Table of Contents

Introduction.........................................................................................................................
Pepsi Co History..................................................................................................................
PepsiCos Mission............................................................................................................
Competitive and Supply Chain Strategies.......................................................................
.........................................................................................................................
PepsiCos Supply Chain Management..................................................................................
Difficulties without Just-in-Time .....................................................................................
Improvement with using Just-In-Time (JIT).......................................................................
I2 Transportation ............................................................................................................
Implementation...............................................................................................................
I2 Supply Chain Visibility.................................................................................................
E-solution by Hewlett Packard (HP) ....................................................................................
Pepsi Bottling......................................................................................................................
The challenge..................................................................................................................
The solution.....................................................................................................................
The results.......................................................................................................................
Packaging as a tool for Supply chain management.............................................................
Palletization Roadmap.....................................................................................................
PepsiCos Frito Lay Supply chain ........................................................................................
Strength........................................................................................................................
From supplier to retailer................................................................................................
Retailers........................................................................................................................
Competitive advantages...............................................................................................
Pepsi Tropicana Supply Chain............................................................................................
Background...................................................................................................................
Problems.......................................................................................................................
Solution.........................................................................................................................
Limitations of Pepsi Supply Chain over Coke.....................................................................

Introduction
Supply Chain Management is the process of planning, implementing, and controlling the operations of
supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain
management spans all movement and storage of raw materials, work-in-process inventory, and finished
goods from point-of-origin to point-of-consumption. It is a cross functional approach to managing the
movement of raw materials into an organization and the movement of finished goods out of the
organization toward the end consumer.
Supply Chain management is also the combination of art and science of improving the way company finds
the raw components it needs to make a product or service and deliver it to customers. It seeks to enhance
competitive performance by closely integrating the internal functions within a company and effectively
linking them with external operations of suppliers and channel members. Moreover, this has been a
prominent concern for both large and small companies as they strive for better quality and higher
customer satisfaction.
In a supply chain, a company links to its supplier upstream and to its distributors downstream in order to
serve its customer. The goal of supply chain management is to provide maximum customer service at the
lowest possible costs.
Companies now are competing supply chain-to-supply chain rather than enterprise-to-enterprise
requiring for more intimately connected relationships. Customer markets and supply chains are no longer
limited by physical proximity, and businesses are sourcing from and managing a greater number of farflung partners and channels.
Success of a company now depends on effective global supply chain management, its ability to deliver the
right product to the right market at the right time. The complexity involved in managing supply chains
that span continents and dominate markets demands strategies and systems that are adaptable.
Managing Supply Chain for Global Competitiveness takes a strategic look at all of the core functions of
global supply chain management which includes product design, planning and forecasting, sourcing,
outsourcing, manufacturing, logistics, distribution, and fulfilment. An example to illustrate this
theory on the supply chain management is the PepsiCo, Inc.

Pepsi Co History
PepsiCo, a Fortune 500, American Multinational Corporation is under the food consumer product
industry and is the world leader in convenient foods and beverages. The Pepsi brand and other Pepsi-Cola
products account for nearly one-third of the total soft drink sales in the United States. In order for the
company to make sure that their products reach the customers, the company needs a efficient supply
chain solutions.
It was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998
and PepsiCo merged with The Quaker Oats Company, including the Gatorade in 2001. PepsiCo offers
product choices to meet a broad variety of needs and preference -- from fun-for-you items to product
choices that contribute to healthier lifestyles. PepsiCo owns some of the world's most popular brands,
including Pepsi-Cola, Mountain Dew, Diet Pepsi, Lay's, Doritos, Tropicana, Gatorade, and Quaker. CocaCola Company in market value for the first time in 112 years since both companies began to compete.
Other brands include Caffeine-Free Pepsi, Diet Pepsi/Pepsi Light, Caffeine-Free Diet Pepsi, Caffeine-Free
Pepsi Light, Wild Cherry Pepsi, Pepsi Lime, Pepsi Max, Pepsi Twist and Pepsi ONE,7 Up ,Aquafina
(Flavour Splash, Alive, and Twist/Burst),Propel Fitness Water, SoBe, Quaker Milk Chillers.
The Frito-Lay brands are : Cheetos,Fritos,Go Snacks, James' Grandma's Cookies, Hamka's, Lay's, Miss
Vickie's, Munchies, Sandora, Santitas, The Smith's Snackfood Company, Sun Chips, Kurkure, Tostitos
and some of the Quaker Oats brands include Aunt Jemima, Capone Crunch, Chewy Granola bars,
Coqueiro, Crisp'ums, Cruesli, FrescAvena, King Vitaman, Life, Oatso Simple, Quake, Quisp, Rice-A-Roni,
and Spudz
PepsiCos Mission

