Symbiosis Center for Management & Human Resources

Development
[Constituent of SYMBIOSIS INTERNATIONAL (DEEMED
UNIVERSITY), SI(DU)] (Established u/s 3 of the UGC Act 1956, by
notification No.F.9-12/2001 – U.3 of the Government of India)

MBA 2018-20 Sem-II

Logistics Assignment

Coca-Cola vs. Pepsi: An outbound logistics

comparative analysis

By

Puneet Sharma (18020341185)

Under the Guidance of

Prof. Pradeep Khetan

1 Introduction
Vigorous competition within the beverage industry has been well documented. With such a highly
contested market containing a few dominant firms, organizations are constantly in pursuit of ways to
achieve optimal efficiencies. As this is the case, a high performing supply chain management (SCM)
system has become critical to a firm’s success. This report will provide a thorough comparative
analysis of the SCM strategies employed by the two leading organizations competing in the beverage
industry: Coca-Cola and Pepsi. The analysis will be focused on the Indian market and specifically in
the field of outbound logistics.

2 Coca-Cola

2.1 Introduction
Coca-Cola is an American brand that is the global market leader for sparkling beverages. The invention
of the Coca-Cola beverage is well-known across the globe. In 1886, pharmacist John Pemberton was
actually trying to develop a new medicine when he invented Coke. Even now, the exact recipe of Coke
is one the world’s best kept secrets. As the drink became increasingly popular, the first Coca-Cola
factory opened in 1894 in Vicksburg, Missippi. Presently, Coke is active in more than 200 countries and
serves more than 1.7 billion beverages a day, including Sprite, Fanta and Coca-Cola. Coca-Cola has
become very popular, in part, due to its successful marketing strategy which it adapts from country to
country.

2.2 Coca-Cola in India

General information
Until 1977, Coca-Cola, was the market leader in India regarding CSD. But when the new government
required Coca-Cola to hand in their secret formula, Coca-Cola didn’t agree and they were forced to
leave India. This was the sign for Coca-Cola’s main competitor PepsiCo to enter the Indian market in
1988 by creating a joint-venture with Punjab Agro Industrial Corporation and Voltas India Limited
which lasted until 1993. In 1994, one year after PepsiCo ended the joint-venture, Coca-Cola re-entered
the Indian market after the new Indian’s Liberalization Policy. By that time, Coca-Cola noticed a big
change in the market. An Indian player, Parle brothers, successfully marketed Thums Up, Maaza and
Limca. To beat their competitor, PepsiCo, Coca-Cola acquired Parle brothers in 1993. After a sluggish
start, where Coca-Cola unsuccessfully wanted to sell ‘the American way of living’, Coca-Cola became
more and more important through its deeper understanding of the Indian Market. In 2005, Coca-cola
and PepsiCo had a total market share of 95%. Coca-Cola’s share was equal to 52.4%. (Gupta, 2008)

Figure 2-1: Manufacturing locations Coca-Cola India

1
Presently, Coca-Cola’s Indian operation consist of 50 bottling operations of which 25 are owned by the
company itself and 25 through franchises. Next to the owned companies, Coca-Cola India has a
network of 21 independent contract packers which manufacturers several drinks for Coca-Cola. Coca-
Cola India has developed a distribution system which can overcome India’s main challenges. 700,000
retail outlets, 8000 distributors and small 10 tonne open bay three wheelers successfully deliver Coca-
Cola’s product to its end consumer. Coca-Cola’s business model in India is shown on Figure 3.2. (Gupta,
2008)

Figure 2-2: Business Model Coca-Cola India

Distribution channels
Hindustan Coca-Cola Beverages Pvt. Ltd. (HCCBPL) formulated four routes according to the type of
customer (Titus, 2012):

• Key Accounts: These are key customers who have a large share in the total share of Coca-
Cola’s sales. These customers mostly consist of fine clubs, restaurants, hotels,… and buy Coca-
Cola’s products in large quantities. Because of the higher bargaining power, the customers
benefit from 15 days to one month credit.

• Future Consumption: These are outlets, such as super markets, Food courts & Departmental
stores, of Coca-Cola who hold inventory for future consumption to make sure the product is
available whenever the consumer needs it.

• Immediate Consumption: This category consist of educational institutions, small bars,

canteens, unorganized retailers. Because of the small volumes, little inventory is held.
Therefore Coca-Cola has to replenish these types of customers on a daily basis.

