ANALYSIS OF GLOBAL SUPPLY CHAIN
MANAGEMENT; COCA-COLA and PEPSICO
Subject: Global Supply Chain Management
Student Name: Charles Hanson Setiawan
Student ID no: 23041320
Tutor & Lecturer: Natalie Wilmot,
Song Hanh Pham,
Due to various understanding to the term "Supply Chain Management", Mentzer (2001), has claimed
based on his research that SCM is a philosophy of managerial implementation. Although it is
generally understood as the flow of materials or products, which are all related to operational
management. In depth perspective of Supply Chain Management is explained based on Raj
Research (2010), that the core functions includes extensively from product design, planning, sourcing,
manufacturing, logistics and distribution. Moreover, due to the evolution of globalisation, many firms
have encountered pressures from its frequent global competition. Besides the increase of global
economy, operational challenge in the global environment that differs from domestic has been an
In order to dominate global markets, identifying and implementing in-depth supply chain techniques,
especially in food and beverage businesses, is complexly managed. Nowadays, firms have adopted
multiple approaches with the purpose to improve their supply chain system and the implications of
these are highlighted. As the leading firms in the food and beverage business and considering their
competitive ambitions, Coca-Cola and Pepsi are the spotlighted two examples. Although, their
products, especially their cola drinks are relatively similar, it has been identified that both Coca -Cola
and Pepsi are pursuing peculiar path of integration models.
Considering the progress on their competitive strategies, each company has applied the concept of
SCM, while their limitations are explained. Depending on their SCM performance in terms of sourcing,
distribution, logistics, and sustainability, this relevant comparison of two gigantic food and beverage
corporations is critically analysed in this paper.
Strategic Sourcing - Bottlers Acquisition
When it comes to soft drinks, Coca-Cola is the most iconic brands out there. Referring on product
categorisation (Chopra and Meindl, 2013), normally food and beverages are classified to be low in
criticality. Therefore it is very possible to apply strategic sourcing to eliminate manufacturing risks as
well as opening up new markets. However, this does not apply to Coca-Cola, where its secret recipe
is closely protected and is one of their highest competitive advantages.
Chris Horace, a Director of G&A and IT in Coca-Cola (2010) stated that it is necessary to know more
about the partnership supplier and it is all based on trust. Outsourcing has to be taken perso nally and
should only conduct basic tasks. In other words, sensitive parts of the competency should not be
involved; concerning it would be problematic if there are leakages. Therefore, it has been argued that
a type of outsourcing Coca-Cola mainly applies could be specified as Business Process Outsourcing
(BPO). BPO is a suitable candidate for Coca-Cola due to its low-added value functions. The
outsourced operations included several business sectors such as customer services, accounting,
technical support and human resources. On the contrary, due to its criticality, R&D department has to
be outsourced to other corporation. And for this reason alone, Coca-Cola decided to maintain it in-
Horace (2010) admitted that multiple/network sourcing has been strategically practiced. Besides
gaining benefits from the competition, multiple sourcing provides flexibility to the customers. Although,
it might create complexities due to the difference of contract agreements and governance models, the
implementation of multiple sourcing is to prevent emergencies that might occur in single or dual
sourcing. Moreover, as the biggest stakeholder in the business, customers' satisfaction should be
maintained high and a protection of any unwanted cases is crucial.
In addition, based on Chamberland (2003), Coca-Cola has long adopted the concept of outsourcing,
even before it was known by that term. By the end of 1890s, Coca-Cola was lacking of potential
sources and apparently, investing new bottling plants were considered risky. Therefore, Coca-Cola
outsourced its packaging operation, which is in the form of bottles. Due to inconsistency and lack of
quality, Coca-Cola decided to license some of the best bottlers to whom that its 'secret ingredients'
syrups sold to. These small independent businesses used to bottle Coca-Cola products and
distributed them to stores within their geographic areas. By handing over parts of their non-core
products to other supplier, Coca-Cola is able to strengthen the development on its core product. While
concentrating on its product quality and brand awareness, Coca-Cola is able to lead to the growth of
However, after gaining technical skills, Coca-Cola captured an opportunity to control the whole
operation flow by acquiring these bottlers. By 1980s, Coca Cola has managed to deal multiple
acquisitions of these bottling companies. CCE (Coca-Cola Enterprises, Inc.) was then established,
which is a subsidiary distributor of Coca Cola Company, and it was designed specifically to buy up the
bottler businesses. It was so aggressive in fact, that nearly $12 billion have been spent to purchases
these bottlers, according to Bloomberg (2010).
