Supply Chain Management Pepsi l.nagendra Babu Rollno 27

SUPPLY CHAIN MANAGEMENT PEPSI

L.NAGENDRA BABU ROLL NO .27

SUPPLY CHAIN MANAGEMENT

L.NAGENDRA BABU

ROLLNO:27



Table of Contents

1 Organization Portfolio

2 Literature Survey

3 An Introduction to Supply Chain and Supply

4 Chain Management

5 Supply Chain of Pepsi Pepsi Beverages Ideal Features of a Supply

Chain Management Software

6 Supply Chain Management Systems and the

7 Current Marketplace

8 Proposed System for Pepsi Pepsi Beverages

9 Limitations and Future Recommendations



About Pepsi

PepsiCo, Incorporated (NYSE: PEP) is a Fortune 500, American multinational corporation Headquartered in

Purchase, NY with interests in manufacturing and marketing a wide variety of carbonated and non-

carbonated beverages, as well as salty, sweet and grain-based snacks, and other foods.PepsiCo founded in

1965 through the merger of Pepsi- Cola and Frito- Lay.Revenue: USD 43.25 Billion.

Organization

The Pepsi Beverages Group was set up in 1979 and is Pepsi's sole selling agent for District Rawalpindi and

Islamabad.. It manages the supply for several wholesalers, retailers, restaurants, hotels and other such food

outlets. In order to achieve the projected sales targets effectively, the organization ensures a comprehensive

strategic alignment with the overall Pepsi Colas business strategy. Beverages primary functions are to

conduct a systematic manufacturing and supply of the product without any tactical flaws. Backed by a

powerful competitive strategy and empowered by some effective supply chain strategies, the group has been

managing an effective supply chain throughout the region. It has set up a sophisticated manufacturing and

storage plant in Rawalpindi with multiple production units and huge production capacity. Beverages has

different management departments dealing with specialized Marketing, Human Resource, Information

Technology and Supply Chain Processes. In this section we conduct a brief analysis of the basic supply

chain management functions of Pepsi beverages.

History of Pepsi Company

PepsiCo is a world leader in convenient snacks, foods and beverages, with revenues of more than $39 billion

and over 185,000 employees. The company consists of PepsiCo Americas Foods (PAF), PepsiCo Americas

Beverages (PAB) and PepsiCo International (PI). PAF includes Frito-Lay North America, Quaker Foods

North America and all Latin America food and snack businesses, including Sabritas and Gamesa businesses

in Mexico. PAB includes PepsiCo Beverages North America and all Latin American beverage businesses. PI

includes all PepsiCo businesses in the United Kingdom, Europe, Asia, Middle East and Africa. PepsiCo

brands are available in nearly 200 countries and generate sales at the retail level of more than $98 billion.

Some of PepsiCo's brand names are more than 100-years-old, but the corporation is relatively young.

PepsiCo 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 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. PepsiCos mission is: To be the world's premier

consumer Products Company focused on convenient foods and beverages. We seek to produce healthy

financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our



business partners and the communities in which we operate. And in everything we do, we strive for honesty,

fairness and integrity.

Pepsi-India

Chairwoman, President & CEO: Indra Krishnamurthy Nooyi Available in nearly 200 countries and

territories. It entered India in 1989 Owns 43 bottling plants in India, 17 are company owned and 26

are franchisee owned. Generates direct employment for more than 4000 people in India and indirect

employment for 60,000 people Set up 8 Greenfield sites in backward regions of different states.

PepsiCo intends to expand its operations and is planning an investment of approximately USD 150

million in the next two- three years.Annual exports from India are worth over USD 60 million

PepsiCo Headquarters

PepsiCo World Headquarters is located in Purchase, New York. The seven-building

headquarters complex was designed by Edward Durrell Stone, one of America's

foremost architects.

Areas of Operation

Pepsi Beverages is one among a number of PepsiCos franchisers all around the

country. Pepsi Beverages, solely, have three branches in India located in. All the

franchises in India have divided their area of distribution and the domain of each

franchiser is restricted to their area of operation. Not much of expansion is done since it

might violate the domain area of other franchisers. We will be dealing with the area

covered by Pepsi Beveravges According to the defined sales strategy, the production

plan is prepared for the year divided further into quarters, months, weeks and days.

The daily or weekly production plan is forwarded to production department.

According to the production plan, the production department makes a production

schedule which is done on daily basis. The production department makes a complete

sketch of products to be produced and the required raw materials and their quantity.

These raw materials are requisitioned from the inventory (store). The inventory control

department is divided into two areas: store management and warehouse management.

The store mainly contains the raw material which is required to produce the product

as well as all the other raw materials required for operations management throughout

the organization. The warehouse stores the finished product only. The organization



keeps only the safety inventory in its warehouse. A daily shipment of product is

done to the distributors in order to fulfill consumer demand. In order to fulfill the

demand of production department, the Purchase department needs to procure raw

material frequently. The suppliers are already chosen by the company and contracts

are given to those suppliers only. The company gives priority to local suppliers so as

to complete its business cycle efficiently and effectively.Unfortunately, there are

a number of items that are unavailable in local market and it has to purchase these

items from remote areas. These materials include cans, Pepsi concentrate, sugar,

nitrogen (liquid form), and others.

The purchased items are moved first to the store where the raw material is issued to

concerned department according to the requisition done. The finished product is moved

to warehouse where the shipment department is responsible for loading product to

vehicles for delivery to distributors. A small amount of finished goods inventory is kept

by the company as safety inventory. the demand is fulfilled by making longer shifts

and utilizing the production equipment 24 hours a day.

The waste produced during manufacturing process is sold out to concerned parties. The

supply chain designed in this research will therefore follow the Lean Supply Chain

Management strategy.

The cash is collected by the finance department by hand. The company has not opted

for any credit or online credit-card sale as yet.

