Executive summary
The assessment analyses challenges experienced by Pepsi Cola International in Ukraine. Distribution channels and logistics challenges have affected the business, which is the reason this assessment identifies four challenges and gives possible solutions. While using the available literature, challenges include poor transport and infrastructure.
The ports are congested and delays are common. Burglary is a challenge for transporters. The distribution channels are not effective in distributing the product to all parts of the region it is required to. There is because of competition from other brands. Long distribution channels and economic slowdown make the prices increase.
Warehouses are scarce as well as forklifts. The management can reduce the challenges by engaging in research and use recommendation to make changes that correspond to the environment and developments. Investment and long-term decision can be encouraged.
Introduction
Pepsi Cola International in Ukraine has been operating for over twenty years. The distribution of the soft drink determines the sales and the business development. Unlike other European states, Ukraine is lagging behind in development and this has affected the business. Moreover, Ukraine is a potential target for the company and the senior management of Pepsi Cola International in Ukraine should investigate and make changes that encourage business growth.
This paper will identify four challenges the senior management of Pepsi Cola are facing in relation to distribution Channels and logistics. The paper will also recommend solutions for the four problems.
Key challenges that Pepsi cola senior management is facing
Menachof (2001, p. 2) reveals that distribution of Pepsi is done via arrangement with different franchise and other arrangements. The methods of distribution may require changes that correspond to the transforming economy. The company has conducted business in the Soviet Union for a period that exceeds twenty years.
Pepsi Cola international senior management in Ukraine has exerted efforts to investigate the distribution as well as pricing policies in Ukraine. Ukraine office in Vienna bottles and distributes in Eastern and Central Europe.
Transportation and infrastructure
One of the challenges for Pepsi Cola international is gaining access to the huge markets. The number of users of their soft drinks remains relatively small, when compared to the consumption rates of the large markets.
In 1994, Soviet law made trade arrangements that prohibited Pepsi Cola International from banishing income to United States. Ukraine partnered with shipyard. Consequently, Pepsi became the dominant soft drink. International Directory of Company Histories (2001, p. 1) notes that Ukraine sees Pepsi Cola as their choice. However, Coca cola has opened a bottling plant in Ukraine that has been operational since 1995.
The economic development of Ukraine has been slower than in other parts of Europe. Transportation of goods is slow owing to the slow railway services. There are numerous cases of delay. There is state transport composed of large companies that offer transportation.
Private companies which are small have transportation trucks. Other business men use own vehicles that are not trucks to transport. Any truck can be used for transportation and earn an income for the owner. At the port of Ukraine, imported goods take long owing to payment complications.
Importers have been affected by inflation and have lost purchasing power; hence the price is very high. Accumulation of goods at the port is common and obstructs operations. Space at the port is rare. Banditry and theft are on the rise as some of trucks are forced to offload their goods. Cargo insurance companies have failed to cooperate by withdrawing from insuring cargo for inland beyond the entry of the port.
Private property laws are not fully developed and affects how landlords relate with tenants. Warehouse space is limited. Shipping containers, basements and any available space in the buildings are considered as warehouses. Landlords may breach the contract and the property owner may not be fully protected by the law.
The distribution equipment has been used for more than twenty years. Although the port is being upgraded, the facilities do not match those in the developed part of Europe. While lagging behind at the port, the case is the same for inland facilities. Forklifts are not available and people lift the load by use of hand.
Channels of Distribution
The distribution channels in Ukraine perform poorly compared to other countries. In other countries, there are Pepsi trucks. The drivers of the trucks ensure that they have enough supplies for specific areas. There are also Pepsi machines that provide drinks. The trucks, drivers and machines are absent in Ukraine.
Pepsi Cola international receives concentrate which is sold and delivered to the twelve authorized bottlers. Pepsi cola international use rail or tracks to deliver to the bottlers. During winter, Pepsi cola has to make arrangements with the rail to ensure that it delivers the concentrate. Since roads are impassable, rail is the only means of transport.
