CASE STUDY

PEPSI DISTRIBUTION AND LOGISTICS

OPERATIONS

QUESTION NO: 01

Analysts felt that one of the key reasons for PepsiCo’s dominance in the beverages and
snack foods markets was its efficient distribution system. Describe PepsiCo’s
distribution system and the channels used, in detail. Discuss the strengths and
weaknesses of the company’s distribution operations. Give suggestions to overcome the
weaknesses you have discussed.

PepsiCo had developed various distribution models to offer its products and services to
customers in the US. These included the Direct Store Delivery (DSD), Broker Warehouse
Distribution (BWD) and Vending & Food Service (V&FS) systems.

The DSD system was the oldest method of distribution employed by PepsiCo. Under the
system, PepsiCo’s employees were required to take new orders from the grocery and
convenience stores and deliver the previous orders to the stores. They were even responsible
for putting the products on store shelves. Each day, the employees had to meet a particular
number of customers. The normal practice was to take orders manually. Using this system,
the employees distributed snacks and drinks directly to thousands of distribution outlets,
ranging from small convenience stores2 and supermarkets3, to large warehouse outlets, like
hypermarkets.

For a few of its products, which were less delicate and perishable, PepsiCo employed the
BWD system. This system was equally effective and even more economical than the DSD
system. Under the BWD system, PepsiCo employed third-party distributors to distribute
products to the stores from PepsiCo’s warehouses to the retailers‟ warehouses and retail
outlets. The employees at the stores handled the products and placed them on the shelves.
PepsiCo employed this system in the case of products which were less delicate and perishable
and which were less likely to be impulse purchase items. The items under this category
included beverages (Pepsi Cola, Mountain Dew, etc.), juices (Tropicana), and sports juices
(Gatorade).
PepsiCo’s V&FS sales personnel distributed its products through third-party V&FS and
bottling companies. Through this distribution system, the products were made available in
schools and colleges, stadiums, office premises, restaurants, etc. Recognizing the huge potential
of this distribution channel, PepsiCo developed one of the largest vending and food service sales
forces in the US, comprising 600 people; it generated revenues of over $1 billion every year
through this channel.
PepsiCo distributed its beverages in the US through five retail channels that are
supermarkets/retail stores, fountain/restaurant, convenience stores, vending, and others. In the
supermarkets, the sales personnel of rival bottlers fought fiercely for shelf space that would
ensure maximum visibility, accessibility and support for the product line.

STRENGTH:

PepsiCo’s extensive global production and distribution networks are strengths that support
the company’s international growth and expansion strategies. PepsiCo upgraded its technical
capabilities consistently in order to strengthen its logistics management activities. PepsiCo’s
bottlers employed wireless technologies to strengthen their distribution system and
effectively serve the customers in the markets in which they operated. And because of no
additional employee the retailers did not have to incur labour costs required for unloading the
trucks and placing the product on shelves and PepsiCo’s ensures maximum visibility and
accessibility.

WEAKNESS:

PepsiCo operates primarily in the food and beverage industry. This is a weakness because it
maximizes the company’s vulnerability to risks in the food-and-beverage market. Also,
PepsiCo fails to effectively market many of its products to health-conscious
consumers. Distribution channel concentrated more on super markets and restaurant. And
there is no EPR system and Distribution channel concentrated more on super markets and
restaurant. PepsiCo should widen its distribution channel to rural as well as urban areas and
also improve its distribution channels more.
QUESTION NO: 02

Prior to the implementation of the wireless mobile solutions, PAS faced several
problems in its logistics operations. Describe how the implementation of wireless
solutions helped in solving the problems of PAS. What measures must PAS take to
further improve its logistical efficiency?

By implementing the new wireless mobile solutions, PAS was able to achieve significant
improvements in the way it handled its logistics operations, resulting in enhanced efficiency
and precision. There was a significant gain in productivity recorded by sales personnel, DAs
and also the distribution centres. This enabled the company to serve its customer better. The
sales personnel were able to make more customer calls, rather than wasting their time at the
retail outlets.
PAS had to ensure the timely dispatch of goods, as well as ensure full capacity utilization of
its trucks, and quicker inventory replenishment at the stores. The ultimate objective was to
ensure that the stores were stocked with the required quantities of products at the right time.
The aim was to continuously increase sales and productivity levels.
In order to achieve the goals, PAS decided to make a clear distinction between its sales and
delivery operations in major US territories, on an experimental basis. Under the new system
(known as the pre-sell method), each day, the Account Sales Managers (ASMs) went to the
retail outlets to gauge their requirements, promote products and receive orders. The following
day, the delivery agents (DAs) delivered the orders as per the outlets‟ requirements.
PAS also decided to replace its various disparate business systems with an integrated ERP
package developed by People Soft. Under the new system, PAS replaced the previous
handheld computers with PDT 8000 computers 8 made by Symbol. The PDTs were equipped
with integrated barcode scanners and a numeric keyboard.
The new system simplified the sales and delivery functions for PAS. The company changed
the way its sales and delivery teams operated. Earlier, PAS employees were responsible for
receiving orders manually while at the same time distributing products to the retail stores
(supermarkets, general merchandize stores, and so on). They did not have a proper routing
schedule or a route plan. The truck drivers simply distributed products to the stores which fell
in their routes.
PAS launched 2 new distribution methods like the chilled DSD system and the hybrid system
for improvement for market penetration and sales increment
QUESTION NO: 03

Analysts felt that PepsiCo could reap significant cost benefits by integrating and
streamlining the operations of its group companies (beverages, snack foods and
bottling). Prepare an operational plan for PepsiCo to achieve this task. Make suitable
assumptions to answer the question.

OPERATIONAL PLAN:

PEPSI CO

OBJECTIVE: To reap cost benefit by integrating & streamlining the group companies (Pepsi,
Frito lay, Tropicana)

PEPSI CO DISTRIBUTION SYSTEM:

 Direct Store Delivery (DSD)

 Broker Warehouse Distribution (BWD)
 Vending & Food Service (V&FS) system

PEPSI CO DISTRIBUTION CHANNEL:

 Supermarkets/retail stores
 Fountain/restaurant
 Convenience stores
 Vending

NEW DISTRIBUTION METHODS:

 Chilled DSD system

 Hybrid system

The chilled DSD system was a relatively small distribution method, created for items which
required continuous refrigeration. This was primarily created for the fruit juices product line.
However, PepsiCo intended to extend it to other beverage brands as well sometime in the
future. The hybrid system was formed by pooling the various distribution systems of
PepsiCo. This was undertaken to facilitate PepsiCo in serving a large number of retailers in
emerging markets like India and China.
In spite of the benefits involved in employing advanced IT applications, various PepsiCo
group companies and its bottlers functioned more or less independently. All five of PepsiCo’s
major units, including Pepsi, Frito-Lay, Quaker Oats, Tropicana and the bottlers invested in
their own wireless technology. There was no ERP system connecting these units. They had
separate distribution systems (except for a few minor regional tie-ups), even though they
served the same retail outlets. Efforts and resources were not pooled together. This lacuna
would affect PepsiCo’s profitability adversely and it was an area which required maximum
attention to enable the company to compete effectively with its competitors.