Management Paper
Supply Chain Management
Supply Chain Management is the process of planning, implementing, and controlling the operations of supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. It is a cross functional approach to managing the movement of raw materials into an organization and the movement of finished goods out of the organization toward the end consumer ().
Supply Chain management is also the combination of art and science of improving the way company finds the raw components it needs to make a product or service and deliver it to customers (). It seeks to enhance competitive performance by closely integrating the internal functions within a company and effectively linking them with external operations of suppliers and channel members. Moreover, this has been a prominent concern for both large and small companies as they strive for better quality and higher customer satisfaction. According to (2001) and (2000), supply chain management works to bring the supplier, the distributor and the customer into one cohesive process. The manufacturers, suppliers, transporters, warehouses, retailers, and customers are involved in a dynamic but constant flow of information, products, and funds (2002).
In a supply chain, a company links to its supplier upstream and to its distributors downstream in order to serve its customer. The goal of supply chain management is to provide maximum customer service at the lowest possible costs.
Companies now are competing supply chain-to-supply chain rather than enterprise-to-enterprise requiring for more intimately connected relationships. Customer markets and supply chains are no longer limited by physical proximity, and businesses are sourcing from and managing a greater number of far-flung partners and channels.
The global economy has redefined the dynamics of competition for modern organizations. With product lifecycles shortening and worldwide rivalry increasing, success depends on effective global supply chain management, being able to deliver the right product to the right market at the right time. The complexity involved in managing supply chains that span continents and dominate markets demands strategies and systems that are adaptable.
Managing Supply Chain for Global Competitiveness takes a strategic look at all of the core functions of global supply chain management which includes product design, planning and forecasting, sourcing, outsourcing, manufacturing, logistics, distribution, and fulfillment.
An example to illustrate this theory on the supply chain management is the PepsiCo, Inc. PepsiCo is under the food consumer product industry and is the world leader in convenient foods and beverages. It was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including the Gatorade in 2001. PepsiCo offers product choices to meet a broad variety of needs and preference — from fun-for-you items to product choices that contribute to healthier lifestyles. PepsiCo owns some of the world’s most popular brands, including Pepsi-Cola, Mountain Dew, Diet Pepsi, Lay’s, Doritos, Tropicana, Gatorade, and Quaker. ().
The Pepsi brand and other Pepsi-Cola products account for nearly one-third of the total soft drink sales in the United States. In order for the company to make sure that their products reach the customers, the company needs an efficient supply chain solution.
PepsiCo’s Supply Chain Management
PepsiCo, Inc. operates as a global snack and beverage company. It manufactures, markets, and sells a variety of salty, convenient, sweet, and grain-based snacks; carbonated and noncarbonated beverages; and foods worldwide.
When it comes to delivering high cost and perishable products to manufacturing sites, just-in-time (JIT) remains one of the most cost-effective supply chain solutions. In JIT process, on time delivery is an absolute necessity.
Just-in-Time (JIT) is a philosophy that defines the manner in which a manufacturing system should be managed. It one of many initiatives that aimed in enhancing customer satisfaction in terms of availability of options, assurance of quality, prompt delivery times, and value of money.
Pepsi-Cola in North America, the refreshment beverage unit of PepsiCo, Inc., sells refrigerated soft drink concentrate to Pepsi-Cola Bottlers in the United States and Canada. Delivered JIT fashion to companies without on-site inventory, on-time delivery of this premium ingredient is critical to keep the production lines moving.
The Pepsi brand and other Pepsi-Cola products account fro nearly one-third of the total soft drink sales in the United States. In order to ensure that PepsiCo’s concentrates reaches bottlers as needed during the production, they partnered with 3PL provider Penske Logistics to manage its transportation. Penske also provides warehouse management for two Pepsi distribution centers in North America.
According to Frank Hazeltine, vice president of freight management of Penske Logistics, “in a JIT environment, leading-edge technology and optimized transportation are very important. The customer’s primary concern above all else is having a provider that can flawlessly execute the process and deliver on time, everytime.”
In connection with this, PepsiCo set two objectives for transportation management. One is to achieve an on-time delivery rate at 99.1% and another is to reduce transportation costs.
In achieving a ninety-nine percent in delivery rate requires an experienced operations team with the knowledge and skills to make the solution work in the real world. Moreover, they need to be empowered with optimized processes and technology that enable the team to perform at the highest possible level.
With the application of new technology that provides greater supply chain visibility, better organized data, and access to higher level of real time or near real time information, even the best team can improve their performance.
In 2000, Penske converted Pepsi’s transportation management technology from propriety software to i2 transportation optimization solution. i2 transportation platform was enhanced with the addition of interface between the two companies
i2 Transportation is a part of end to end solution for planning, execution, and management of the entire transportation cycle. This solution is designed to enable an organization to utilize and manage an entire transportation network, as well as reduce cost while improving transport performance. In addition, i2 transportation is designed to employ sophisticated optimization and data techniques to define and evaluate alternative transportation strategies. It is also designed to provide comprehensive data management, analytics, and reporting of key transportation cost and service trade-offs.