Another challenge is preventing the product from freezing by ensuring that the cars are heated. When the concentrate becomes frozen, it cannot be useful anymore. Different distributers obtain Pepsi Cola from the bottlers. The distribution of Pepsi in major towns and city is regular. In small towns, shortages are common. Retailers then sell the product to consumers. Some retailers, like kiosks, do not have the product until they make trips to the city or major towns.
Business environment
Finances and politics have an impact on Ukraine. Investors invest limited capital in their businesses and their plans are often shorter and middle term plans. There is fear and uncertainty about the future. The justification is that unrest may rise up again. Western investors in the Soviet Union have hardships with the law.
They are not protected by the law. Moreover, decision making in business takes a long time and favors shorter plans. Decisions in business last around three months and change of mind can occur at any time before the time is over. Three months is a short time for one to realize quick money as they often wish for.
Business practices are secretive. Business men keep two records for official use and actual transaction. New investors venturing into partnership experience frustration. They have difficulties trusting foreign investors. The locals have been frustrated before and cooperating may take a long time.
Aldin and Stahre (2003, p. 272) mention that the use of distributers eradicates the inconsistencies in the schedules for manufacturers and the pattern of consumption for consumers. Consumers tend to use certain products during a certain season and when the season is ended, the consumption is reduced.
Manufacturers may be required to use wholesalers or retailers to acquire finances. Selling directly to the customers may take a longer period of time to sell. Retailers and whole sales will pay before obtaining the product. The retailers and wholesalers may be in a better position to perform specialization functions than the manufacturer.
Perner (2008, p. 1) adds that the manufacturers are specialists in manufacturing, while the retailers specialize in distributing. Efficiency is obtained if the manufacturers effectively distribute to a wide range of retailers. In turn, the retailers will distribute to the customers.
According to Coughlin et al (2001), for the distribution of same product, a parallel distribution structure may be adopted. The product can be obtained by using a different channel other than the traditional distribution channel. Consumers may prefer to buy from the manufacturer to save on cost and sell for a less costly price. Those using the traditional channel will see this as unfair competition.
Pricing
The prices of Pepsi Cola increase as people move far away from authorized bottlers. The distribution channel is long. From Pepsi cola international, the product is bought by the bottler, then by the distributer, then the local retailer and finally the consumer. The long chain makes the price of Pepsi Cola products costly.
The prices of the drink are also interfered with by the economic slowdown. The cost of fuel has increased and transporting the product has become more costly. The glass bottles are delicate and cumbersome to transport and are expensive, as Ramez (1990, p. 1) mentions.
Larson and Halldorsson (2002, p. 37) state that selling directly to the consumers enables the consumer save. However there may be challenges and inefficiency when it comes to direct distribution from the manufacturer to the consumer. Retailers and the wholesalers make distribution efficient. The customers can get the products at a convenient location.
Carter and Narasimhan (1996, p. 13) indicate that the consumers can buy small quantities of the product as opposed to buying in bulk. Customers can obtain a variety of products from a retailer as opposed to getting a specific product from one store, then move to the other store for another product.
The stores with variety are also located close to the consumer. On the other hand, the customer buying directly from the manufacturer travels a long distance to obtain one product. Intermediaries such as wholesalers make deliveries to retailers with products from different companies. They save on the cost that would have been used in the delivery of individual goods.
Before a product is known by the consumers, the distribution is likely to be slow. Later on as the product is known, the distribution is expected to grow steadily. When the distribution of a particular good is diverted, the market is affected.
Possible solutions for Pepsi Cola International
For economic development to occur, the senior management should consider engaging in research to view possible ways of dealing with the challenges. The senior management policies should be in line with the changes in society as Bruce (1995, p. 230) suggests.
According to Fugate et al (2008, p. 2), understanding the market trends and environment enables the top management to make plans that will enhance distribution of a product. With the understanding of the market trends, it is possible to make strategic plans and implement them.
Transportation and infrastructure
Increasing efficiency while saving on cost is an effective way of solving transport challenges. The company can use own trucks and employ drivers, who would manage the distribution. The drivers will keep record and make necessary arrangements to reach the remote parts and deliver Pepsi products. The driver, as part of the human resource management, can get training on customer relations and increase knowledge. During winter, the concentrate can be kept at the right temperature to prevent cases of freezing.