To develop superior internal capabilities, Coca-Cola Company recognized that it has to begin from
accessing their ability to control by these acquisitions. Referring to global value chain governance
typologies (Gereffi, 2011), this decision is assumed as a shift from networking coordination towards
hierarchical. In this regard, judging from the development pattern, Coca Cola Company could be
described as a type of vertically integrated corporation.
Practically, Pepsi is the biggest competitor of Coca-Cola, whereby it presents identical cola
carbonated drink and has also been marketed throughout various parts of the world. Based on
Reuters (2010), the parent company of Pepsi drinks, PepsiCo has manufactured and distributed foods
and beverages products in more than 200 countries worldwide. In fact, PepsiCo is ranked to be the
second largest corporation in food and beverage business according to their sales revenue.
Similar to Coke drinks, Pepsi has their own bottling distribution centre, Pepsi Bottling Group (PBG).
Although PepsiCo has promoted few carbonated drinks, juices, mineral waters, and many other
diverse drinks, PBG has only exclusively bottled and sold Pepsi-Cola beverages. Back then, PBG
used to be an independent distributor before the year 2009, by which it was purchased by PepsiCo
along with many other major bottlers. Hereby, it could be signified that PepsiCo has followed the path
of Coca-Cola Company.
Being in rivalry with Coca-Cola, Pepsi has to focus on alternative competitive strategy aside from
branding battle. Nonetheless, the strategy should bear upon a operational system that emphasizes
sufficiency and efficiency. Whereas it is ambiguously debated that supply chain management could
enhance competitive advantage of a firm, the outcome can be identified from the improved
performance rather than instant results. Customer's satisfaction is the objective in this matter,
controlling the flow of goods and materials competently is required to provide maximum service at the
A strategic operation researcher, Rajesh Raj (2013) has determined that PepsiCo's product diversity
is the main competitive advantage of the firm. Since 1980s, the company has gone through several
acquisitions, even beyond soft drinks. From then on, numerous brands has been owned under
PepsiCo, such as Mountain Dew, Aquafina, Gatorade, Lay's potato chips, Tropicana juices, Quaker, 7
Ups, Lipton teas, Ruffles potato chips, and Cheetos. Moreover, Raj (2013) stated that PepsiCo has
now been oriented towards healthier food products, with the focus to sustainably reposition the brand
towards healthy direction. For instance, in the recent 2007, PepsiCo has bought a premium organic
juice brand labelled 'Naked Juice'.
According to Mangan (2012), the terms outsourcing and offshoring are often puzzled, whereby both of
the processes are related to the theory of sourcing/procurement. He explained that offshoring is the
movement of a particular process to increase the speed to market, whereas the company may still
own and control the management of the process itself. On this subject, the acquisitions approach is
hardly argued as a conversion to offshoring, despite of outsourcing.
Correspondingly, it can be indicated that PepsiCo has applied the concept of economies of scope. In
opposition to Coca-Cola, considering the immense acquisitions of similar productions, PepsiCo is best
specified as horizontal integrated corporation.
Logistics - Information Chain
COCA-COLA - VMI (Vendor-Managed Inventory)
Based on IGD-Supply Chain Analysis (2010), CCE (Coca-Cola Enterprises) is covering the whole
Western Europe markets and has represented 16% of Coca-Cola volume worldwide. As the biggest
distributor of Coca-Cola products, CCE supposedly encounters massive challenges in operating its
logistic framework. Relating to logistics, relationship with retailers has been one of the cases within
Coca-Cola. For more than a decade, Booker, United Kingdom based wholesale retailer, has been in
the business with Coca-Cola. As a large grocery store, Booker has placed its stocks diversely in over
100 warehouses across the UK. Due to lack of inefficiency, CCE has managed to develop a new
inventory management system, known as VMI (Vendor-Managed Inventory).
Mentzer (2001) declared that the success of supply chain management is based on the flows of
information chain. An exchange of substantial quantities of information is compulsorily conducted
amongst the supplier, distributors, retailers and consumers. In theory, VMI might be an
implementation of Just-in-Time philosophy that commonly aimed to eliminate waste. The process has
been illustrated as a retailer working together by sharing information with a supplier (vendor) in order
to optimise value added by removing waste. CCE obtained demand data from Bookers' store as an
exchange to help the sales.
