Executive Summary
PepsiCo Inc. is an American international snack, food, and beverage company whose headquarters are based in Harrison, New York. PepsiCo’s business involves all elements of the food and beverage industry. The company supervises the manufacturing, marketing, and distribution of its products. The company was established in 1965 with the union of Frito-Lay and Pepsi-Cola Company. The company has since extended from Pepsi Cola, its namesake product, to a massively diversified variety of beverage and food brands. The most recent and largest acquisition was Pioneer Foods in 2020, which cost $1.7 billion, and before this, the company had bought Quaker Oats firm in 2001.
By January 2021, PepsiCo will have 23 brands that make more than $1 billion in sales yearly. The company has operations globally, and its products are sold in more than 200 countries leading to a yearly net income of more than $70 billion. The company is the second-biggest food and beverage business globally based on total revenue, market capitalization, and profit after Nestle. PepsiCo has been involved in a rivalry for years with Coca Cola commonly known as the cola wars. Though Coca-Cola outperforms Pepsi-Cola in the US, PepsiCo is the biggest food and beverage firm in the North American market by net income. The company’s beverage bottling and distribution are carried out by PepsiCo and by licensed bottlers in various regions. This paper focuses on various aspects of PepsiCo’s business, including its strategy, supply chain management, key supply chain performance metrics, and how the supply chain has contributed to the company’s success.
Company Strategy, Supply Chain Strategy, and Alignment
PepsiCo is the second-largest player in the worldwide food and beverage market. The firm provides a wide range of products (Lau, 2022). The company’s generic competitive strategy is founded on the need to counter market pressure emanating from its biggest competitors, such as Coca Cola Company. A company’s generic strategy describes the primary strategy utilized to maintain a competitive edge. Contrarily, PepsiCo’s intensive growth approaches aim to respond to the increasingly global market conditions for food and beverages. Intensive growth approaches describe how companies sustain their growth. The generic strategy for PepsiCo for competitive edge aligns with its intensive strategy of ensuring long-term growth (Ferguson, 2017). Notably, the company’s growth tactics will enable it to effectively utilize its generic strategy to sustain a long-term competitive advantage. The success of the company is an indicator of the suitability of these strategic tactics, particularly how the generic approach supports competitiveness.
PepsiCo’s Generic Strategy
PepsiCo uses various generic competitive approaches because of the company’s broad range of products. Still, the main generic strategies that offer the company a competitive advantage are cost leadership and broad differentiation (Ferguson, 2017). The company utilizes cost leadership as its main generic competitive approach. This generic approach focuses on minimizing costs with the aim of improving the company’s financial performance and general competitiveness. For instance, to outperform Coca-Cola products, the company sells products at low prices following low operating costs. Also, the company has unique promotional offers at discounted prices. Subsequently, the company utilizes broad differentiation as its secondary broad competitive strategy. This generic approach offers the company a competitive edge by attracting customers of certain unique features of the company’s products. For instance, PepsiCo potato chips are sold as healthy snack products since they have a low content of saturated fat. Such products with unique features tend to attract more customers. The strategic goal for the cost leadership business strategy is to mechanize production processes to reduce the company’s operating costs. On the other hand, the strategic goal for the broad differentiation strategy is innovating products to address the health concerns related to the company’s products.
Supply Chain Management
PepsiCo represents a perfect supply chain strategy that is driven by demand. Such a supply chain strategy aligns with the current market. The company operates in a very competitive market where there are other big suppliers like Coca-Cola offering stiff competition. Pepsico management has discovered that it should employ better tactics in its supply chain strategies to overcome the competition. The company is being pressured to ensure the products reach retailers in a reliable manner to ensure the stores don’t run out of stock.
In the current market environment, companies have discovered that achieving a competitive edge in the market does not necessarily entail offering products of high quality. The need to make sure that consumers can access the products whenever they want them has compelled the company to restructure its approaches in supply chain management to maintain reliability and efficiency. Thus, PepsiCo has developed a supply chain management that is centered on customers.
PepsiCo has perfected various areas of supply chain management, among them purchasing. The company discovered that obtaining the right materials at the ideal time is crucial to realizing success. Notably, a company’s management team should ensure it has enough suppliers for the timely delivery of raw materials. The company has adopted a decentralized purchasing approach to enhance its efficiency. It operates different production plants in various locations. At every branch, the regional manager is in charge of making the purchasing decision depending on the local environmental factors in that area. Devolving the purchase of raw materials is an ideal way of empowering plants in various locations. By permitting the branches in various nations to work semi-autonomously, the top management has ensured that managers from local regions operate based on the forces of those regions.