PepsiCo's overall mission is to increase the value of shareholder's investment. They do this
through sales growth, cost controls and wise investment of resources.

They believe their commercial success depends upon offering quality and value to their
consumers and customers; providing products that are safe, wholesome, economically efficient and
environmentally sound; and providing a fair return to their investors while adhering to the highest
standards of integrity.

A customer while purchasing a bottle of Pepsi will consider product quality, price and availability
of the product. Thus, Pepsi focuses its competitive strategy as to producing sufficient variety,
reasonable prices, and the availability of the product.

epsi Ceo
Indra Krishnamurthy Nooyi has been the chief executive of PepsiCo since 2006. During her time,
healthier snacks have been marketed and the company is striving for a net-zero impact on the
environment. This focus on healthier foods and lifestyles is part of Nooyi's "Performance with
Purpose" philosophy. In 2007, Nooyi spent $1.3 billion on healthier-alternative brands like Naked Juice,
a California maker of soy drinks and organic juice.
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Today, beverage distribution and bottling is undertaken primarily by associated companies such as The
Pepsi Bottling Group and Pepsi Americas. PepsiCo is a SIC 2080 (beverage) company.
PepsiCo has also recently acquired a 50% stake in U.S.-based Sabra Dipping Company.
PepsiCo also has formed partnerships with several brands it does not own, in order to distribute these or
market them with its own brands.
Competitive and Supply Chain Strategies

In its business, diversity and inclusion provide a competitive advantage that drives business
results.

Its brands appeal to an extraordinarily diverse array of customers and they are sold by an
equally diverse group of retailers.

It understands the needs of our consumers and customers

Uses diversity in our supplier base and in everything we do.

Commitment to purchase from a supplier base representative of our employees, consumers,

retail customers and communities.

Developing partnerships with minority-owned and women-owned suppliers helps us build the
world-class supplier base we need.

Creates mutually beneficial relationships that expand PepsiCo's sphere of activity. It helps build
community infrastructure by providing employment, training, role models, buying from other
minority and women-owned business and supporting community organizations

Figure

Thus the major sustainable advantages that give PepsiCo a competitive edge as they operate in the
global marketplace:
1.

Big, muscular brands,

4

2.

Proven ability to innovate and create differentiated products and

3.

Powerful go-to-market systems.

PepsiCos Supply Chain Management

Difficulties without Just-in-Time

When an operation of the company was not just-in-time based, the demand or production
planner strived to optimize production-oriented goals and objectives such as equipment
utilization, labour efficiency, throughput and uptime.

Optimizing these goals often leads to run large batch sizes that are dependent on the availability
of raw materials. This optimizes the equipment and labour utilization but the production planners
and managers had not been looking at the expense of the bigger picture.

The sourcing or purchasing managers strived towards reducing companys spending overall.
This manager consolidated suppliers offering products or materials at the lowest per unit costs
through buying in volume.

They even got the shipping and freight costs included in the purchase price, which led to the
increase in the price of the commodity.

Purchasing managers focused on getting the best price, not putting into consideration the
supplier performance and reliability.

The logistics/transportation manager was tacked with getting raw materials in and the finished
goods out of the production process and seek to optimize the transportation and distributing
network. This manager focused on the lowest cost and reliability of the logistics or transportation
solutions. But lowest cost could only be attained if the purchasing team negotiates a delivered cost
package deal with the supplier and the supplier is responsible of the reliability and performance of
the carriers or transporters.

Improvement with using Just-In-Time (JIT)

When it comes to delivering high cost and perishable products to manufacturing sites, just-intime (JIT) remains one of the most cost-effective supply chain solutions. In JIT process, on time
delivery is an absolute necessity.