The manufacturing process is shown in the figure below:

Supply chain management (SCM) is the management of a network of interconnected

businesses involved in the ultimate provision of product and service packages required

by end customers. 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.Definition an American professional association put forward: Supply

Chain Management encompasses the planning and management of all activities

involved in sourcing, procurement, conversion, and logistics management activities.It

also includes coordination and collaboration with channel partners, which can be

suppliers, intermediaries, third-party service providers, and customers.In essence,

Supply Chain Management integrates supply and demand management within and



across companies.

The manufacturing process is shown in the figure below:

Supply Chain Flow



Cycle View of Supply Chain: There are five stages in a supply chain (Supplier

Manufacturer Distributor Retailer Customer) and four supply chain process cycles

(customer order, replenishment, manufacturing, procurement cycle).

Current IT Infrastructure

The company has partially automated its four (4) major business processes:

1 Sales Process

2 Accounting and Finance

3 Human Resource

4 Store and warehouse management

Sales or Shipment Module

The sales module encapsulates all information regarding distributor data management, key

accounts management, sale (cash inflow) and shipment etc. The distributor information is

captured with regards to the area it is covering in the local market, the location of the distributor,

name, contact numbers, contact persons etc. Key accounts are those retailers to which the

company distributes the product directly. This happens in the case of fountain fresh Pepsi products

which are delivered to the customer using the post-mix cylinders delivered by company owned

vehicles. Such customers include KFC, Pizza Hut, Savour Foods and others. Sales are done on



cash payments which are deposited in advance by the distributor. The products are then shipped

the distributor. Usually, the distributors bring along their own vehicles to load the shipment. At

the time of sale, the data is saved in ERP sales module, the finance data (cash inflow) is updated

and a receipt is generated by the system called sales invoice. The system keeps track of which

distributor purchased what quantity and the frequency of sales can also be captured. A daily sales

report is generated by the system which shows the distributor, units of product purchased, date of

purchase, the total amount and other key information. The company defines a target sale for each

distributor at the beginning of month. This target is defined on the basis of previous sales history

of the distributor which is managed by the software. The reports generated by the system

also provide the user with the information of what percentage of the target has been

achieved by the distributor as yet. The distributor can be judged on this basis if he will

be able o achieve the set target or not. The ERP system not only keeps track of the primary

sales done to the distributor, it also captures the secondary sale data provided by Territory

Development Managers (TDMs), the personnel designated by the company to monitor the

distributor sales (at distributor end) and to keep a check that a distributor does not enter the

domain of another distributor. The secondary sales data contains information regarding

distributors sale to retailers which is recorded in units per day and does not actually contain

information as to which retailer the product was sold.

Financial Accounting module

Financial accounting module has a basic and limited functionality. It has two to three

main entry forms regarding insertion/deletion of accounts (chart of accounts) and

transaction entry. Any transaction taking place in the company will be recorded here.

The invoices (payment or receipt) is also created in the same form. The form

contained a category field where the category of receipt/transaction is defined. The

categories can be cash receipt, bank receipt, payment invoice, sale invoice etc. A

notable point is that the transaction is not made automatically when a sales transaction

takes place. This could be rightly so as the cash payment is received directly from

the distributor by the finance department, but it can create a logical error since the

transaction is not done in correspondence to the sales transaction.

The reports generated the system include trial balance, balance sheet, income

statement and other basic financial statements.

Inventory Management

It is also a limited-functionality module which only records how much items are



produced today. This entry is done at the end of the day and still there is confusion

about what actually is inserted in the system since the total manufactured amount

is reduced at the end of the day due to sales transactionand the corresponding batch

numbers or lot numbers are not recorded in sales module.

The system still supports the inventory control system since it contains up-to- date

information regarding the finished product available in the warehouse only and also the

store data which contains information of raw materials. The stock-in and stock-out is

also updated whenever requisition is made from the production department for the raw

material used for production.

Human Resource Management module

Human Resource Management module has proved to be very handy when it comes

to daily attendance and payroll calculations. The system automatically generates a

bar code when a new employee is added in the HRM module. On the basis of this bar

code, employee gets a printed card. Whenever an employee comes in or goes out, he

scans his card against the bar-code reader placed at the entry gate of the company and

the time-in and timeout of instantly updated by the system. A monitory report is also

flashed on managers screen which is updated every 5 seconds. This shows a complete

list of employees coming in and going out. The system contains a descriptive

employee record and employee leaves are also managed by the system. It shows

how much leaves of which category (casual leave, paid leave, sick leave etc.) has

been acquired by each employee as yet.The payroll of employees are calculated

automatically including overtimes, deductions (for late arrivals and extra leaves),

bonuses, allowances etc. and a pay slip is generated by the system.

In order to support the ERP system and network as a whole, the following hardware

configuration has been adopted by the MIS department:

Full LAN support, using domain server, switches, boosters and other network

equipment Internet facility is provided to all users oracle database server, application

server, Linux server (for network management), and a print server

Requisition for a backup database server has already been placed

The network facilitates almost 50-60 users around the organization

The system, collectively, has proved to be very beneficial for the employees and



managers at Pepsi Beverages and the employees seem to be satisfied over the systems

performance. Further enhancements are done at frequent basis in order to facilitate the

companys management and human resource to perform their tasks in a much better

way.

A Supply Chain Flow

Push/Pull View of Supply Chain:

With push process execution is initiated in anticipation to a customer order. Pepsi has a

seasonal demand. Just in time concept is applicable in non-seasonal period and not

applicable in seasonal period. All processes that are part of the procurement cycle,

manufacturing cycle, replenishment cycle, and customer order cycle are push processes.

Pepsi Sales order and processing: The Shipping Manager receives sales order from Sales

Team, distributors through telephone, fax & email one day before dispatch. The sales

are made to base distributors on advance payment against orders then shipping

manager plans according to the demand of distributors on daily basis.

Supply Chain Strategy



The Customer and Supply Chain Uncertainty

1. Identifying customer needs

2. Demand uncertainty and implied demand uncertainty

3. Uncertainty for the capability of the supply chain

Understanding the Supply Chain Capabilities

Achieving the Strategic Fit

How should we define SCM?