Further, maintaining a positive relationship with the supplier is necessary to realize success in the food and beverage industry. PepsiCo is among the companies that have maintained a good relationship with their suppliers. The company has established close relationships with the suppliers to a point where the majority of the suppliers feel like they are business partners rather than just suppliers. This close relationship is maintained by providing different benefits to the suppliers, such as loans when the need arises or organizing for sporting activities to strengthen the bonds. This approach has helped to sustain a group of loyal customers, addressing most of the problems faced by other companies in the industry.
Further, strategic outsourcing plays a crucial role in improving purchasing strategies in a company. PepsiCo management appreciates the significance of ensuring strong purchasing strategies to sustain the movement of raw materials into the company. Notably, the raw materials required in the manufacturing the beverage products entail fruits like mangoes, oranges, apples, and pineapples, among others. There are other raw materials such as preservatives, flavor, and sugar. The raw materials can be sourced in various regions where the company operates. The management in these regions is supposed to collaborate with the farmers supplying these products to the company. This eases the process of acquiring raw materials and ensures a steady supply.
In terms of operations, PepsiCo management is still struggling with the issue of overcoming competition from local and global markets. Operational efficiency is among the most critical factors that can enable a company to realize success in the current demanding market. The management of the company knows the importance of maintaining the best operational strategies to help reduce the cost and time operation hence reducing overhead costs and offering the company a competitive advantage over the others in the market. The company has adopted a globalization strategy by extending its operational networks across various countries. Essentially, PepsiCo has developed a supply chain strategy to influence business development and growth in different regions. In addition, in a quest to improve its business sustainability and growth, PepsiCo had diversified into selling other products like fruit juices and grains to meet the customers’ dynamic needs. The firm could attain more benefits by restructuring its worldwide supply chain to align its sourcing and communication strategy with its procurement strategy. Importantly, PepsiCo should obtain information and communication technology tools and devolve its procurement activities to the local levels.
Key Supply Chain Performance Metrics and Historical Trends
PepsiCo utilizes various tools to monitor the performance of its supply chain management. The metrics used by the company include internal metrics, external metrics, and financial metrics. The company uses internal metrics that illustrate what is going on in the entire Pepsi system, including measuring sales, inventory turnover, and throughput. Also, the company reports the external metrics to customers, who are later utilized for benchmarking purposes. These entail the performance of on-time delivery and service level agreements. Further, the financial metrics reveal the impact of the supply chain management on the firm’s financial performance, including net income, return on investment, and return on assets.
Analyzing and measuring performance is the only way of getting an accurate picture of whether supply chain management is effective. PepsiCo utilizes various metrics to obtain the most accurate performance measurement. This enables the management to make the necessary changes to address the customers’ needs while exercising maximum control and keeping the operations sustainable and cost-efficient.
In 2016, the company launched its 2025 sustainability agenda after a detailed analysis of its business model that focused on people, the planet, and products. The company supported all its strategic goals with key performance indicators and described its targets. Afterward, the company published its results. One of the objectives of the 2025 sustainability agenda is to focus on healthier products. The company aims to decrease added sugar in beverages containing 100 calories. Also, the company aims to decrease saturated fat to ensure it is less than 1.1 grams per 100 calories. In addition, the company aims to reduce salt to ensure it is less than 1.3 milligrams of sodium in each calorie. These strategic goals are informed by the company’s performance measures; hence they are in line with the company’s aim of achieving sustainable growth.
Notably, the key performance measures of PepsiCo are time-bound, relevant, measurable, and specific. Simply put, they are aligned with the popular SMART approach. The KPIs influence the company’s success since the company’s differentiation strategy and offering of healthier products have resulted in the organic growth of income by 3.1% as of 2017 (“PepsiCo’s competitive strategy turned into KPIs,” 2017). The firm divided its products into fun-for-you and good-for-you groups and implemented the practicing the content of the product on the packaging in a bid to achieve their KPIs. The good performance outcomes and the progress of the key performance indicators are related. In 2017, the firm reported that above 45% of its income was contributed by its good-for-you snack and beverage division (“PepsiCo’s competitive strategy turned into KPIs,” 2017). These are the beverages with less than 70 calories for each 12 oz and snacks with fewer amounts of saturated fat and salt. Consequently, PepsiCo’s business strategy, KPIs, and targets are clear and transparent.
