Operations Plan of PepsiCo Inc.
PepsiCo Inc. is the second-largest company in the international food and beverage industry (Gregory, 2017). It has its operations spread across the world with factories and plants in different countries. The product line of the company includes snacks and beverages, which are very popular among consumers. This is one of the most famous brands and provides a strong potential for studying its operations plan. In this paper, we will explore the different operations of PepsiCo Inc. and provide a detailed analysis.
PepsiCo’s operations are guided by the business plan of the company, which is different for developed and developing countries. The operations related to product development have the goal to match the market preferences and demands with organizational capacity and goods and services. PepsiCo carries out extensive market research, product development, and innovation to create fitting products for different markets (Gregory, 2017). The company also researches the current market trends such as customer lifestyle to come up with new products and adjust existing ones to match those preferences. In developed countries, PepsiCo looks forward to creating a strong snacks line and market and leverage operations related to beverages to create a strong position. For the beverages category, the company depends on scientific research to create product differentiation and wants to exploit current product opportunities (PepsiCo, 2014). PepsiCo invests and tries to capture the market to become the top leader in emerging markets. The company also goes through different acquisitions to grow its customer base and products and services.
The operations of PepsiCo are aligned with the objectives in different countries. It also comes out with new flavors based on the regional preferences of its customers. The regional-specific products are able to attract the attention of consumers, and that results in increased sales.
In India, the company manufactures Chatpata flavor of Lays potato chips which has a packet of Tamarind sauce (PepsiCo, India, n.d). The company also produces other variants like Kurkure to create a strong position for itself in the market. PepsiCo also acquired the Indian snacks company like Uncle Chips as an expansion plan and to achieve growth. It continues to sell snacks under the brand name of Uncle Chips even after the acquisition.
The manufacturing and distribution operations of PepsiCo are carried out by different branches which handle the responsibility of a specific zone. The Frito-Lay North America (FLNA) division carries out the production, distribution, marketing, and selling operations of the company’s snacks (Dudovskiy, 2016). Quaker Foods North America (QFNA) handles the operations related to rice, cereals, and pasta in North America. The Latin American division conducts the manufacturing and distribution operations of snacks and beverages in Latin American countries. The Asia, Middle East & North America (AMENA) division takes care of the producing and selling operations of brands Kurkure and Cheetos. Europe & Sub-Saharan Africa (ESSA) handles its operations of selling and distributing through independent sources and third-party partnerships. The North America Beverages (NAB) has the responsibility to manufacture, market, and sell finished products, beverages, syrups, and concentrates. The FLNA and NAB conduct a major part of the operations and have turned out to be top revenue generators for PepsiCo.
PepsiCo has company-owned manufacturing plants and partner-owned facilities spread across 68 countries. The manufacturing operations are quite massive as the company uses a wide range of natural resources such as fruits, oats, milk, fruit juices, corn, potato, sugar, and so on (CSI, n.d). PepsiCo has developed a wide network of suppliers who supply the necessary raw material to the company. Some of the raw materials are also collected from local markets. The suppliers have to meet various standards and codes of conduct set up by PepsiCo to produce high-quality products and services. The operations of sourcing raw materials aim to attain sustainability, and the company also trains the suppliers to achieve the goal (PS, n.d). The food and beverages use different types of raw materials, which makes the inbound logistic operations differ across each brand. PepsiCo generates competitive advantage and economies of scale through its sourcing operations which also creates value in the supply chain. The company also tries to set up manufacturing plants near the sources of raw materials so that it can achieve cost-effectiveness and cut back on transport expenses (Dudovskiy, 2016).