Conducting VMI has provided mutual advantages for both firms. Explained by Mentzer (2001),
efficiency and effectiveness of supply chain management could create customer value. This value
however, is neither perceived from the products nor services, but rather is experienced by the
customers personally. Therefore the benefit towards CCE is relatively intangible. Besides the
importance to understand the demand fluctuations, this practice of synchronization helps Booker to
deliver greater asset utilisation, also it simultaneously affects Coca-Cola's brand value. In addition,
vendor representatives occasionally helped to promote and display their products to be strategically
organized inside the retail store. Nevertheless, Booker could improve their supply chain performance
by the reducing the cost of inventories as well as to avoid overstocks with all the support from the
In reference to IGD Supply Chain Analysis (2011), key capability of supplier-retailer logistic system, is
to restructure the route-to-market network with the objection to reduce unnecessary costs from
stockholding and transportation (road miles/gas). Within Booker network, it was proposed that the
orders delivered directly to the Booker stores, instead of stocking them to the main warehouse, called
RDC (Regional Distribution Centre). Genuinely, it is intended to reduce Booker storage cost, including
labour costs at the distribution centres. However, a limited space volume at Booker stores has been
the problem and so it is impossible to stock everything in the stores. According to IGD (2011), the
delivered volume has been resulted to be 70% in Booker RDC, while 30% of the remaining has been
stocked at Booker stores.
This transportation network design might be viewed as mobile or probably described to be tailored
network (Chopra, 2013), where it applies to both direct shipments and shipments via intermediate
distribution centre at the same time. From different perspective, in spite of the increase of complexity,
this configuration helps to match the demands of each individual store. Despite of its productivity,
direct deliveries to each Booker store was not dynamically efficient in this matter. Another strategy
that had been suggested was to combine two stores that were close in terms of geographical area.
This 'Paired Store' method had been argued to be a cheaper solution in regard to fulfil the concept of
route-to-market. By pairing stores, CCE were able to drop extensively to one of the paired store and
that was the split of stocks for two stores. Therefore, the concept of this delivery has literally reduced
the transportation costs into half.
(Source: IGD Research, CCE, 2011)
As it shows on the graph, within 1 year the RDC stock volume has reduced from 70% to 60%.
Eventually, the result has concluded as an accomplishment of the concept, with 10% reduction of
inventory inside the distribution centre. This change of logistics affects the performance of Booker
retailing. It has been ascertained (IGD Research, CCE, 2011) that the change of volume stimulates
the reduction of total Booker's stockholding at the same time.
Obviously, there were some risks to the solution, such as potential loss of RDC's volume and orders
pending. Nonetheless, the benefits, which have already been proven, outweigh these concerns.
Furthermore, on account of VMI application, CCE could forecast the demand on each store
depending from the data of replenishment and sales volume. Hence, it should have been easier for
CCE to control demand volatility in the long run.
PEPSICO - i2 Transportation Technology
The evolutions of logistics providers are substantial in these recent years. These companies have
developed in scale, to the extent that they are now providing various services, more than just
transport. As explained by Mangan (2012), concerning the issues of import and export taxes, barriers,
and other varieties of reasons, 3PL has been a popular outsourced partner to look for. By outsourcing
its non-core activities, such as logistics, a company could concentrate wholly towards their core
competencies. Nevertheless, PepsiCo assumed that it is essential to pick 3PL providers, considering
from their costs, volumes, reliability, and speed.
As recipe ingredients are their highest intellectual property, like its competitor and most F&B
companies, PepsiCo predominantly outsources in the area of business activities. With nearly one-
third of the total sales of soft drinks in United States, PepsiCo need to ensure the quality, packaging,
and on-time deliveries in their distributed products. It could be assumed that these aspects are related
to logistics and partnership with 3PL (Third Party Logistics) is speculated to be a way to manage the
implementation of JIT (Just-In-Time).
Cutting off costs from logistic sector has been the focus, but there are complications on managing the
inflow of raw materials and outflow of the finished products to be distributed and delivered to
customers. Hereby, the challenge seemed to be a mismatch on communication, whereby the
performance was not reliable. To find out the solution to this, PepsiCo must understand that it is not
merely about lowering down the costs supposing to maximise profits in overall. Primarily, the driver
behind cost reduction needs to be identified; in this case, communication with partners has to be
taken into consideration.