• General: This category is often use in rural areas where the density of population is much
lower.
The four main groups of customers are replenished through a direct route or an indirect route. The
type of route is determined by the type of the bottler. For COBOs, a direct route is used, while indirect
routes are used for FOBOs. The direct route is shown on Figure 3.3. When Coca-Cola uses a direct
route, it means the bottling unit or partner manages sales, delivery, and merchandising. Therefore, a
FIFO-inventory system is used. By using a First-in First out system, Coca-Cola makes sure expiration of
products are limited and an easy & accurate cost calculation will be used as goods will be priced
according to their purchasing price.

2
Figure 2-3: Coca-Cola's Direct Route India

When an indirect route is using, an organization which isn’t part of Coca-Cola will be responsible for
the sale and distribution of the product. To guarantee the quality of the service, the distributor has to
full certain requirements which are listed in Figure 3.4.

Figure 2-4: Coca-Cola's Indirect Route India

The average order size of the distributor or the retailer will depend on the seasonal demand, which is
predicted through a variety of factors (see below). However, Coca-Cola uses a different order system
for distributors and retailers. Retailers have to order by contacting the Distributor Representative while
Distributor can order by calling the local manufacturing plant. Ordering can take place on a daily basis
and the lead time is in normal circumstances around two days. The retailer will bear the costs to
transport the goods from the distributor to its retail location while Coca-Cola will be responsible for
the distribution expenses when transporting the goods to the distributor. To reduce the supply time,
Coca-Cola works 24h/7. The daily distribution is represented by Figure 1-5. (LBSIM, 2012)

3
Figure 2-5: Daily distribution Coca-Cola India

Demand forecasting
As Coca-Cola is still growing in India, it is difficult to make accurate forecasts. Therefore, Coca-Cola
India uses a mix of a bottom-up (salespersons) and top-down (management) approach. These forecast
are firstly done on a region-level scale. This will result in more accurate and more precise data.
Afterwards, these forecasts are broken down in cities and towns by the sales manager who is in charge
for the specific towns or cities. A variety of factor are used when forecasting the demand (LBSIM,
2012):

• Historical data

• Economic parameters

• Seasonal variations

• Festivals, events, ceremonies, sport events

• Weekly reviews in order to adapt the monthly forecast

2.3 Challenges
Figure 1-2 shows the business model for Coca-Cola India. This image confirms that the use of COBO
and FOBO are important mechanism for Coca-Cola. In India, Coca-Cola company is divided in four
regional head offices: Haryana, Mumbai, Hyderabad and Kolkata. Throughout India, there are more
than 50 manufacturing plants, which are shown by Figure 1-1 By doing so, Coca-Cola tackles India’s
problem of geographical spread and the differences in taste one will face within India. (Krishna, 2010)

Hub-and-spoke system
To be successful in rural areas, Coca-Cola moved away from a centralized approach towards an hub-
and-spoke system. Through this system, bottles are no longer sent directly from the factories to the
retailers, but they are first sent to an ‘hub’, where they are transported to smaller inventories called
spoke-centres when orders are coming in. By doing so, Coca-Cola was able to cut cost. Before the
hub)and)spoke system was used, bottles faced long-haul journeys in large vehicles. This lead to
diseconomies of scale as demand is different from region to region in India. By changing the approach,
Coca-Cola was able to offer a more tailored service. Cost were saved as well as the type of vehicles

4
changed. For transporting the bottles from the factories to the hubs, large vehicle are used, medium
vehicles are used for the transportation between. (Wharton University of Pennsylvania, 2010)

Information systems
With a country as geographically vast as India and a technological infrastructure so primitive, especially
in rural areas, information flows from retailers to manufacturers are notoriously slow-moving. In order
to remedy these challenges, Coca-Cola initiated Project COLA (Countrywide Outbound Logistics
Automation). COLA is developed around the ERP system and is designed to cover all functions including
manufacturing, sales, distribution, finance and logistics. (Goswami, 2008)

According to an article featured in Network World, “The first step in creating an accurate picture was
setting up a Distribution Automation System (DAS) -- a transaction system that kept all sales movement
accessible. A DAS system has been used in several FMCG companies in India. At Coca-Cola, it was
tailored to meet specific requirements that included 'centralized masters' and a day-end transaction
summary for MIS analysis. The objectives of the software were to provide complete transparency and
control to distribution operations, while adding value to certain marketing operations.” The article
goes on to elaborate that, “The backbone of the system is a number of small but critical applications…
These apps collect information from the bottom of the distribution pyramid. Among these is a
handheld device that is installed in trucks.” (Goswami, 2008)