PepsiCo Inc. is known to take the help of high levels of technology to conduct its operations. Even the manufacturing plants utilize state-of-the-art technology and automation to increase the productivity of the operations. The use of technology begins with the operations of product development. The company has taken the help of 3D printing to develop high-quality potato chips under the RUFFLES® Deep Ridged brand (Stroud, 2015). Some of the older production facilities have been able to increase the productivity of their operations due to the implementation of automation. PepsiCo is also experimenting and researching to introduce cloud computing and mobile extensions, which will increase the effectiveness of their operations. They are also looking forward to incorporating the technology of the Internet of Things (IoT) to connect their processes and operations and meet customer demands effectively. The company also uses technology in its distribution, order management, and selling operations. The retailers selling PepsiCo products can automatically refill their orders using advanced software which employs algorithms and evaluates various factors such as historical sales data. The software has enabled PepsiCo, the distributors, and retailers to manage orders simply, along with monitoring inventories and market trends (Sankaran, 2018). The company takes the help of automated solutions such as robotic truck loaders and automatic pickup methods to increase the efficiency of its distribution process. PepsiCo is also experimenting with a new vehicle technology known as platooning for its delivery trucks. Similar to the concept of bike drafting, a front truck is driven by a driver while two other trucks follow close behind. The move will enable PepsiCo to reduce its transportation costs and give them a competitive advantage (Stroud, 2015).
Another important factor that stands out from the company’s operation is sustainability. PepsiCo looks to adopt sustainable ways starting from the selection of suppliers to its distribution operations. The suppliers have to meet the requirements of sustainable policies such as PepsiCo Land Use Policy and PepsiCo Sustainable Agriculture Policy (PS, n.d). PepsiCo also conducts formal risk assessments and third-party audits of suppliers so that they can meet the sustainability goals and also trains them for the same purpose. Training and awareness programs are also carried out so that different stages of the supply chain can create sustainability. The manufacturing operations of PepsiCo are also aligned to drive sustainability and cut back operational costs while producing lower amounts of waste. The company also devises various techniques to reduce its carbon footprint and environmental impact, and they had prioritized water as one of the leading human rights (Stroud, 2015). Since 2006, PepsiCo has been able to generate 20 percent efficiency per unit of operational water use and, together with PepsiCo Foundation, have engaged in the task of providing safe drinking water to six million people. The company also reused and recycled 93 percent of the total waste produced by different facilities of PepsiCo in 2013 (Stroud, 2015). 22 manufacturing facilities owned by the company did not produce any waste that needed to be sent to landfills; another 48 production plants had been able to achieve almost near zero wastage (Stroud, 2015). The company is also experimenting with renewable energy such as oat rice hull biomass boilers, solar power, and natural gas and wants to incorporate them in its facilities in the coming years. The outbound logistic operations of the company also adopted sustainable ways. The FLNA segment of PepsiCo runs 280 electric trucks, which is the largest fleet of green delivery vehicles in the USA (Stroud, 2015).
PepsiCo is dedicated to maintaining high-quality standards and goes through different initiatives to ensure the customers get products as per their expectations. The process of quality control starts with the selection of suppliers. The suppliers need to have the same levels of integrity and standards as PepsiCo so that the company can keep its goodwill and reputation intact (PS, n.d). All suppliers have to abide by and satisfy the Code of Conduct before they can become qualified suppliers. The suppliers also have to meet the eligibilities of the PepsiCo Environmental, Health, and Safety policy before they can supply raw materials. The quality management operations have the goal to optimize quality based on consumer and business expectations (Gregory, 2017). The quality management operations are guided by the company’s “Human Sustainability” objectives and aim to deliver the highest quality products and services. The company also enhances the quality and nature of its products from time to time. For example, the company produces low calories beverages such as Diet Pepsi and Frito Lay products with less amount of salt. PepsiCo also places a high priority on food safety and quality and manages quality based on the company value guidelines. According to the guidelines, the company only sells products that they can be proud of. They are also driven by the guideline to care for the world, their customers, and consumers (PepsiCo, n.d). Based on the guidelines, the company adopts different techniques to ensure food quality and safety. The food products satisfy the quality standards and food safety standards and meet the industry practices. The production facilities also meet all regulations and guidelines established by the country’s government and other regulatory bodies. The company also uses ingredients that are safe and do not cause and issues.