Just-in-Time (JIT) is a philosophy that defines the manner in which a manufacturing system
should be managed. It enhances customer satisfaction in terms of availability of options, assurance
of quality, prompt delivery times, and value of money.

The Pepsi brand and other Pepsi-Cola products accounted for nearly one-third of the total soft
drink sales in the United States. In order to ensure that PepsiCos concentrates reaches bottlers as
needed during the production had to reach them JIT, they partnered with 3PL provider Penske

Logistics to manage its transportation. Penske also provides warehouse management for two
Pepsi distribution centers in North America.
I2 Transportation

I2 Transportation is a part of end to end solution for planning, execution, and management of
the entire transportation cycle.

It is designed to enable an organization to utilize and manage an entire transportation network,

as well as reduce cost while improving transport performance.

I2 transportation is designed to employ sophisticated optimization and data techniques to define

and evaluate alternative transportation strategies. It is also designed to provide comprehensive data
management, analytics, and reporting of key transportation cost and service trade-offs.

Implementation
PepsiCo set two objectives for transportation management. One was to achieve an on-time delivery rate at
99.1% and another was to reduce transportation costs.It empowered with optimized processes and
technology that enable the team to perform at the highest possible level. With the application of new
technology that provides greater supply chain visibility, better organized data, and access to higher level
of real time or near real time information, even the best team can improve their performance.
In 2000, Penske converted Pepsis transportation management technology from propriety software to i2
transportation optimization solution. i2 transportation platform was enhanced with the addition of
interface between the two companies.
In addition, Penskes partnership with Business objects provided comprehensive supply chain data from
its data warehouse, analysis and management applications. Penskes with use of i2 transportation could
track performance at every stage in the process which increased flexibility and provided greater control
over the transportation operation. This increase in visibility made it easier to keep track of shipments,
revise routes and schedules to accommodate unforeseen changes and implement alternative plans to
counter delays. By Penskes putting a solution in place to track and measure every shipment,
Pepsi has been able to provide an on-time delivery performance of well over 99 percent.
Pepsis transportation is consolidated to a central location to reduce costs. Penske also provided a
nationwide carrier rate re-negotiation and service assessment which improved cost structure and achieve
on-time delivery goal. With this centralization, allows negotiation in a large scale to secure the best rates
and services.
Furthermore, Pepsis orders are received electronically and optimized to ensure lowest transportation
cost. Advanced technology is deployed to select the lowest cost carrier, find the best routes and
consolidate shipments. Optimal load configuration ensures maximization of each truckload (2003).
In summary, PepsiCo used the JIT process to its supply chain management. To make this possible, Pepsi
partners with Penske that has provide them with i2 transportation optimization solutions which has
satisfies their consumer with the on-time delivery and with the benefit to the company for it has also
reduce transportation cost.

I2 Supply Chain Visibility

With shorter lifecycles and lead timesto customers demanding faster results and more responsive
service. Globalization and outsourcing have added to the complexity, resulting in more diversified supply
chains. The number of supply chain partners, as well as the amount of geographic dispersion, has
increased dramatically as a result.
To ensure that their order-to-delivery performance is not impacted, companies need to have greater
coordination and visibility into the material flow across the supply chain.
Increase Global Visibility
With Companies have access to global visibility into all of their critical supply chain activities and
partnerships. It allows organizations to respond more quickly and effectively to a wide range of
unplanned and potentially disruptive supply and demand events. Supply-related events can include
production bottlenecks, fulfillment delays such as port strikes and customs delays, and supplier
shortages. Demand-side events might include customer orders that are greater than forecasts or changes
to orders that have already been placed.
I2 Supply Chain Visibility is designed to manage these events, assess their impact, and orchestrate a rapid
and practical resolution while providing a unified view of the supply chain. The solution can also
incorporate packaged business process packs for replenishment, fulfilment, and manufacturing, and these
packages can be configured to meet customer-specific requirements.
i2 Supply Chain Visibility also enables companies to close the loop between traditional planning and
execution processes. It enables better understanding of orders, inventory, and logistics data.
Powerful Functionality
This solution incorporates pre-built workflows that integrate data across order management, warehouse
management, logistics, and inventory applications for the flow of both domestic and international goods.
A series of predefined, extensible events and exceptions support each workflow and a visual studio
allows workflows and events to be extended, configured, and customized to meet specific enterprise
requirements. i2 Supply Chain Visibility delivers a robust technology that is scalable and extensible, and
that operates smoothly in a distributed computing environment.
Extensive Capabilities