Supply chain director of PepsiCo in North America, Laszlo Molnar admitted that PepsiCo has been
collaborated with Penske Logistics for more than a decade, and their partnership is critical (Penske,
2012). Besides its contribution on transportation, Penske has handled warehouse management inside
PepsiCo distribution centre. Visibility of the products and coordination between both parties are
crucial in order to provide optimum logistic performance. Therefore, Penske has applied new
technologies to Pepsi's route. Much the same like IBM, a Texas USA based company, called i2
Technology has developed new supply chain management software (i2 Transportation) that is
deliberately designed to spot daily transportation network. Through this i2 Transportation application
(an example is on the graph below), visibility can be accessed by which it increases flexibility during
the shipment process.
Thus, i2 Transportation is designed to forecast the inflows and outflows of products as well as to
prevent impracticalities. The flow of information is nearly subjected as real-time, in which both teams
practices the greatest control of communication. Furthermore, the increase of visibility has assisted
both firms to track the shipments, restructure the routes, and organize new plans immediately, just in
case if there are delays or any emergencies. As the result, on-time deliveries have eventually
increased customers' satisfaction; along with an additional transportation cost reduction. After all, i2
Transportation is an advanced technology that could be the solution to manage transportation chain in
the whole new level.
This technological improvement is rec ognized as a system that is originally inspired by Toyota's JIT
philosophy. To the extent that Coca-Cola has implemented dissimilar logistic approach, it can be
wrapped up that these two organisations have missioned to avoid unnecessary optimisation on
productions equipment and labours through JIT.
COCA-COLA - The PlantBottle™
In order to maintain its competitive advantages and value, Coca-Cola has to develop a sustainable
strategy towards their network. The interpretation of sustainability is often captured as 'green' issues
towards the environment. It should be noted that, according to Mangan (2012), the dimension of
sustainability is covered from broader perspective, the drivers behind green revolution are evaluated
from four sources; legislation, social responsibility, cost reduction and market pressure. He claimed
that sustainable management is determined as a system developed at the moment with the goal to
ensure positive impact for the future. Although, direct advantage is arguably detected, it is rather seen
as an improvement to scale down the disadvantages. In this regard, elimination of inefficiencies and
unnecessary processes could be the benefits, through redesigning the system of sourcing and
distribution (Mangan, 2012).
Based on IGD (2010), CCE has distributed Coca-Cola products of a total 42 billion cans and bottles
by 2008. Due to CCE's intense productions and coordination, and from their analysis, they have
produced 796,000 tonnes of carbon emissions by 2007, and 65% of that was from cold drinks
equipment. A calculation from the breakdown indicates that Coca-Cola's packaging (500ml bottles
and 330ml cans) is the major source of their entire carbon footprint. Therefore, as a solution, CCE has
executed a progress of weight reduction to their bottles and cans since 2008.
By this light weighting method, an approximate 31,000 metric of tons was reduced and it automatically
impacted to a decrease of carbon footprints from the production (IGD, 2010). Secondly is the
recycling approach, which allows CCE to purchase recycled materials and efficiently reproduce them
into new bottles and cans. In fact, to increase social engagement, CCE has introduced 'Recycle
Zones' across the UK. These recycled zones literally function as a container/bin to collect Cokes'
drinks packaging from post-consumers. Also, another new innovation system has been recently
unveiled, The PlantBottle™.
As part of the CRS (Corporate Responsibility and Sustainability), The PlantBottle is a new bottling
innovation that uses natural resources from plants, a combination of sugar cane and molasses as a
fundamental element. In reference to IGD (2010), 30% of the PlantBottle components are applied as
the base to create Polyethylene Terephthalate (PET) plastic, which is then formed into bottles. It was
then analysed and assured that as a result of 30% of plant-based components used, the carbon
emission footprint has been reduced to 25%. What is more, the packaging performs as fine as the
original, and it is 100% recyclable.
PEPSICO - Frito Lays' CSR
According to PepsiCo (n.d.), sustainable agriculture practices have been organised, considering its
importance of growing crops to PepsiCo's products. The company has openly looking of partnerships
with public or private Non-Governmental Organizations (NGOs) and even universities to conduct
green revolution regarding the reduction of GHG emissions and water use.
Furthermore, a supplementary support to improve livelihoods of farmers has been considered,
supposing to guarantee the sustainability of suppliers. In this matter, Frito -Lay is one of the examples.