The supply chain of PepsiCo is also traceable, which increases food safety and quality and makes it easy to track any issues of concern (PepsiCo, n.d). PepsiCo has also established the Global Food Safety strategy to meet the important food safety objectives. The objectives include keeping the reputation of PepsiCo brands intact by assuring all regulations and compliances are met on the ground. They also try to deliver product designs that are safe and carry high standards by complying with processes and specifications. PepsiCo also adjusted its operations according to the Food Safety Modernization Act (FSMA) released by the US Food and Drug Administration (FDA). The company meets all compliances of the FSMA, including the foundational rule, which deals with Preventive Controls for Human Foods by assigning global resources (PepsiCo, n.d), and the company also updated over 1,000 ingredient specifications meeting the requirements of the Act and approved more than 1,700 supplier locations. It also made 500 associates go through the FSMA certified training to ensure food quality and safety and is also advancing along the way to meet the final rule of FSMA, Mitigation Strategies to Protect Food Against Intentional Adulteration (IA) which will be finalized in July 2019 (PepsiCo, n.d). The company also takes the help of third-party organizations via the Global Food Safety Initiative (GFSI) certification process to carry out independent audits of manufacturing sites. The audits enable the company to evaluate the facility’s food safety management practices and ensure that only the safest and highest quality products reach the market.
The distribution operations of PepsiCo are very vast, and its products are sold in almost all countries of the world. The company delivers its products to more than 300,000 small and big scale retailers worldwide (Sankaran, 2018). The total distribution operations resulted in a cost of $ 9.4 billion in 2015 (Dudovskiy, 2016). The company delivers its products in different ways so that it is able to create productivity and reduce the costs of delivery. PepsiCo delivers products that are restocked regularly at the stores and enjoys higher visibility. The company adopts a cost-effective method of distribution operation by delivering the products to the warehouses. The company also utilizes independent distributors to market its products in far-off markets. It also sells some of its products online through e-commerce which generated revenues of $1 billion in 2017 (Sankaran, 2018).
The company determines the effectiveness of its operations by setting goals which it tries to accomplish. The effectiveness of the financial operations is measured by financial metrics such as organic revenue, operating margins, cash flow, net return on invested capital (ROIC), the amount paid back to shareholders, and so on (Pepsico, Inc., 2017). The performance of operations in other segments is defined according to the progress it makes to attain the goals according to the 2025 Agenda (PPS, n.d). The goals are divided across three categories that are product, people, and the planet. The company has several goals which it seeks to attain under each category. For example, it has a goal of reducing the amount of added sugar to its products under the Product category. Under the Planet category, it looks forward to making a positive water impact and lower carbon emissions. The performance in this sector is determined by metrics such as operational water use, and we had already discussed how PepsiCo attained 20 percent efficiency in this regard. The operations of PepsiCo are managed in an optimal way so that the result is increased in productivity and reduction of operating costs. The operations also create sustainability and reduce the environmental impact created by the company.
- CSI,. (n.d). Pepsico Inc’s Suppliers Performance. CSI Market. https://csimarket.com/stocks/suppliers_glance.php?code=PEP
- Dudovskiy, John. (2016). PepsiCo Value Chain Analysis. Research Methodology. https://research-methodology.net/pepsico-value-chain-analysis/
- Gregory, Lawrence. (2017). PepsiCo’s Operations Management, 10 Decisions, Productivity. Panmore Institute. http://panmore.com/pepsico-operations-management-10-decisions-areas-productivity
- PepsiCo,. (2014). PepsiCo: Sustainable Value Creation, February 13, 2014. Pepsico. http://www.pepsico.com/assets/download/q4_2013_webdeck_final.pdf
- PepsiCo,. (n.d). Product Safety & Quality. PepsiCo. https://www.pepsico.com/docs/album/policies-doc/product-safety-and-quality-a-z-topics.pdf
- Pepsico, Inc,. (2017). 2017 Annual Report. https://www.pepsico.com/docs/album/investor/pepsico-inc-2017-annual-report.pdf
- PPS,. (n.d). Our Goals. http://www.pepsico.com/sustainability/performance-with-purpose/our-goals
- PS,. (n.d). Sustainable SOurcing. Pepsico. http://www.pepsico.com/sustainability/sustainable-sourcing
- Sankaran, Vivek. (2018). PepsiCo Drives a More Digital Supply CHain. DigitalCommerce360. https://www.digitalcommerce360.com/2018/04/04/pepsico-drives-a-more-digital-supply-chain/
- Stroud, Andrea. (2015). Why PepsiCo Supply Chain Innovation Matters Organization Wide. APQC Blog. https://www.apqc.org/blog/why-pepsico-supply-chain-innovation-matters-organization-wide