Inbound and outbound tracking of order, inventory, and logistics flows

Domestic and international flows that track multi-leg and multi-modal shipments

Visibility into exceptions and events across orders, inventory, and shipments

Role-based views for buyers, suppliers, analysts, and 3PL vendors

High degree of permissibility and privacy controls

Track-and-trace inventory across multiple locations

Configurable event detection mechanism and customizable event management workflows

Event chaining such as linking of related events, audit trails, context-based problem
prioritization and extensive notification options including e-mail, e-mail digest, pagers, and cell
phones
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Calendars, internationalization (i18n), and multi-time zone support enabled

Integration to underlying applications for intelligent resolution and to prevent event

recurrence

Root-cause, event trend, and performance analysis capabilities

Rich event library with over 100+ out-of-box events supported

Fast, web-based supplier enablement and transaction support

Benefits

Exception-based management

End-to-end supply chain visibility and event management tools

Customer-specific solutions for replenishment, fulfillment, and manufacturing

The ability to forecast and respond to supply/demand events

The option to move from calendar-based to event-driven planning and re-planning.

Increased employee productivity

Reduced process, personnel, and expediting costs

Improved customer, supplier, and partner communications.

Real-time decision support

E-solution by Hewlett Packard (HP)

PepsiCo signed a deal with Hewlett Packard in 2006 to help improve its supply chain management and
increase overall efficiency. The seven year deal involved the overhaul of current IT solutions with PepsiCo
and focused on updating server environments as well as ensuring a new infrastructure which benefitted
operations and increased overall cost-saving.
In particular, HP introduced a number of new solutions which helped to encourage stronger customer
relationship management and supply chain management. PepsiCo had also opted for BT as its network
provider to ensure the e-solution is fully implemented.
The supply chain management solution reduced costs as well as enhanced current service provision
online and via its communications networking system. By standardizing and optimizing its server
environment, PepsiCo International is better flex to meet its changing business needs and in turn provide
better service to customers anywhere in the world.

Pepsi Bottling
Pepsi Bottling Group is the worlds largest manufacturer, seller and distributor of Pepsi-Cola beverages.
With annual sales of nearly $11 billion, the companys fastest growing segment is non-carbonated
beverages, including the number one brand of bottled water in the U.S., Aquafina, as well as Tropicana
juice drinks and Lipton Ice Tea. As part of a 24/7 production operation, the companys Detroit plant ships
about 27 million cases per year.
Production at the plant begins as empty bottles are unloaded from trucks via conveyor and transported to
a depalletizer. From there, they are, rinsed, dried and sent to a filling machine (filler speeds at the plant
vary based on bottle size, ranging from 350 to 1,000 bottles per minute). The bottles leave the fillers and
make their way to a packaging machine, and then to a palletizer. Each pallet is wrapped for distribution
and moved to the warehouse for shipping.
The challenge
The plant uses a variety of sensors to monitor bottles as they travel through the sequence of steps and to
manage the flow to the individual stations. Line sensors match the speed of the conveyor. The companys
inventory of sensors swelled over the years to include more than 120 different varieties. Many of these
included multiple styles of the same product stocked under different brands. A similar problem was
developing with its drives inventory, which had grown to over 50 different part numbers.
The wide variety of sensors made it progressively more complex and time-consuming to replace a faulty
device. Despite its fast, high-performance machinery, the increasingly lengthy and more frequent
downtime was beginning to impact the companys ability to meet its productivity goals. In addition,
operating costs were on the rise due to the excess spares inventory. Because of the extensive number of
sensors they had in inventory, including multiple styles and brands, simply finding the right replacement
resulted in an hour of downtime.
A more strategic approach to maintenance was necessary, as even the smallest of delays could cost the
plant thousands of dollars in lost production and overtime. Knowing that effective parts management and
fast, reliable equipment repair lies at the heart of efficient manufacturing, the company explored ways to
get its inventory and maintenance processes under tighter control. Thats when it decided to turn to
Rockwell Automation for help.