The Cooler Tracking System (CTS) is another integral application in this solution - a sticker on the
refrigerators, monitored by sales executives. CTS keeps track of:
- number of coolers in inventory
- coolers installed
- coolers under maintenance

The final application of this system is the ROADnet Route Optimizer. Goswami writes that, “The
application runs on a mobile device with GPRS carried by business development staffers. Their job is
to make rounds on fixed routes and check the availability and arrangement of Coca-Cola products.
Since they keep track of what needs replenishments, they can also bunch together outlets that need
restocking. This helps with dynamic route optimization and ensures that delivery trucks do not make
too many unnecessary runs from the plant (Goswami, 2008).” This allows Coke to monitor real time
sales, up-sell and cross-sell its depots, and increase the quality and effectiveness of its performance
tracking. (Goswami, 2008)

RED
RED (Right Execution Daily) is a supply chain management strategy Coca-Cola implemented in 2006. It
serves primarily as an outline and performance indicator for distributors. Its use is integrated among
all of Coca-Cola’s distributors and bottlers. For instance, Hindustan Coca-Cola Beverages Pvt. Ltd.
(HCCBPL) indicates that RED (Hindustan Coca-Cola, 2015):

 Provides a ready reckoner in the form of ‘Picture of Success’ to the ‘Feet on Street’ to
ensure consistency and high standards of execution in around 450,000 RED outlets across the
country.
 Helps drive creation of a soft drink culture ensuring easy availability to the consumers across rural
and urban clusters. Extensive support is provided by HCCBPL to help build the business of a

5
 customer as he moves up the ‘Pyramid’ from Basic Product Availability to Chilled Availability
evolving into Activated Chilled Availability. HCCBPL creates strong customer value by evolving
customers from provider of basic product to delivering an experience to the consumer.

3 Pepsico

3.1 PepsiCo in India

General Information
PepsiCo entered India in 1988 by creating a joint venture with the Punjab government-owned Punjab
Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Lehar
Pepsi until 1991, when the use of foreign brands was allowed. Pepsi bought out its partners and ended
the joint venture in 1994 and has now grown to become the country’s largest selling food and Beverage
Company. Being one of the largest multinational investors in the country, PepsiCo has established a
business which aims to serve the long term dynamic needs of consumers in India.

PepsiCo India’s expansive portfolio includes iconic refreshment beverages such as Pepsi itself, 7 UP,
Mirinda and Mountain Dew, in addition to low calorie options such as Diet Pepsi, hydrating and
nutritional beverages such as Aquafina drinking water, isotonic sports drinks, Gatorade, Tropicana
100% fruit juices, and many other beverages.

To support its operations, PepsiCo has 36 bottling plants in India, of which 13 are company owned and
23 are franchisee owned. PepsiCo’s business is based on its sustainability vision of making tomorrow
better than today and its commitment to living by this vision every day is visible in its contribution to
the country, consumers and farmers.

In order to ensure a good supply chain strategy, Pepsi co. plans two years in advance. It has several
contracts with manufacturers and receives raw material on a convenient basis. The company also
decides where production plants are to be placed. The production process is 65% automated. The
company has to provide and manage transport for the delivery of products as well as the arrangement
of third party services for the procurement of products. The shipping department handles orders and
the transport department decides the vehicles for safe delivery. Material planning and sourcing is
carried out as well. Sources of supply of raw material both local and foreign are identified and terms
and conditions are negotiated. Capacity planning is also done at this stage. Sales forecasting and
production planning depends upon the capacity of the organization. Distributors are also decided by
the company, keeping in mind past performances.
Figure 3-1: Distribution Channel PepsiCo India

6
Company follows hub and spoke model of distribution. A hub and spoke network is a centralized,
integrated logistics system designed to keep costs down.

For the urban cities, direct distributors are appointed by the company, which are supplied directly by
the company depots against bank transfer of money. These distributors appoint salesman for which
they are provided subsidy from the company, whose job is to market the products of the company.
The schedule of the salesman is repeated for every week.

