Operations Management of PepsiCo

Introduction

This paper is an analysis of the operations management of PepsiCo Company. Operations management is critical for the success of any company and in this paper the significance of operations management is brought out by focusing on PepsiCo Company.

Background 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.

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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).

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.

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.

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. Retrieved on October 23, 2011 from: http://www.combinenet.com/news-events/press-releases/2007/12-03.aspx

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. Retrieved on October 23, 2011 from:http://www.pepsico.com/PressRelease/PepsiCo-Introduces-Social-Vending-System-the-Next-Generation-in-Interactive-Vend04272011.html

Scribd. (2011). Operations management problem in Pepsi. Scribd. Retrieved on October 23, 2011 from: http://www.scribd.com/doc/26878306/Operations-Management-Problem-in-Pepsi-Introduction-Operations