In the early years of SM it is considered to breaking down the walls but now the concept

is change it not breaking down the walls but rearranging the walls. SCM helps to

achieve CEO agenda. Professional organizations try to provide knowledge of SCM.

This figure helps to understand the process of business

Through this figure we get overview of business and understand how actually it makes

money. The purpose is to see the bigger picture and creating value to enterprise and not

stuck into conflicts and debates.

Customer (the why)

Customers are those who take the initial step in order to get the product. Company



current and future strategies around which product to build, assets to own, which

market to enter or serve these all things depend on customer needs and requirement.

Product (the what)

As the product become obsolete more innovation and creativity is required in order to

satisfy customer need. But to meet innovation, profitability requires engineering. There

is a gap between actual and desired and this gap will lead to the profit leaks.

Process (the how)

Seven core processes are design, source, make, move, store, sell and service.

Management takes decision regarding to process. The decision based on three groups

i.e. strategic, tactical, execution

People/Partner (the who)

Customer demanding better, faster and cheaper which increase the product complexity

and this leads to complexity in supply chain. Companies try to achieve flexibility and

responsiveness. Outsource some process or function to the partners who have more

competencies in specific area. Processes are shared and collaborate and coordinate with

partners. When environment is very dynamic it is very difficult to go alone. Life cycles

of products are shrinking faster as compare to lifecycle of the assets used to produce the

product this will lead the organization where they have very little choice and they are

less adaptive to assets.



Supply Chain Flow- Pepsi

PRODUCT IS PEPSI COLA 300ml GLASS BOTTLE

One truck carries 9 tonnes which includes 550-700 crates (Primary truck)

Key components of supply chain management

According to the author, there are twelve key components of a supply chain

management system:

1. Location

2. Transportation and Logistics

3. Inventory and forecasting

4. Marketing and channel restructuring

Manufacturing plants in

Maharashtra

Chembur Roha Paithan



5. Sourcing and supplier management

6. Information and electronic mediated environments

7. Product design and new product introduction

8. Service and after sales support

9. Reverse logistics and green issues

10. Outsourcing and strategic alliances

11. Metrics and incentives

12. Global issues

Location includes both qualitative and quantitative facility location. This includes

models of facility location, geographic information systems (GIS),country differences,

taxes and duties, transportation costs associated with certain locations, and government

incentives (Hammond & Kelly (1990)).Transportation and logistics includes all the

issues which are related to the flow of goods through the supply chain including

transportation, warehousing and material handling. Inventory and forecasting includes

traditional inventory and forecasting models. Marketing and restructuring includes the

basic thinking on the on SC structure (Fisher 1997) and it includes the interfaces with

marketing. Bull whip effect has received many attentions in the research literature. But,

increased in consumer demand through the EDI and the internet can decrease the Bull

whip effect. Other initiatives can also mitigate the bullwhip effect. For example, changes

in pricing and trade promotions (Buzzell, Quelch, &Salmon (1990)) and channel

initiatives, such as vendor managed inventory (VMI), coordinated forecasting and

replenishment (CFAR), and continuous replenishment (Fites (1996), Verity (1996),

Waller, Johnson, & Davis (1999)), can significantly reduce demand variance.



Figure 6 Typical VMI impplmentation [Source: M. Eric Jonhson (1999), Supply Chain Management]

Marketing focuses downstream in the supply chain, whereas sourcing and supply

management focuses on upstream to suppliers. Information and electronic mediated

environments focuses on application of IT to reduce inventory (Woolley (1997) and the

expanding area of e-commerce (Benjamin & Wigand (1997) and Schonfeld (1998)).

The sale and after sale support addresses the critical problem of providing service and

service parts (Cohen and Lee (1990). Reverse logistics and green issues are emerging

dimensions of supply chain management (Marien (1998)).



Figure 7 Product recovery options [Source: M. Eric Johnson (1999), Supply Chain Management]

Outsourcing and strategic alliances sees the SC impact of outsourcing. With the rapid

growth in third party logistics providers, there is a large and expanding group of

technologies and services to be examined. These include fascinating initiatives such as

supplier hubs managed by third parties. Metrics and incentives include organizational

and economic issues. This category includes both measurement within the supply chain

(Meyer (1997)) and industry benchmarking ((1994), (1997)).Final one is global issue

when a company operates in foreign multiple country. When a company operates in

foreign country then tax rate, duties and currency exchange rate and govt. issues

matters a lot.

LOCATIONS OF PEPSI COBO & FOBO IN INDIA



Supply Chain Management

COBO

FOBO



Up till recently, companies did not think in terms of supply chains, but viewed

themselves and their trading partners as independent islands. Sellers at times struggled

to keep up with demand, while buyers purchased goods for which they could pay,

barter or obtain credit. Economic and competitive pressures eventually forced

companies to think in terms of supply chains for the production and delivery of goods.

For this reason, the material or physical supply chain was born.

With the advancement of business processes, supply chain gained more and more

importance for each member of business community including manufacturers, retailers,

suppliers, suppliers suppliers and even consumer. Strategies were developed in order

to accelerate product sales and distribution. With the expansion of sales from areas to

cities and cities to countries, the need arose for proper tracking of demand and supply

as well as forecasting of materials, supplies, sales and distribution schemas. After the

emergence of Information Technology and business globalization, the concept of

integrated supply chain management was revolutionized. Information technology

consists of the tools used to gain awareness of information, analyze this information,

and execute on it to increase the performance of the supply chain.

What Is a Supply Chain?

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a

customer request. The supply chain includes not only the manufacturer and suppliers,

but also transporters, warehouses, retailers and even customers themselves. Within each

organization, such a manufacturer, the supply chain includes all functions involved in

receiving and fulfilling a customer request. These functions include, but are not limited

to, new product development, marketing, operations, distribution, finance and

customer service. Supply chain activities transform natural resources, raw materials and

components into a finished product that is delivered to the end customer. In

sophisticated supply chain systems, used products may re-enter the supply chain at

any point where residual value is recyclable. A typical supply chain begins with

ecological and biological regulation of natural resources, followed by the human

extraction of raw material and includes several production links, for instance;



component construction, assembly and merging before moving onto several layers of

storage facilities of ever decreasing size and ever more remote geographical locations,

and finally reaching the consumer.