The Pepsi Bottling Groups Detriot plant reduced its number of sensors from 180 to 46, a decrease of 66
percent, by standardizing it sensors inventory to Allen-Bradley products. This reduced downtime and
inventory costs.
The solution
The first task undertaken by Rockwell Automation was to conduct an Installed Base Evaluation a plantwide inventory assessment to determine the exact number of sensors and drives the plant currently had in
stock. Next it needed to figure out what products were actually needed and which ones could be
eliminated. To streamline its operation, Rockwell Automation recommended that Pepsi standardize its
entire sensors inventory on Allen-Bradley products. The local distributor, McNaughton-McKay Electric
Company (Mc&Mc), helped design a migration plan to help ease the cost of this inventory conversion.
Although all the drives employed at the plant were Allen-Bradley brand, many were older models
representing a multitude of drive families. To simplify its drives inventory and upgrade its technology at
the same time, Pepsi converted all of its drives to the Allen-Bradley PowerFlex family of AC drives. A
detailed cross-reference chart developed by Rockwell Automation now provides technicians with a quick
and easy way to identify failed and replacement parts, as well as installation instructions.
To ensure reliable availability to spare parts, Pepsi set-up a Rockwell Automation Services Agreement that
included parts management. With the agreement, Pepsi pays a fixed monthly cost for their spare parts,
which are owned and managed by Rockwell Automation but stocked on-site. The agreement allows Pepsi
to reduce its upfront expenses, have immediate access to spares, reduce carrying costs, and update its
control technology cost-effectively. The agreement also includes an in-service warranty, so the parts dont
go out of warranty until they are actually used for the warranty period.
To help the company better utilize its internal resources and reduce costly troubleshooting delays, the
Rockwell Automation Services Agreement included TechConnect Support. This remote support service
provides the plant with 24/7 access to Rockwell Automation technical specialists. When a problem occurs,
Pepsi technicians can call for immediate troubleshooting assistance to resolve it as quickly as possible. To
help facilitate problem resolution, Rockwell Automation technical specialists can also perform remote
10

system diagnostics through an Allen-Bradley modem installed at the Pepsi facility. This helped Pepsi
minimize risk and reducing long term costs.
The results
Leveraging Rockwell Automation Services & Support has proved to be a smart decision for Pepsi Bottling
Group. The improved inventory and parts management capabilities helped reduce downtime and
inventory costs, and standardizing on Allen-Bradley products eased training requirements and minimized
the technology learning curve. These benefits have ultimately enhanced productivity by 8 percent and
reduced the overtime required to fill orders. In addition, the plant was able to reduce the number of
sensors it uses from 180 to 46, a decrease of 66 percent. Likewise, it was able to reduce the number of
drive styles from several hundred to 14.

Packaging as a tool for Supply chain management

GS 1 standards (bar codes)

RFID tags for real-time stock replenishments

Commercial Security offerings

Counterfeit & pilferage

Online supply chain visibility across the chain

Pack safety for the consumer

Pepsi-Cola Saved $44 million by switching from corrugated to reusable plastic shipping containers for
one litre and 20-ounce bottles, conserving 196million pounds of corrugated material.
Palletization cost vs. value creator
Key supply chain cost optimizer through an Integrated supply chain approach
Drive standards pallets/trucks
Pallet pooling services

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Palletization Roadmap

PepsiCos Frito Lay Supply chain

Frito-Lay is the snack food division of PepsiCo and the largest supplier of potato and corn chips in the
world, currently holding 40% of the market share globally, and selling its products in 120 countries.

12

Strength
Frito-Lay is succeeding against a multitude of competitors in a fierce, yet slow-growth industry, selling
approximately 4.5 billion packages of snacks per year.
In order to achieve this, the company has learned how to masterfully create, innovate and manage all
aspects of its supply chain using high-tech IT systems that allow it greater control over its production
processes and distribution network.