For rural India, the distributor receives the supplies from urban distributor against bank transfer of
money. The major benefits of hub and spoke model can be underlined as:

• Reduced Capital for Inventory and Lowering Facilities Costs

o Reducing the number of warehouses significantly reduces rent and other building
expenses such as utility and maintenance expenses. In addition, lower operational and
administrative overhead is achieved as taxes, insurance, telephone and other facility
overhead is eliminated.

o Reducing the number of warehouses and centralizing inventory dramatically decrease

the amount of inventory carried. Only the hub needs to carry a lengthy supply and
nodes can switch to a more economic Just-in-Time inventory method.

o Moving equipment becomes easier as logistics becomes simpler to manipulate.

• Economies of scale result in cost savings

o Mass shipping and receiving of larger quantities will lower inbound and outbound
shipping costs

o Centralized purchasing lowers per unit, shipping and administrative time as operating
supplies can be purchased in larger quantities

o Inventory control is better by not having to reconcile as many locations.

• Routing

o For a network of n nodes, only n - 1 routes are necessary to connect all nodes; that is,
the upper bound is n - 1. For example, in a system with 10 destinations, the spoke-hub
system requires only 9 routes to connect all destinations, while a true point-to-point
system would require 45 routes.

Distribution Channels
PepsiCo India has adopted intensive distribution strategy the company’s main focus is to reach all its
markets.

3.1.2.1 Intensive distribution

A Strategy of intensive distribution is characterized by placing the goods or services in as many outlets
as possible. When the consumer requires a great deal of location convenience, it is important to offer
greater intensity of Distribution. This strategy is generally used for convenience items such as Tobacco,
gasoline, and soap, snack foods & bubblegum.

7
Manufactures are constantly tempted to move from exclusive or selective distribution to more
intensive distribution to increase their coverage and sales and one can find Pepsi in nursing homes,
confectionery shops, and departmental stores.

3.1.2.2 Channel members

There are four channel members apart from company factory and consumer. These are, in order of
product forwarding:

• Godown: These are the hub. They receive products directly from the factory and their function
is to store products and forward them to distributors as and when orders are placed. They
don’t have any margin but are company owned and are paid directly by the company.

• Distributor: Pepsi doesn’t have any separate stockiest, only distributors are present. They
receive products from the godowns and supply to wholesalers and also directly to retailers.
They appoint a salesman for retailing, and for this they get subsidy from company. Their margin
depends on whether they are supplying to wholesaler or directly to retailer and vary from 2%
to 5% according to company, but in reality it is lower as they sometimes sell at lower prices to
increase volumes. This leads to rate cutting. They also get various schemes from the company,
which are generally to be forwarded to retailers and wholesalers. There are 6 distributors of
Pepsi in Gurgaon.

• Wholesalers: They buy from distributor and supply to either retailers or nearby village
wholesalers. There are more than 100 wholesalers of Pepsi in Gurgaon and surrounding areas.
They try to get products as cheap as possible and for this they often ask for bulk discounts
from distributors. They also try to get products from distributors of other states. They have
very strong networking and huge storage capacity. There margin is 2% to 3%, depending upon
the product and the price which they are able to get from distributors. Sometimes, they also
get scheme from the distributor. At present, there is a scheme in half liter bottles for
wholesalers, i.e. they get 4 bottles extra on buying a whole carton. Wholesalers are generally
not exclusive to Pepsi and also carry other company products. Interestingly, most of the
wholesalers are common with Coca Cola because of the same nature of business and same
target shops. Wholesalers generally don’t get credit from distributors because they try to find
the lowest price in the market and buy, and thus they are generally not loyal to any distributor.
Also, the responsibility of transportation of good lies on the wholesaler and he is responsible
for any damage to goods.

• Retailers: Retailers cater to the customers. They buy either from the wholesaler or distributor,
depending on ease of purchase, relations and credit policy. Wholesalers generally supply them
on credit. According to a wholesaler, he supplies to the retailers on credit and has maintained
different rates depending on the credit days. If the retailer pays him within 30 days, he supplies
on normal rates, but if the retailer pays after 30 days then he charges a premium. Retailers of
Pepsi vary from small pan shops to big departmental stores and restaurants. The margin to
retailers is from 14% to as high as 18% depending upon the product and rates they get from
wholesalers. There are also schemes for retailers. Presently, they get 3 bottles extra if they buy
a full carton of half liter bottles.

8
3.1.2.3 Distribution Channels Redefined
Pepsi is proactively addressing these emerging trends by approaching distribution and channels in a
much broader way. They are shifting emphasis from mere reach or availability expansion to touching
consumers with a 3- way convergence- of product availability, brand communication and higher level
of brand experience. They are thus going beyond delivering products and creating greater engagement
and interaction around the purchasing experience.