Figure 9 Information, Funds, and Product flow in SCM [Source:

http://dspace.mit.edu/bitst ream /handle/1721 .1/3 981 6/ES D -260 JF all200 3/OcwW eb/En gin eering -Systems-

Division/ESD-260JFall2003/CourseHome/index.htm]

Consider a customer walking into a Wal-Mart store to purchase detergent. The supply

chain begins with the customer and his or her need for detergent. The next stage of this

supply chain is the Wal-Mart retail store that the customer visits. Wal-Mart stocks its

shelves using inventory that may have been supplied from a finished-goods warehouse

or a distributor using trucks supplied by a third party. The distributor in turn is stocked

by the manufacturer (say Proctor & Gamble [P&G] in this case). The P&G

manufacturing plant receives raw material from a variety of suppliers, who may

themselves have been supplied by lower-tier suppliers. For example, packaging

material may come from Tenneco packaging, while Tenneco receives raw material to

manufacture the packaging from other supplier. This supply chain is illustrated as

follows:-



Figure 10 Wal-Mart SCM Process [Source: Supply Chain Management System by Sunil Chopra &Pete

Meindl]

A supply chain is dynamic and involves the constant flow of information, product and

funds between different stages. In the above example, Wal-Mart provides the product,

as well as pricing and availability information, to the customer. The customer transfers

funds to Wal-Mart. Wal-Mart conveys point-of-sales data as well as replenishment

orders to the warehouse or distributor, who transfers the replenishment order via trucks

back to the store. Wal-Mart transfers funds to the distributor after the replenishment.

The distributor also provides pricing information and sends delivery schedule to Wal-

Mart. Wal-Mart may send back packaging material to be recycled. Similar information,

material, and fund flows take place across the entire supply chain.

A typical supply chain may involve a variety of stages. These supply chain stages

include:

Customers

Retailers

Wholesaler/distributors

Manufacturers

Component/raw material suppliers



Each stage in a supply chain is connected through the flow of products, information,

and funds. These flows often occur in both directions and may be managed by one of

the stages or an intermediary. Each stage need not be present in a supply chain. The

appropriate design of supply chain depends on the customers needs and the roles

played by stages involved.

The Objective of a Supply Chain

The objective of every supply chain should be to maximize the overall value generated.

The value a supply chain generated is the difference between what the final product is

worth to the customer and the costs the supply chain incurs in filling the customers

request. For most commercial supply chains, value will be strongly correlated with

supply chain profitability (also known as supply chain surplus), the difference between

the revenue generated from the customer and the overall cost across the supply chain.

Supply chain profitability or surplus is the total profit to be shared across all supply

chain stages and intermediaries. The higher the supply chain profitability, the more

successful is the supply chain. Supply chain success should be measured in terms of

supply chain profitability and not in terms of profits at an individual stage.

Many of the exchanges encountered in the supply chain will therefore be between

different companies who will seek to maximize their revenue within their sphere of

interest, but may have little or no knowledge or interest in the remaining players in the

supply chain. More recently, the loosely coupled, self-organizing network of businesses

that cooperates to provide product and service offerings has been called the Extended

Enterprise.

Supply Chain Management (SCM)

Supply Chain Management (SCM) is the management of a network of interconnected

businesses involved in the ultimate provision of product and service packages required

by end customers. 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. In other words, SCM is a cross-functional inter-enterprise system that

uses information technology to help support and manage links between some of a

companys key business processes and those of its suppliers, customers, and business



partners.

Supply chain management has generated much interest in recent years for a number of

reasons. Many managers now realize that actions taken by one member of the chain can

influence the profitability of all others in the chain. Firms are increasingly thinking in

terms of competing as part of a supply chain against other supply chains, rather than a

single firm against other individual firms. Also, as firms successfully streamline their

operations, the next opportunity for improvement is through better coordination with

their suppliers and customers. The cost of poor coordination can be really high. The

figure below illustrates an example of a supply chain network and how closely each

partner is linked to one another in order to fulfill the demand and supply process:-

Goal of Supply Chain Management

Goal of SCM is to efficiently manage process bifurcating demand, controlling inventory,

enhancing the network of business relationships a company has with customer,

suppliers, distributors and others, and receiving feedback on the status of every link in

the supply chain. The goal of SCM is to create a fast, efficient, and low cost network of

business relationships, or supply chain, to get a companys products from concept to



market.

Supply Chain Management is one of the most important strategic aspects of any

business enterprise. Decisions must be made about how to coordinate the production of

goods and services, how and where to store inventory, whom to buy materials from,

and how to distribute them in the most cost-effective, timely manner.

The Bullwhip Effect

In the Italian pasta industry, consumer demand is quite steady throughout the year.

However, because of trade promotions, volume discounts, long lead times, fully-

truckload discounts, and end-of-quarter sales incentives the orders seen at the

manufacturers are highly variable. In fact, the variability increases in moving up the

supply chain from consumer to grocery store to distribution center to central warehouse

to factory, a phenomenon that is often called bullwhip effect.

Figure 12Bullwhip Effect in Supply Chain [Source: http://knowscm.blogspot.com/2008/02/bullwhip-effect-in-

supply-chain.html]

The costs of this variability are high inefficient use of production and warehouse

resources, high transportation costs, high inventory costs, to name a few. Acer

Inc.sacrificed $20 million in profits by paying $10 million for air freight to keep up

with surging demand, and then paying $10 million more later when that inventory

became obsolete. The bullwhip effect phenomenon has been observed in many

different industries and occurs whenever demand uncertainties and variability become



magnified at each link in the supply chain. Its one of the most important causes of

inefficiency in a supply chain.