Supply chain in USA:

Supplier Base: Frito-Lays supplier network for potato chip production has fewer than 100 individual
suppliers.

ategy Used:

Several years ago, Frito-Lay approached its potato suppliers to seek those farmers willing to
concentrate on cultivating a limited number of potato varieties, with a focus on producing the most
appealing taste and quality potato chip for the consumer.

Frito-Lay then offered these farmers long-term contracts, which made it easier for the farmers to
get financing and for Frito-Lay to achieve more efficient, profitable economies of scale in other areas
of the value chain.

It is noteworthy to mention that steps like these that insure a stable supply of raw material are
important to a company who purchases 2.3 billion pounds of potatoes and 775 million pounds of corn
annually.

From supplier to retailer

Frito-Lay traditionally relied upon its in-house fleet of trucks to transport products from its
plants to its 1,900 warehouses or 200 distribution centers.

However, as the company expanded, operations managers realized that it was not economical to
produce every product at every plant, and thus began specializing at particular locations.

On the other hand, logistics became increasingly difficult and distances grew longer, and thus,
Frito-Lay learned to exploit the benefits of truck carrier services, employing Menlo Logistics to
handle route planning. Menlo was able to reduce the carrier base by 50% and negotiate nation-wide
discounts with other carriers.

Retailers

The last stop involved is the 400,000 stores across the nation that carries Frito-Lays snack food
products. The company utilizes their own technological systems to show stores how reallocating shelf
space, for example, can produce larger profits.

Retailers are also provided with Frito-Lays Profit-Vision Program, which allows retailers to
analyze their sales and compare it to national performance statistics.

At the same time, Frito-Lay benefits from the program because it convinces retailers to allocate
more shelf-space to their products.
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engths of IT corporation

Tracks the logistical movement of products throughout the supply chain, from acquiring the raw
materials to final delivery, by utilizing its 848 tractors, 2,251 trailers, and a fleet of thousands of local
computer-equipped delivery trucks.

Empowers its regional managers with access to vast amounts of information on their databases
that can be used to effectively guide them in their distribution decisions.

It is able to correctly assess demands across all of its products due to the availability of point-ofsale data and an impeccable IT system, giving planners the ability to discern consumer trends and
appropriately prepare production plans.

Its managers can be proficient in determining levels of inbound supplies, raw materials, the
allocation of the companys production capacity, and logistical details for truck routing.

The companys ability to target local demand patterns with effective promotion and delivery
systems results in continuously optimizing profit margins and reducing inventory and unneeded
costs.

Competitive advantages

The company tries to captivate its customers by developing extensive databases that record who
their customers are and exactly what they want.

They focus on being the most reliable, quality-driven suppliers who provide services through the
retail channel by means of collecting as much information along the way and utilizing it to address
their weaknesses and capitalize on their strengths.

Despite only delivering potato and corn chips, relies on its ability to add unparalleled value in its
distribution channel. Its customers know that when they do business with Frito-Lays, they arent
simply buying a product to shelve in their stores, but incorporating an advanced information system
with hopes of increasing sales and profits.

Supply chain in India

Horticulture produce in India is largely marketed through traditional channels. A typical marketing
chain for horticultural produce consists of several players as shown in Figure

PepsiCo is one of the pioneers of contract farming in India since 2001 Their experience in contract
farming has covered many crops potato, basmati rice, tomato, chili, peanut, oranges and more
recently sea weed. PepsiCos operations started in India started in the region of Punjab in collaboration
with state government. PepsiCo India's project with the Punjab Agro Industries Corporation and Punjab
Agriculture University remains one of the most ambitious contracts farming projects in the country.