Under the management of PepsiCo, a Frito-Lay potato chip is a subsidiary division and it has been
selling its products in more than 100 countries. As determined by Raj (2013), Frito-Lay was
traditionally manufacturing their food products at their plants and as it began expanded; the company
noticed a more economical strategy. The strategy is to concentrate more on the agricultural aspects
with the aim to collaborate with local potato farmers.
Firstly, its regional potato suppliers were approached and they decided to conduct selections of
potential farmers. Being in the contract agreements with Frito-Lay, the offer has helped these farmers
to receive some financing. These particular farmers selected by their passions and eagerness to
harvest the best quality and tastiest potato chip in the business. In this regard, Frito-Lay has taken an
in-depth control down to the early supplier. And because of its reputation, insuring steady quality
based on raw resources has to be the focus. As a matter of fact, for a company that annually
purchases nearly 2 billion pounds of potatoes, it could be understood that their economy of scale has
to be efficiently supplied in exchange for demands.
PepsiCo has recently launched Sustainable Farming Initiative (SFI), incorporated in 2012 as an
innovative sustainable program. With agricultural suppliers from developing and emerging market
countries, this SFI program is comprehensively conducted to guide them towards social and
environmental friendly. Generally, SFI focuses on farming enhancement, providing operational
training foundations for farmers and to demonstrate farming in a proper way. As a case example,
PepsiCo has collaboratively participated with China Ministry of Agriculture to operate eight
demonstration farms. The idea is to improve China's yields, crops and to raise local farmers' income.
Through the technique of crop management and with the support of technological fertilization and
irrigation, Chinese farmers have harvested 3 times advancement compared to national average
As a representative within the society, the concern towards environmental awareness is a dispute,
assuming that it has not been taken as a caution by the society. However, according to Mangan
(2012), the generation nowadays has started to change dramatically, whereby a 'green' issue is
emphasized everywhere. Apparently, consumers are more aware of the impacts from purchasing
goods nowadays. As to this, the worriment can be seen that people are concerned into healthy,
'environmental friendly' lifestyles. And as a soft drink company, it is hard to alter in this direction.
Hence, being actively involved into Corporate Social Responsibility (CSR) is a positive way to impress.
This report indicates that Coca-Cola and PepsiCo are individually conducting their supply chain
management. The identification of each company integration model is asymmetrical. Eventually,
Coca-Cola's vertically integrated model could be identified from the intense acquisition of regional
bottlers and its new investment on The PlantBottle, which both are seen to functions in different
departments. Furthermore, based on the cases mentioned, Coca-Cola had established CCE as the
largest distributor that is settled to be on top of the supply chain network. The evidence that CCE is
strategically distributed their products to several retailers, and one of them is Booker. Regarding its
competitive strategies, Coca-Cola is perceived to be growing towards vertical integration, intended to
monopolize the market.
On the other hand, although PepsiCo assumingly copy a certain sector from Coca-Cola by forming
main bottling centre, their internal management are not parallel to each other. From the research, it
has been mentioned that PepsiCo is evaluated to broaden the market by providing their diversity of
the products. There are fragmented branded food & beverage products, varying from soft drinks
(Pepsi, 7Ups, Mountain Dew), mineral water (Aquafina), snacks (Frito-Lays, Quaker, Cheetos,
Ruffles), and recently juice (Naked Juice), have all been the subsidiaries under PepsiCo. Unlike
Coca-Cola, this pattern of diversified acquisitions is clearly detected that PepsiCo is integrated
horizontally. It could also be signified that PepsiCo is more open towards collaborations. Despite of
managing their logistics and warehouse in-house, PepsiCo has outsourced this area by its
partnership with 3PL. Therefore, it is concluded that PepsiCo is intended to focus exclusively on its
food & beverage goods, while its ambition is to provide variety of them. The scope of their products is
the fundamental indication to support this statement.
Similarly, both of the companies have been committed to be involved in CSR (Corporate Social
Responsibility). Although it is hard to pinpoint whether or not it is for commercial and advertisement
purposes, CSR in this matter has benefited both society and environment directly. Coca-Cola has
conducted sustainability management through the implementation of recycling and The PlantBottle for
the sake of greener environment. Correspondingly, PepsiCo's foundation that is dedicated to train
farmers is issued to be an active CSR towards the society. Beyond their generosity, this concept is
understood by them as challenges to the extent to develop their strategic core competencies.
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