Figure 13 Bullwhip Effect in supply chain [Source: http://knowscm.blogspot.com/2008/02/bullwhip-effect-in-

supply-chain.html]

Supply Chain Infrastructure

The supply chain involves both internal and external supply chain operations. The

suppliers and customers both are inter-linked to the manufacturing organization. The

internal supply chain involves sequential links of the purchasing, production and

distribution department. The purchases department of a company is directly linked to

the suppliers of that company to purchase materials is raw, semi-finished or finished

form. After these materials are purchased, they are passed on to the production

department to covert this material into finished product. This finished product is

forwarded to distribution department for the distribution of finished goods to retailers

and ultimately, to the customers.

Order Quantity

Manufacturers Orders to

Wholesalers

Orders to

Manufacturer

Retailers Orders to

Wholesaler



Figure 14 Supply Chain Process [Source:

http://en.wikipedia.org/wiki/File:A_company% 27s_supply_chain_(en).png]

3.1 Extended Supply Chain

The extended supply chain is a clever way of describing everyone who contributes to a

product. So if you make text books, then your extended supply chain would include the

factories where the books are printed and bound, but also the company that sells you

the paper, the mill where that supplier buys their stock, and so on. It is important to

keep track of what is happening in your extended supply chain because with a supplier

or a suppliers supplier could end up having an impact on you (as the old saying goes, a

chain is only a strong as its weakest link). For example, a fire in a paper mill might

cause the text book manufacturers paper supplier to run out of inventory. If the text

book company knows what is happening in its extended supply chain it can find

another paper vendor.

Consider a typical manufacturer. The supply chain is made up of many interrelated

firms as shown in the figure below. There are part suppliers, component suppliers and

subassembly suppliers. Further up the chain are the suppliers suppliers, finally

reaching raw materials suppliers at the top of the chain. Going downstream, back

through the producing firm, the supply chain continues through the warehousing and

distribution channels, and then through the retail channels, ending with the consumer.



Consumer

Figure 15 A Systematic diagram of extended supply chain

The supply chain encompasses all activities associated with the flow and

transformation of goods and services from the raw material stage (at one end

of the supply chain) through to the consumer (at the other end of the chain),

including all associated information flows.

3.2 Basic Components of Supply Chain Management

The following are five basic components of SCM:-



1. Plan This is the strategic portion of SCM. You need a strategy for

managing all the resources that go toward meeting customer demand for

your product or service. A big piece of planning is developing a set of

metrics to monitor the supply chain so that it is efficient, costs less and

delivers high quality and value to customers.

2. Source Choose the suppliers that will deliver the goods and services you

need to create your product. Develop a set of pricing, delivery and

payment processes with suppliers and create metrics for monitoring and

improving the relationships. And put together processes for managing the

inventory of goods and services you receive from suppliers, including

receiving shipments, verifying them, transferring them to your

manufacturing facilities and authorizing supplier payments.

Figure 16 The Five Components of Supply Chain Process

3. Make This is the manufacturing step. Schedule the activities necessary for

production, testing, packaging and preparation for delivery. As the most

metric- intensive portion of the supply chain, measure quality levels,

production output and worker productivity.

4. Deliver This is the part that many insiders refer to as logistics.

Coordinate the receipt of orders from customers, develop a network of

warehouses, pick carriers to get products to customers and set up an

invoicing system to receive payments.

5. Return The problem part of the supply chain. Create a network for

receiving defective and excess products back from customers and



supporting customers who have problems with delivered products.

SCM Flows

Supply chain management flows can be divided into three main flows:

1. The Product Flow

It includes the movement of goods from a supplier to a customer, as well as

any customer returns or service needs.

2. The Information Flow

It involves transmitting orders and updating the status of delivery.

3. The Finances Flow

It consists of credit terms, payment schedules, and consignment and title

ownership arrangements.

If the goal of SCM is to provide high product availability through efficient and

timely fulfillment of customer demand, then how is the goal accomplished?

Figure 17 A view of different flows in a supply chain [Source:

http://www.careersinsupplychain.org/what-is-

scm/flows.asp]

Obviously, you need effective flows of products from the point of origin to the

point of consumption. But theres more to it. Consider the diagram of the fresh

food supply chain. A two-way flow of information and data between the supply

chain participants creates visibility of demand and fast detection of problems.



Both are needed by supply chain managers to make good decisions regarding

what to buy, make, and move.

Other flows are also important. In their roles as suppliers, companies have a

vested interest in financial flows. As you can understand, suppliers want to get

paid for their products and services as soon as possible and with minimal hassle.

Sometimes, it is also necessary to move products back through the supply chain

for returns, repairs, recycling, or disposal.

The Importance of Supply Chain Decisions

There is a close connection between the design and management of supply chain

flows (product, information, and funds) and the success of a supply chain.

Wal-Mart, Dell Computer, and Seven-Eleven Japan are examples of companies

that have built their success on superior design, planning, and operation of their

supply chain. In contrast, the failure of many e-businesses such as Webvan can

be attributed in weaknesses in their supply chain design and planning. Wal-Mart

has been a leader at using supply chain design, planning and operation to

achieve success. From its beginning, the company invested heavily in

transportation and information infrastructure to facilitate the effective flow of

goods and information. Wal-Mart designed its supply chain with clusters of

stores around distribution centers to facilitate frequent replenishment at its retail

stores in a cost-effective manner. Frequent replenishment allows stores to match

supply and demand more effectively than the competition. Wal-Mart has been

a leader in sharing information and collaborating with suppliers to bring down

costs and improve product availability. The results are impressive. In their annual

2004 report, the company reported a net income of more than $9 billion on

revenues of about $250 billion. These are dramatic results for a company that

reached annual sales of only $1 billion in 1980. The growth in sales represents

an annual compounded growth rate of 26 percent.