If the government improves infrastructure, the road network will be efficient and products can be delivered. Development can be encouraged to improve infrastructure in warehouses and storage. The channel can be integrated to reduce the long distribution channels and enhance distribution of the product. The Company can purchase forklifts to assist in loading trucks (Srivastava et al 1999, p. 168).
Rutner and Fawcett (2005, p. 56) argue that distribution of a product is one of the most important processes in a business. Distribution of a product consists of moving a product from the manufacturing company to the ultimate consumer. Consumers determine what retailers will stock. The retailers stock what the consumers ask for.
The retailers give a large shelf space to products that are known to consumers. The retailers fail to stock new or less prominent products to avoid a situation where customers do not buy the product. Retailers have confidence in products that have sold before. Marketing and advertising can be done to encourage more buyers, so that retailers stock Pepsi products.
Channels of distribution
When distributing, the business can adopt a multichannel distribution that will allow for planning using data. The use of catalogues, field sales, trade counters, pricing offers, call centers, mailing lists, websites and trade shows is significant. While distributing, the distributers can use one system to control different channels.
This will reduce the challenges posed by different catalogues for different clients. Creating own ware house will increase efficiency, reduce costs and enable distribution. Customer’s service is important and retailers, as well as distributors, should consider fulfilling the needs of the customer.
Stern (1997, p. 14) notes that the manufacturer has the challenge of ensuring that the product is available all the time. Customers move to another brand when their prefer brand is not available. A number of customers will not move to the next retail shop to obtain their preferred brand and would rather settle for a different. Some manufacturers may be selective and choose their distributer if the product is designed for a classy store.
Business environment
Market research is an important practice that Pepsi Cola International can adopt. The management is involved in conducting research and making changes where necessary. Research will enable the senior management make informed decisions (Mentzer 2001, p. 19).
Gundlach et al (2006, p. 430) suggests that the product should be availed all the time close to the consumer to ensure that the customer gets the product they desire. The competitors pose a threat if their products are available, since consumers go for another product if their preferred product is not available.
Business operators can be encouraged to take risks and invest for long periods. They can also be encouraged to follow standards business protocols. They can make appropriate decision on the new location to venture in and ensure that select the best distributers. Coming up with a strategy on marketing will assist them stay ahead of their competitor. Flexibility in the business plan will enable the business make changes when necessary and avoid delayed decision making.
The channels and structures in distribution are largely dependent on the type of product, demand, location of customers and environmental factors. Manufacturers require the product to be in as many retail shops as possible. They also need the retailer to have the specific products that customers need. In Pepsi Cola, they would require the retailer to have different flavors of the soft drinks so that the customers choose their favorite flavor.
Pricing
Lambert et al (2005, p. 49) adds that pricing of a product positions a product in the market, is a competitive tool and brings revenue to the company. Changes in price may bring resistance and affects sales and thus, companies need to make appropriate decisions.
The prices should remain at reasonable rates. This can be achieved by creating efficiency in the distribution of product. The reduction of the number intermediaries can be reduced so that the prices do not remain high (Perner 2011).
McNamara (2011, p. 1) says that the manufacturing companies can implement price control by recommending the retail price. The prices should be low and should not be below the cost of production. Large discounts should be given to bottling companies, only if the bulk buying enables the manufacturing company to save on cost.
The behavior of customers towards pricing is important to understand consumer behavior on price. Some customers compare prices and when prices change, they buy products at close rate as before. Where there is little difference between competitive products, the consumer has a perception that the product is better and therefore the prices can be increased (Ballo, 2011).
The distribution trends have changed recently. The prices of commodities have increased and sometimes decreased with different pricing as the quality diversifies. The global slowdown has also affected the sales of products. Changes to accommodate change should be adopted as Gerth (2004, p. 1) notes.
