of the entire global market. The largest market share within the industry is under the command of Coca-Cola accounting for almost 50% while Pepsi controls around 21% of the total global market share, Cadbury has below 10% coverage.
The level of competition amongst these firms is basically based on product differentiation. Some of the key accounting policies applied in the analysis and valuation of the company’s financial status include revenue recognition, income tax expense and ascertained accruals, quality of brand and valuation of goodwill as well as stock compensation expenses.
For the purposes of maintaining high reputation for superior products, Pepsi resorts to recognizing their revenue upon delivery of products (Sila and Ballard, 2010).
Reference List
Barrat, M. 2004. Understanding the meaning of collaboration in the supply chain. Supply Chain Management. An International Journal, 9 (1),pp 30-42.
Cachon, G., & Fisher, M. 2000. Supply chain inventory management and the value of shared information. Management Science, 46 (8), pp1032-1048.
Chan, F., & Qi, H. 2003. An innovative performance measurement method for supply chain management. Supply Chain Management: An International Journal, 8 (3), pp 209-223
Christopher, M. 2000. The agile supply chain competing in volatile markets.Industrial Marketing Management, 1(29), pp 37-44
Cottrill, K. 1997. The Supply chain of the future. Distribution, 11 (96), pp. 52-4.
Cox, A. 2004. The art of the possible: Relationship management in power regimes and supply chains.Supply Chain Management: An International Journal, 9 (3), pp346-356.
Fisher, M. L. 1997. What is the right supply chain for your product? Harvard Business Review, 2, (75), pp.105–116
Pepsi Company Overview. 2006. Pepsi. Available at www.pepsi.com