Decisions made during this phase include:

Strategic network optimization, including the number, location, and size of

warehouses, distribution centers and facilities Strategic partnership with suppliers,

distributors, and customers, creating communication channels for critical

information and operational improvements such as cross docking, direct

shipping, and third-party logistics Product design coordination, so that new and

existing products can be optimally integrated into the supply chain, load

management Information Technology infrastructure, to support supply chain

operations. Where-to-make and what-to-make-or-buy decisions Aligning overall



organizational strategy with supply strategy

Hierarchy of Supply Chain Decisions [Source: http://www.eil.utoronto.ca/profiles/rune/node5.html]

Supply Chain Planning

For decisions made during this phase, the time frame considered is a quarter to a

year. Therefore, the supply chains configuration determined in the strategic phase

is fixed. This configuration establishes constraints within which planning must

be done. The goal of planning is to maximize the supply chain profitability that

can be generated over the planning horizon given the constraints establishes

during the strategic or design phase. Companies start the planning phase with a

forecast for the coming year (or a comparable time frame) of demand in different

markets.Planning includes making decisions regarding which markets will be

supplied from which locations, the subcontracting of manufacturing, the

inventory policies to be followed, and the timing and size of marketing and

price promotions. Planning establishes parameters within which a supply chain

will function over a specified period of tie. In the planning phase, companies must

include uncertainty in demand, exchange rates, and competition over this time

horizon in their decisions. Given a shorter time frame and better forecasts than

the design phase, companies in the planning phase try to incorporate any

flexibility built into the supply chain in the design phase and exploit it to

optimize performance. As a result of the planning phase, companies define a set

of operating policies that govern short-term operations.




Sourcing contracts and other purchasing decisions.Production decisions,

including contracting, scheduling, and planning process definition.Inventory

decisions, including quantity, location, and quality of inventory. Transportation

strategy, including frequency, routes, and contracting. Benchmarking of all

operations against competitors and implementation of best practices throughout

the enterprise.Milestone payments

Focus on customer demand.

Supply Chain Operations

The time horizon here is weekly or daily, and during this phase companies make

decisions regarding customer orders. At the operational level, supply chain

configuration is considered fixed, and planning policies are already defined. The

goal of supply chain operations is to handle incoming customer orders in the best

possible manner. During this phase, firms allocate inventory or production

toindividual customer orders, set a date that an order is to be filled, generate pick

lists at a warehouse, allocate an order to a particular shipping mode and

shipment, set delivery schedules of trucks, and place replenishment orders.

Because operational decisions are being made in the short term (minutes, hours, or

days), there is a less uncertainty about demand information. given the constraints

established by the configuration and planning policies, the goal during the

operational phase is to exploit the reduction of uncertainty and optimize

performance.


Daily production and distribution planning, including all nodes in the supply chain

Production scheduling for each manufacturing facility in the supply chain

(minute by minute).Demand planning and forecasting, coordinating the demand

forecast of all customers and sharing the forecast with all suppliers Sourcing

planning, including current inventory and forecast demand, in collaboration with

all suppliers Inbound operations, including transportation from suppliers and

receiving inventory Production operations, including the consumption of

materials and flow of finished goods Outbound operations, including all

fulfillment activities and transportation to customers Order promising, accounting

for all constraints in the supply chain, including all suppliers, manufacturing

facilities, distribution centers, and other customers...The design, planning, and

operation of a supply chain have a strong impact on overall profitability and

success. It is fair that a large part of the success of a firm can be attributed to

their effective supply chain design, planning, and operation.



Manufacturing Cycle Replenishment Cycle Procurement Cycle Customer Order C Customer Retailer Distributor Manufacturer

Process Views of a Supply Chain

A supply chain is a sequence of processes and flows that take place within and

between different stages and combine to fill a customer need for a product.

There are five different stages which are the participants of a supply chain, that

is, customer, retailer, distributor, manufacturer and supplier. There are two

different ways to view the processes performed in a supply chain.

Cycle View: The processes in a supply chain are divided into a series of cycles,

each performed at the interface between two successive stages of a supply chain.

Given the five stages of a supply chain, all supply chain processes can be broken

down into the following four process cycles:-

a. Customer order cycle

b. Replenishment cycle

c. Manufacturing cycle

d. Procurement cycle

Each cycle occurs at the interface between two successive stages of the supply

chain. The five stages thus result in four supply chain process cycles. For example,

when customers shop online at Amazon, they are part of the customer order cycle

with the customer as the buyer and Amazon as the supplier. In contrast,

when Amazon orders books from a distributor to replenish its inventory, it is

part of the replenishment cycle with Amazon as the buyer and the distributor as

the supplier Within each cycle, the goal of the buyer is to ensure product

availability and to achieve economies of scale in ordering. The supplier attempts

to forecast customer orders and reduce the cost of receiving the order. The

supplier then works to fill the order on time and improve efficiency and accuracy

of the order fulfillment process. The buyer then works to reduce the cost of the

receiving process. Reverse flows are managed to reduce cost and meet

environmental objectives A cycle view of the supply chain clearly defines the

processes involved and owners of each process. This view is very useful when

considering operational decisions because it specifies the roles and responsibilities

of each member of the supply chain and the desired outcome for each process.

Push/Pull View

All processes in a supply chain fall into one of the two categories depending upon

the timing of their execution relative to end customer demand. With pull processes,

execution is initiated in response to a customer order. With push processes,

execution is initiated in anticipation of customer orders. Therefore, at the time

of execution of pull process, customer demand is known with certainty, whereas at



the time of execution of a push process, demand is not known and must be

forecasted. Pull processes may also be referred to as reactive processes because

they react to customer demand. Push processes may also be referred to as

speculative processes because they respond to speculated (forecasted) rather

than actual demand. The push/pull view is very important when considering

strategic decisions relating to supply chain design.

Supply Chain Macro Processes in a Firm

All supply chain processes discussed in the two process views can be classified

into the following three macro processes:

2. Customer Relationship Management (CRM): All processes that focus

on the interface between the firm and its customers

3. Internal Supply Chain Management (ISCM): All processes that are

internal to the firm

4. Supplier Relationship Management (SRM): All processes that focus

on the interface between the firm and its suppliers

The three macro processes manage the flow of information, product, and funds

required to generate, receive, and fulfill a customer request.