14

Pepsi Tropicana Supply Chain

Background
Of the four principal Distribution Centres (DC) in the U.S. the Jersey City, N.J. DC is responsible for the
supply of Tropicana juices in all states in the Northeast U.S., and all Canadian provinces. Jersey City
houses a unit load capacity Automated Storage and Retrieval System (ASRS) that is fully integrated into
an Automated Warehouse System (AWS). The center handles chilled premium orange juices, and blended
juices from concentrate as well as shelf stable juice products from either Florida or local co-packers.
Products vary according to package size, and juice type and style, giving rise to approximately 200 Stock
Keeping Units (SKU), each facing random demand from customers. Juices arrive already palletized and
variously pre-packaged, and are unloaded according to demand, and moved into the ASRS area.
The Jersey City Distribution Center (DC) of Tropicana is responsible for the supply of Tropicana juices in
all states in the Northeast U.S., and all Canadian provinces. Premium orange juice from Florida
represents approximately 65% of the shipments, and has an approximate shelf life of 65 days. The Jersey
City DC receives five Tropicana Unit trains from the production facility in Florida weekly. Each train has
approximately 45 refrigerated cars. Juices arrive already palletized and pre-packaged in paperboard
containers and plastic and glass bottles. Two types of unloading procedures are currently in practice:
cross-docking and warehousing. Cross docking normally is used for customers receiving a single product
types or transfers to a smaller distribution center in Whitestone, NY. Each train usually contains 8 to 10
railcars that can accommodate cross-dock delivery.
Problems
There are three major problem areas related to the current practices in Tropicana.
1.

Ordering policy of the individual retailers.

At the moment, Tropicana manages the inventory orders for about 10% - 20% of the retailers. This
process is called CRP or continuous replenishment program.

15

The Tropicana customer service department administers the ordering of those individual customers.
From the supply chain perspective, this is mutually beneficial for both the customers and the warehouse.
The advantage of the warehouse is that it is able to centralize the demand information of individual stores
in its replenishment decisions of juices shipped from Florida to Jersey City. The retailers benefit from in
time delivery and less stock out cost. Individual stores contribute the other 80% - 90% of the orders,
which are not under Tropicanas control. This is subject to random variation and hence uncertainties of
demand on the warehouse. One approach would be to create an incentive for the customers to entrust
their ordering function to Tropicana. This is the so-called supplier-retailer coordination problem. A
carefully designed coordinated system will benefit each and every player in the supply chain network. This
may require the design of contracts or cost sharing agreements with the customers.
2. Central ordering of juices that are shipped to the distribution center.
Currently there are five trains of juices scheduled to arrive weekly from Florida. The company never ships
partially filled trains from Florida. The Jersey City distribution center sometimes builds up inventory of
certain classes of juices that are close to their expiration date, and the company has to get rid of them
either at a very low price with sales promotion or donate them to charity. A carefully designed and
sophisticated coordination of ordering policies will reduce the chances for these problems and result in
savings. At the same time it will increase the fill rate because the additional capacity gained from more
reasonable ordering can be used for ordering more juices of the type that cause trucks to wait in the yard.
3.

Combining marketing strategies with inventory levels and other factors.

Marketing strategies such as sales incentives can influence demand. Foreseeing an inventory buildup
problem, the company can use marketing (and mainly pricing) as a tool to either increase demand (when
certain items build up) or reduce demand (when insufficient inventory is available).

Solution

1.

Tropicana, a unit of PepsiCo, implemented i2 Supply Chain Strategist to model manufacturing

logistics operations to include co-packer operations.

2.

The model involved over 30 manufacturing and distribution facilities and the seasonal demand
of over 20 product types.

3.

Tropicana used i2 Supply Chain Strategist to execute hundreds of scenarios and sensitivities,
producing data that provided insights into areas where the company could rationalize system capacity
at manufacturing facilities and increase efficiencies within existing distribution and logistics systems.

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Limitations of Pepsi Supply Chain over Coke

1.
2.

PepsiCo has duplicate distribution systems for its beverages. Coca-Cola has for the most part
maintained distribution of its entire beverage line-up through its bottlers.
Pepsi bottling system is more fragmented than Coca-Cola's

3.

In a consolidated system negotiations involve fewer players and therefore take less time to gain
agreement, which may be why the Pepsi system has lagged in system efficiency efforts. PepsiCo and
its bottlers have established a purchasing cooperative to gain purchasing power in buying raw
materials.

4.

While PepsiCo has been pursuing international beverage acquisitions, those investments will
take time to produce significant operating income

5.

PepsiCo consolidation puts pressure on the independent system bottlers to more readily
consider agreements for warehouse distribution.

17