Figure 3-2: Pepsi's Reinvention

Pepsi’s reinvention of distribution is built on an understanding of emerging consumer trends, the retail
environment and the growth drivers of our brands.

Pepsi’s distribution system is a key external resource. Normally it has taken years to build and cannot
be easily changed. It ranks in importance with key internal resources such as manufacturing, research,
engineering and field sales personals. It represents significant corporate commitment to set policies
and practices that constitute the basic fabric on which is woven an extensive set of long run
relationship.

3.1.2.4 Process Views of a Supply Chain

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. The ensure the quality, several processes have been implemented which are discussed below.

3.1.2.5 Improvement with using Just-In-Time (JIT)

• 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 enhances customer satisfaction in terms of availability of options,
assurance of quality, prompt delivery times, and value of money.

9
3.1.2.6 I2 Transportation
I2 Transportation is a part of end to end solution for planning, execution, and management of the
entire transportation cycle. It is designed to enable an organization to utilize and manage an entire
transportation network, as well as reduce cost while improving transport performance. I2
transportation is designed to employ sophisticated optimization and data techniques to define and
evaluate alternative transportation strategies. It is also designed to provide comprehensive data
management, analytics, and reporting of key transportation cost and service trade-offs.

3.1.2.7 Implementation
PepsiCo set two objectives for transportation management. One was to achieve an on-time delivery
rate at 99.1% and another was to reduce transportation costs. It empowered with optimized processes
and technology that enable the team to perform at the highest possible level. With the application of
new technology that provides greater supply chain visibility, better organized data, and access to
higher level of real time or near real time information, even the best team can improve their
performance. The benefits can be listed as follows:
• Exception-based management
• End-to-end supply chain visibility and event management tools
• Customer-specific solutions for replenishment, fulfilment, and manufacturing
• The ability to forecast and respond to supply/ demand events
• The option to move from calendar-based to event-driven planning and re-planning.
Increased employee productivity
• Reduced process, personnel, and expediting costs
• Improved customer, supplier, and partner communications.
• Real-time decision support

3.2 Challenges
Rate Cutting
Rate cutting from wholesalers is a major problem, faced by distributors. Certain direct distributors
keep profits as low as 1% and then sell to wholesalers so as to take bulk orders, while wholesalers
themselves keep profits as low as 0.5% and sell to smaller village wholesalers and retailers so as to
make bulk orders and this causes the rate cutting problem, as few retailers do not buy from the
distributors because they can get their orders cheaper from wholesalers.

Too near Wholesalers

One of PepsiCo’s major problems is the existence of wholesalers that are too near which leads to rate
competition between the two wholesalers.

Communication of schemes
At times few wholesalers only get to know about the schemes of the month after many days and they
are not able to take the benefits of it.

10
 Duplicate Brands
There are many duplicate brands existing in the market and taking advantage of the illiterate
population in rural areas by selling spurious PepsiCo beverages. These brads offer very high margins
for retailers and distributors.

Refrigerator problems
Some retailers demand a company refrigerator regularly and are not willing to store PepsiCo products
in their own refrigerators and these retailers are generally big and imperative and there’s always a
threat that a competitor could provide them with refrigerators and restrict them from selling Pepsi
products.

Maaza Scheme
One of Pepsi’s major competitors in India is Maaza which is a successful brand of Coca-Cola. Maaza
became and still is a very popular brand in India and retailers who were told to only house Pepsi
products started keeping Maaza and this adversely affected Pepsi sale and posed great challenges for
distributors and wholesalers.

Reverse Supply Chain Management

Whenever a retailer/wholesaler/distributor starts a business with Pepsi they first need to buy empty
bottles from Pepsi and then the next time they are supplied with filled bottles in return of empty
bottles. This process calls for great efforts of wholesalers and distributors.

4 Conclusion
As illustrated by the report, the Indian environment alone presents a number of obstacles that must
be overcome in order to build and maintain a successful SCM system. With respect to Coca-Cola and
Pepsi, it has been shown that the two competitors utilize many similar SCM methods but maintain
some key strategic differences as well. While both utilize COBO and FOBO strategies as well as hub-
and-spoke systems, they each have unique strategic philosophies, such as Coke’s Project COLA. As
has been clearly indicated by the report, Coca-Cola and Pepsi both face numerous challenges, and
while each company utilizes SCM differently, it is clear that continued investment for the
improvement of SCM will be of critical importance to the competitiveness and long-term success of
the companies.

11