CRM Macro Process

The CRM macro process aims to generate customer demand and facilitate the

placement and tracking of orders. It includes processes such as marketing,

pricing, sales, order management, and call center management. At an

industrial distributor,

CRM processes include the preparation of catalogs and other marketing

materials, management of the Web site, and management of the call center that

takes order and provides services.

3.13.1 ISCM Macro process

The ISCM macro process aims to fulfill demand generated by the CRM process

in a timely manner and at lowest possible cost. ISCM processes include the

planning of internal production and storage capacity, preparation of demand and

supply plans, and fulfillment of actual orders.

3.13.2 SRM Macro Process

The SRM macro process aim to arrange and manage supply sources for various

goods and services. SRM processes include the evaluation and selection of

suppliers, negotiation of supply terms, and communication regarding new

products and orders with suppliers.



All three supply chain macro processes and their component processes are shown

in the figure below:

Figure 19 SCM Macro Processes [Source: Copra S., Meindl P., Supply Chain Management]

For a supply chain to be successful, it is crucial that the three macro processes are

well integrated. The organizational structure of the firm has a strong influence on

the success or failure of the integration effort. In many firms, marketing is in

charge of the CRM macro process, manufacturing handles the ISCM macro

process, and purchasing oversees the SRM macro process with very little

communication among them. It is not unusual for marketing and manufacturing

to have two different forecasts when making their plans. This lack of integration

hurts the supply chains ability to match supply and demand effectively, leading

to dissatisfied customers and high costs. Firms should structure a supply chain

organization that mirrors the macro processes and ensures good

communication and coordination among the owners of processes that interact

with each other.

Drivers of Supply Chain performance

Success and profitability in a supply chain requires that a companys supply

chain achieve the balance between responsiveness and efficiency that best meets

the needs of the companys competitive strategy. To understand how a company

can improve supply chain performance in terms of responsiveness and

efficiency, we must examine the logistical and cross-functional drivers of supply

Supplier Company Customer



chain performance: facilities, inventory, transportation, information, sourcing, and

pricing. These drivers interact with eachother to determine the supply chain

performance in terms of responsiveness and efficiency. As a result, the structure

of these drivers determines if and how strategic fit is achieved across the supply

chain.

Facilities

Facilities are the actual physical location in the supply chain network where

product is stored, assembled, or fabricated. The two major types of facilities are

production sites and storage sites. Decision regarding the roles, location,

capacity and flexibility of facilities have a significant impact on the supply

chain performance. For instance, an auto parts distributor striving for

responsiveness could have many warehousing facilities located close to

customers even though this practice reduces efficiency alternatively a high

efficiency distributor would have fewer warehouses to increase efficiency

despite the fact that this practice will reduce responsiveness.

Inventory

Inventory encompasses all raw materials, work in process, and finished goods

within a supply chain. Changing inventory policies can dramatically alter the

supply chains efficiency and responsiveness. For example, a clothing retailer

can make itself more responsive by stocking large amounts of inventory and

satisfying customer demand from stock. A large inventory, however, increases

the retailers cost, thereby making it less efficient. Reducing inventory makes the

retailer more efficient but hurts its responsiveness.

Transportation

Transportation entails moving inventory from point to point in the supply chain.

Transportation can take the form of many combinations of modes and routes, each

with its own performance characteristics. Transportation choices have a large

impact on supply chain responsiveness and efficiency. For example, a mail-order

catalog company can use a faster mode of transportation such as FedEx to ship

products, thus making its supply chain more responsive, but also less efficient

given the high costs associated with using FedEx. Or the company can use

slower but cheaper ground transportation to ship the product, making the supply

chain efficient but limiting its responsiveness.



Information

Information consists of data and analysis concerning facilities, inventory,

transportation, costs, prices, and customers throughout the supply chain.

Information is potentially the biggest driver of performance in the supply chain

because it directly affects each of the other drivers. Information presents

management with the opportunity to make supply chains more responsive and

more efficient. For example, with information on customer demand patterns, a

pharmaceutical company can produce and stock drugs in anticipation of

customer demand, which makes the supply chain very responsive because

customers will find the drugs they need when they need them. This demand

information can also make the supply chain more efficient because the

pharmaceutical firm is better able to forecast demand and produce only the

required amount. Information can also make this supply chain more efficient by

providing managers with

shipping options, for instance, that allow them to choose the lowest-cost

alternative while still meeting the necessary service requirements.

Sourcing

Sourcing is the choice of who will perform a particular supply chain activity

such as production, storage, transportation, or the management of information.

At the strategic level, these decisions determine what functions a firm performs

and what functions the firm outsources. Sourcing decisions affect both the

responsiveness and efficiency of a supply chain. After Motorola outsourced

much of its production to contract manufacturers in China, it saw its efficiency

improve but its responsiveness suffer because of the long distances. To make-

up for the drop in responsiveness, Motorola started flying in some of its cell

phones from China even though its choice increased transportation cost.

Flextronics, an electronics contract manufacturer, is hoping to offer both

responsive and efficient sourcing options to its customers. It is trying to make its

production facilities in United States very responsive while keeping its facilities in

low- cost countries efficient. Flextronics hopes to become an effective source for all

customers using this combination of facilities.

Prices



Pricing determines how much a firm will charge for goods and services that it

makes available in supply chain. Pricing affects the behavior of the buyer of

the good or service, thus affecting supply chain performance. For example, if a

transportation company varies its charges based on the lead time provided by

the customers who value responsiveness will be willing to wait and order just

before they need a product transported. Early orders are less likely if prices do not

vary with lead time.

Framework for Structuring Drivers

The visual framework for supply chain decision making is shown in figure below;

Most companies begin with a competitive strategy and then decide what their

supply chain strategy ought to be. The supply chain strategy determines how the

supply chain should perform with respect to efficiency and responsiveness. The

supply chain must then use the three logistical and three cross-functional drivers to

reach the performance level this supply chain strategy dictates and maximize

the supply chain profits.Although this framework is generally viewed from the

top-down, in many instances, a study of six drivers may indicate the need to

change the supply chain and potentially even the competitive strategy

Components of Decision in Supply Chain Drivers

Facilities

Decisions regarding facilities are a crucial part of supply chain design. Following

are the components of facilities decisions that companies must analyze.