As the world’s second-best performing snack food and beverage firm, PepsiCo’s efficient supply chain is a critical element of the company’s success. To maintain stable growth, the company mainly focuses on acquisition, making the company become more than just a signature drink; it currently owns Quaker Foods, Lipton, Tropicana, Gatorade, and Frito-Lay, among others. In current years, consumers are more interested in more nutritious and healthier snacks; hence the company has made an effort to reduce the amount of saturated fat and sugar in its products while still maintaining their tastes. Also, the company has increased its product range to include coconut water and juices (Lau, 2022). As the company continues to evolve and grow, addressing the changes in the market environment and fluctuating consumer needs, its supply chain management has also evolved.
There are various features that differentiate the company’s supply chain management approaches. PepsiCo’s general philosophy of innovation, integration, and cooperation helps to ensure its complex and varied supply chain remains flexible, resilient, and stable (“How the PepsiCo supply chain uses cooperation, integration, and innovation to streamline operations,” 2020). As a large international firm, Pepsi must analyze, input, and act on the different types of data to ensure effective management of the flow of its beverage and food products and supply the needs of each. For instance, certain products need cold chain logistics, whereas others need ingredients sourced from various regions across the world. Besides coordinating numerous retailers, warehousing managers, shippers, manufacturers, and suppliers, the company should prepare for potential disruptions caused by changes in demand, climate and weather change, and seasonal sourcing necessities. The ensure adaptability and agility, the company should focus on various areas, including human rights, technology and digitization, sustainability, and the environment.
The company has various standards and policies in place to protect the health, safety, and well-being of each supplier. Also, the company has heavily invested in advanced technologies and digital tools to develop a more streamlined and efficient supply chain. Particularly, the company has zeroed in on data integration to establish a clearer illustration of the household and individuals buying the company’s products. Thus, supply chain strategy enables the company to address consumer needs and enable better long-term forecasting and strategizing. Further, more complicated data analytics enable the company’s retailers and distributors to track inventory. By enhancing ordering algorithms, the company’s stores can put more effort into purchasing trends, accounting for sales histories, and accurate orders. This helps in creating a cost-efficient and streamlined chain and enhanced productivity for the company.
The supply chain has coordinated forecasting (Lau, 2022). The forecasts are carried out on a monthly and consider the present inventory levels, present demand, and anticipated. The company works with beverage and food factories to determine the raw materials required. This entails packaging and components such as bananas, sugar, and corn syrup. The outcomes of this process are shared across the whole supply chain management system to ensure the company is planning for its production needs.
Also, the supply chain process has coordinated distribution where products are distributed from twenty distribution centers to wholesalers and retailers globally. All distribution centers focus on a certain zone in North America or a certain zone in Europe based on the location they serve (Lau, 2022). The company collaborates with retail customers to establish joint distribution initiatives to deliver products from various third-party suppliers. The supply chain management of the company works perfectly because all members of the process can access accurate and current information regarding product pricing and availability. The supply chain management utilized a centralized information technology strategy known as enterprise information portfolio that offers real-time access to pertinent. Notably, the supply chain integrates electronic data interchange.
In conclusion, the supply chain focuses on customer service. In PepsiCo system contributes significantly to maintaining strong ties with customers, both small and large (Lau, 2022). The firm utilizes feedback surveys from various customers yearly to determine the customers’ needs and wants. Further, the company has developed a forecasting process and integrated planning associated with its information technology system to ensure the whole supply chain management works together. This collaboration enables the company to plan more effectively and save on operational costs and money.
References
Ferguson, E. (2017, February 6). PepsiCo’s generic and intensive growth strategies. Panmure Institute. https://panmore.com/pepsico-generic-strategy-intensive-growth-strategies
How the PepsiCo supply chain uses cooperation, integration, and innovation to streamline operations. (2020, July 30). Thomasnet® – Product Sourcing and Supplier Discovery Platform – Find North American Manufacturers, Suppliers, and Industrial Companies. https://www.thomasnet.com/insights/pepsico-supply-chain/
Lau, J. (2022, 15). 11 key points in Pepsi-cola supply chain management. Your Bottled Water Business Startup Expert! https://ibottling.com/11-key-points-in-pepsi-cola-supply-chain-management/
PepsiCo’s competitive strategy turned into KPIs. (2017, August 17). Software Development Company – ScienceSoft. https://www.scnsoft.com/blog/pepsicos-competitive-strategy-turned-into-kpis
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