Conclusion
Pepsi cola international has operated in Ukraine for two centuries. The challenges are transportation and infrastructure. The port is congested and needs expansion to accommodate cargo. Accumulation of cargo leads to consumption of time before the cargo is released. Concentrate is transported on poor roads and railway.
There is increased burglary on the roads. The cost of fuel is also high. Warehouse and stores are not readily available. There is need for additional forklifts. Distribution of Pepsi products is another challenge. Distribution is done via roads and trains, which are unreliable. Truck drivers are not employed by the Pepsi cola company hence; coordination of demand and supply becomes a challenge.
The channels are long since the manufacturer sells to the bottler, then the wholesaler, then retailers and then the customer. The business environment is challenging. Coca Cola Company has established itself since 1995 and poses competition. There is uncertainty in political and financial processes. Business men keep two records of accounts. Pricing is challenging since there is a long chain in the distribution.
The economic slowdown has also affected businesses. To overcome the challenges, policies that enhance economic development can be adopted. The senior management should also engage in research to discover the market trends and developments, which can be adopted to enhance operation and increase efficiency.
Owning trucks and training staff can increase the sales and distribute to the city and remote areas. Ware houses can be built to increase safe storage. The product should be available all the time. Investment can be encouraged. The price should be able to give revenues and be affordable to the consumer.
Reference List
Aldin, N., & Stahre, F., 2003. Electronic commerce, marketing channels and logistics platform: a whole sale perspective. European Journal of Operational Research, 144 (2): 270-279.
Ballo, R. H., 2011. Logistics, Supply Chain & Transport Management Program. Web.
Bruce, M., 1975. Marketing Channels and Economic Development: A Literature Overview. International Journal of Physical Distribution & Logistics Management, 5 (5): 230 – 237.
Carter, J. R and Narasimhan, R., 1996. Comparison of North American and European Future purchasing trends. International Journal of Purchasing and Materials Management, 32 (2), 12-23.
Coughlin, A. T., Anderson, E., Stern, L. W and El-Ansary, A. I., 2001. Marketing Channels. Prentice-Hall: Upper Saddle River, NJ.
Fugate, B. S., Flint, D. J. & Mentzer, J. T., 2008. The role of logistics in market orientation. Journal of Business Logistics, 1–26,
Gerth, D. 2004. Unit 13: Channels of Distribution, Logistics, and Wholesaling. Web.
Gundlach, G. T. Bolumole, Y. A. Eltantawy R. A., and Frankel, R., 2006. The changing landscape of supply chain management, marketing channels of distribution, logistics and purchasing. Journal of Business and Industrial marketing, 21, (7): 428-438.
International Directory of Company Histories., 2001. The Pepsi Bottling Group, Inc. International Directory of Company Histories, James Press 40. Web.
Lambert, D. M., Garcia-Dastugue, S. J and Croxton, K. L., 2005. An evaluation of process-oriented supply chain management frameworks. Journal of Business Logistics, 26 (1), 25-51.
Larson, P and Halldorsson, A., 2002. What is SCM? And, where is it? Journal of Supply Chain Management, 38 (4), 36-46.
Menachof, D. A., 2001. Pepsi Cola International. Ukraine: Distribution and Pricing Policy in Ukraine.
Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith, C. D and Zacharia, Z. G., 2001. ‘Defining supply chain management. Journal of Business Logistics, 22 (2), 18-31. Web.
McNamara, C., 2011. Operation Management. Web.
Perner, L., 2008. Distribution: channels and Logistics. Web.
Perner, L., 2011. Channels of distribution. Web.
Stern, L. W., 1997. The Concept of Channel Control. Journal of Retailing, 67, 43 (2): 14
Ramez, A., 1990. International report: Pepsi will be bartered for ships and vodka in Deal with soviets. Web.
Rutner, S. M. and Fawcett, S. E., 2005. The state of supply chain education. Supply Chain Management Review, 9 (6), 55-60.
Srivastava, R. K., Shervani, T. A and Fahey, L., 1999. Marketing, business processes, and shareholder value: an organizationally embedded view of marketing activities and the discipline of marketing. Journal of Marketing, 63 (4) 168-179.