In addition, Penske’s partnership with Business objects provides comprehensive supply chain data from its data warehouse, analysis and management applications. Penske’s with used of i2 transportation can track performance at every stage in the process increases flexibility and provides greater control over the transportation operation. This increase in visibility makes it easier to keep track of shipments, revise routes and schedules to accommodate unforeseen changes and implement alternative plans to counter delays. By Penske’s putting a solution in place to track and measure every shipment, Pepsi has been able to provide an on-time delivery performance of well over 99 percent.
Pepsi’s transportation is consolidated to a central location to reduce costs. Penske also provided a nation wide carrier rate re-negotiation and service assessment to improve cost structure and achieve on-time delivery goal. With this centralization, this allows negotiation in a large scale to secure the best rates and services.
Furthermore, Pepsi’s orders are received electronically and optimized to ensure lowest transportation cost. Advanced technology is deployed to select the lowest cost carrier, find the best routes and consolidate shipments. Optimal load configuration ensures maximization of each truckload ( 2003).
In summary, PepsiCo used the JIT process to its supply chain management. To make this possible, Pepsi partners with Penske that has provide them with i2 transportation optimization solutions which has satisfies their consumer with the on-time delivery and with the benefit to the company for it has also reduce transportation cost.
Flow of Materials in Pepsi-Cola Production
PepsiCo uses a system and a lot of hard work in their production of Pepsi-Cola. The system starts with the finest ingredients available which are the kola nuts, vanilla beans, flavor oils, citrus, sweeteners, and the purest distilled water with the best technology and all the care to blend their ingredients.
Pepsi has also their own exacting production and quality standards, monitored with constant testing to guarantee quality and consistency in their products. They also have their own local distribution system to make sure that Pepsi you open at home is as fresh and delicious as it was when sealed in their plant.
Flavor concentrates are shipped from special Pepsi-Cola manufacturing plants in heavy duty, air-tight containers. Liquid sweeteners are transported in special tanker trucks. These ingredients are stored in clean, sanitary areas and items requiring refrigeration are kept in temperature controlled areas.
The bottles and cans that will eventually be filled with Pepsi are manufactured elsewhere, and shipped to Pepsi plants wrapped and sealed to protection. Labels, cartoons, caps, the carbon dioxide used to carbonate soft drinks and other supplies are also produced by other companies. Upon arrival, everything is subject to inspection to make certain all of the ingredients and materials meet the Pepsi standards.
Special equipment is used to uncase and depalletize incoming shipments of bottles and cans. The machines then transfer the individual packages to a conveyor belt. Once on the belt, they travel rapidly through a printer that applies a production code to each can. Then they are automatically turned upside down and rinsed thoroughly with filtered water before proceeding directly to the filler.
Water is the key ingredient in all soft drink. Pepsi-Cola take special care to purify that water it uses, a procedure that involves careful treatment, filtration and purification.
Pepsi-Cola flavor concentrate is then carefully combined with sweeteners and other ingredients in large stainless steel mixing tankers. Quality control audits are then performed by specially trained technicians to maintain the highest possible quality standards.
In the last step of the manufacturing process, as the now rinsed cans reach the filler, they are reinverted, immediately filled and the lid is applied at an average speed of 1,200 cans per minute. The filler is where the syrups from the mixing tanker are combined with the purified water from the filtration process. The liquid is then carbonated. Then after that, the cans and bottles are imprinted with a freshness date code and a final quality check is done to ensure that the package is properly filled, sealed and labeled. As the products leave the manufacturing line, they are packed in six or 12 packs, 24 or 30 can cases. The finished packages are stacked on shipping pallets and moved to temporary holding areas or to a central warehouse for shipping.
Companies using Just-in-Time based Operation
In Just-in-time based operation, day-to-day activities are driven by continuously replenishing the customer demand driven finished goods inventory targets. JIT requires production tied more directly to short term customer demand patterns.
In purchasing, it focuses on the lowest cost not only the unit cost of materials but also transportation, storage, and other related costs.
The logistics manager in this kind of operation focuses with shipping smaller lots or quantities of material because full truckloads are seldom used in JIT. These methods allow transporting small quantities at the same cost per unit as larger loads but the costs associated with storing and handling bulk shipment are being reduced ( 2005).
Companies not using Just-in-Time bases Operation
When an operation of a company is not just-in-time based, the demand or production planner will strive to optimize production-oriented goals and objectives such as equipment utilization, labor efficiency, throughput and uptime. Optimizing these goals often leads to run large batch sizes that are dependent on the availability of raw materials. This optimizes the equipment and labor utilization but the production planners and managers have not been looking at the expense of the bigger picture.
The sourcing or purchasing managers strives towards reducing company’s spending overall. This manager consolidates suppliers offering products or materials at the lowest per unit costs through buying in volume. They may even get the shipping and freight costs included in the purchase price which means the price of the commodity also would increase. Purchasing managers are focused on getting the best price, not putting into consideration the supplier performance and reliability.
The logistics/transportation manager id tacked with getting raw materials in and the finished goods out of the production process and seek to optimize the transportation and distributing network. This manager should focus on the lowest cost and reliability of the logistics or transportation solutions. But lowest cost could only be attained if the purchasing team negotiates a delivered cost package deal with the supplier and the supplier is responsible of the reliability and performance of the carriers or transporters (2005).
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