Role

For production facilities, firms must decide whether they will be flexible, dedicated,

or a combination of the two. Flexible capacity can be used for many types of

products but is often less efficient, whereas dedicated capacity can be used for only

a limited number of products but is more efficient. Firms must also decide whether

to design a facility with a product focus or a functional focus. A product-focused

facility performs many different functions (e.g., fabrication and assembly) in

producing a single type of product. A functional-focused facility performs few

functions (e.g., only fabrication or only assembly) on many types of products. A

product focus tends to result in more expertise about a particular type of

product at the expense of the functional expertise that comes from a functional

methodology.

For warehouses and DCs, firms must decide whether they will primarily cross-



docking facilities or storage facilities. At cross-docking facilities, inbound trucks

from suppliers are unloaded; the product is broken into smaller lots, and is

quickly loaded onto store- bound trucks. Each store-bound truck carries a

variety of products, some from each inbound truck. For storage facilities, firms

must decide on the products to be stored at each facility.

Location

Deciding where a company will locate its facilities constitutes a large part of the

desing of a supply chain. A basic trade-off here is whther to centralize in order to

gain economies of scale or to decentralize to become more responsive by being

closer to the customer. Companies must also consider a host of issues related to

the various characteristics of the local area in which the facility is situated.

These include

macroeconomic factors, quality of workers, cost of workers, cost of facility,

availability of infrastructure, proximity to customers, the location of that firms

other facilities, tax effects, and other strategic factors.

Capacity

Companies must also determine a facilitys capacity to perform its intended

function(s). A large amount of excess capacity allows the facility to be very

flexible and to respond to wide swings in the demands placed on it. Excess

capacity, however, costs money and therefore can decrease efficiency. A facility

with little excess capacity will likely be more efficient per unit of product it

produces than one with a lot of unused capacity. The high-utilization facility,

however, will have difficulty responding to demand fluctuations. Therefore, a

company must make a trade-off to determine the right amount of capacity to

have at each of its facilities.

Facility-Related Metrics

Manager should track the following facility-related metrics that influence supply

chain performance;

3 Capacity measures the maximum amount a facility can process.

4 Utilization measures the fractional capacity that is currently being used in

the facility. Utilization affects both the unit cost of processing and

associated delays. Unit costs tend to decline and delays increase with

increase in utilization.

5 Theoretical flow/ cycle time of production measures the time required to

process a unit if there are absolutely no delays at any stage.



6 Actual average flow/ cycle time measures the average actual time taken

for all units processed over a specified duration such as a week or month.

The actual flow/ cycle time includes the theoretical time and any delays.

7 Flow time efficiency is the ratio of the theoretical flow time to the actual

average flow time.

8 Product variety measures the number of products/ product families

processed in a facility. Processing costs and flow times are likely to increase

with product variety.

3.3 Decision Phases in a Supply Chain

Successful supply chain management requires many decisions relating to the

flow of information, product, and funds. Each decision should be made to

raise the supply chain profitability. These decisions fall into three categories of

phases, depending on the frequency of each decision and the time frame during

which a decision phase has an impact. As a result, each category of decisions

must consider uncertainty over the decision horizon.

Supply Chain Strategy or Design

During this phase, given the marketing and pricing plans for a product, a

company decides how to structure the supply chain over the next several years.

It decides what the chains configuration will be, how resources will be allocated,

and what processes each stage will perform. Strategic decisions made by

companies include whether to outsource or perform a supply chain function in-

house the location and capacities of production and warehousing facilities, the

products to be manufactured or stored at various locations, and the modes of

transportation to be made available along different shipping legs, and the type of

information system to be utilized.A firm must ensure that the supply chain

configuration supports its strategic objectives and increases supply chain

profitability during this phase. For example, a companys decisions regarding

its choice of supply sources for components, contract manufacturers for

manufacturing, and the location and capacity of its warehouses , are all

supply chain design or strategic decisions. Supply chain design decisions are

typically made for long-term and are very expensive to alter on short notice.

Consequently, when companies made these decisions, they must take into

account the uncertainty in anticipated market conditions over the next few

years.



FLOW OF INFORMATION

The customers of the Company are divided into different categories and different routes, and

every salesman is assigned to one particular route which is to be followed by him on a daily

basis. 11 PSR- 2-3 extra- they reach out to 30-32 outlets a day ,11 DSR- 2-3 extra Monthly

target for PSR is 2500-3500(in season), 1500-1800(off season) Incentives are based n these

target ,They should achieve an annual growth of minimum 20% For every 20% growth, an

increase of Rs.3000 in salary Key Accounts: The customers in this category collectively

contribute a large chunk of the total sales of the Company. It basically consists of

organizations that buy large quantities of a product in one single transaction. The Company

provides goods to these customers on credit, payments being made by them after a certain

period of time i.e. either a month of half a month. Examples: Clubs, fine dine restaurants,

hotels, Corporate houses

Future Consumption: This route consists of outlets of Pepsi products, wherein a considerable

amount of stock is kept in order to use for future consumption. The stock does not exhaust

within a day or two, instead as and when required stocks are stacked up by them so as to

Territory Development Manager

Customer Executive

Direct Sales Representative

Pre Sales Representative

Sales Manager



avoid shortage or non-availability of the product. Examples: Departmental stores, Super

markets etc.

Immediate Consumption: The outlets in this route are those which require stocks on a daily

basis. The stocks of products in these outlets are not stored for future use instead, are

exhausted on the same day and might run a little into the next day i.e. the products are

consumed at a fast pace.

Examples: Small sized bars and restaurants, educational institutions etc.

General: Under this route, all the outlets that come in a particular area or an area along with

its neighboring areas are catered to. The consumption period is not taken into consideration in

this particular route.

Supply Chain Management Pepsi l.nagendra Babu Rollno 27

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