Page 282 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 12: Network Integration

to strengthen its logistics management activities. PepsiCo’s bottlers employed wireless Notes
technologies to strengthen their distribution system and effectively serve the customers
in the markets in which they operated. However, with its vast worldwide operational
network and good market presence globally, PepsiCo still did not put enough effort into
integrating and streamlining the operations of its various group companies/divisions.
This was undoubtedly a difficult task, but the then CEO Roger Enrico (Enrico) announced
the launch of the ‘Power of One’ program through which, he said, the company would
achieve this streamlining of operations, in 1998. PepsiCo would generate savings worth
millions of dollars if the program was implemented well. However, the program had not
got off the ground even by early 2004.
In 1898, Caleb Bradham (Bradham) invented Pepsi-Cola in his pharmacy in North Carolina,
US. Bradham started marketing Pepsi-Cola in 1903 and a year later, purchased a factory to
manufacture and bottle the new drink. Bradham started bottling his drink in 1904. He
quickly developed a system of bottling franchises for the drinks. By 1909, Bradham had
established a network of 250 bottlers for Pepsi-Cola with operations in 24 states in the US.
By 1910, the network had increased to about 300 Pepsi-Cola bottlers.
Bradham went bankrupt in 1923, after incorrect speculation on sugar prices. Pepsi-Cola’s
ownership changed hands several times until Charles Guth (Guth), who headed Loft
Candy Company, bought it in 1931.
Guth employed aggressive pricing tactics in his efforts to increase Pepsi-Cola’s sales. He
doubled Pepsi-Cola’s bottle size to 12 ounces for the same price two years later. He also
used Pepsi-Cola syrups in his soda fountains. By the end of 1934, Pepsi-Cola’s profits had
increased and the company started an aggressive campaign to sign up more bottlers to
join as its franchisees. By 1937, Pepsi-Cola was running five concentrate plants and 313
bottlers operating in the US.
Pepsico’s Distribution Operations
Since its inception, PepsiCo attached a lot of importance to its distribution operations.
Each day, the company’s products such as snack foods and beverages, were distributed
through various retail channels in the US and across the world. PepsiCo’s distribution
system was aimed at making available all or most of the products in its portfolio within
a distance easily reachable by consumers. PepsiCo was conscious of the need to adapt its
distribution systems according to the needs and preferences of global customers. Based on
its experience, PepsiCo had developed various distribution models to offer its products
and services to customers in the US. These included the Direct Store Delivery (DSD),
Broker Warehouse Distribution (BWD) and Vending & Food Service (V&FS) systems.
Pepsico’s Logistics Operations

In order to manage its distribution systems effectively, PepsiCo had put in place advanced
logistics systems. PepsiCo sold beverage concentrate to bottlers, who added carbon dioxide,
sweetener and water to make beverages and beverage syrup. Syrup was either sold directly
to the fountain accounts or was combined with carbonated water for bottling. Bottling
companies were (with a few exceptions) owned and operated by local companies in the
countries where PepsiCo operated.
Through their use of the most modern technology in recent years, PepsiCo and its bottlers
were able to improve their distribution and logistics management operations significantly.
To further improve the market penetration of its products globally, PepsiCo launched
two new distribution methods in the initial years of the new millennium. These were the
chilled DSD system and the hybrid system.
Contd...

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