21-08-2014, 01:57 PM
Total Quality Management Benchmarking at Pepsi Cola
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Introduction
PepsiCo, Inc., major producer of carbonated soft drinks, other beverages, and snack foods. Its beverage division, Pepsi-Cola Company, bottles and markets several popular brands of soft drinks in the United States and throughout the world. PepsiCo also owns Frito-Lay Company, the leading snack-food maker in the United States. PepsiCo is based in Purchase, New York.
PepsiCo’s soft drink products include Pepsi, Diet Pepsi, and Mountain Dew. Other beverages include Lipton Brisk and Lipton’s Brew iced teas, All Sport athletic drink, and Aquafina bottled water. Frito-Lay products include Lay’s and Ruffles Potato Chips, Fritos and Doritos Corn Chips, Chee-tos Cheese Snacks, Tostitos Tortilla Chips, Rold Gold Pretzels, and Grandma’s Cookies.
Early History
PepsiCo traces its origins to 1898 when Caleb Bradham, a pharmacist in New Bern, North Carolina, created a curative drink for dyspepsia called Pepsi-Cola. Pepsi-Cola, later referred to simply as Pepsi, was a mixture of carbonated water, cane-sugar syrup, and an extract from tropical kola nuts. To sell his product, Bradham formed the Pepsi-Cola Company in 1903. In addition to selling the drink at drugstore counters, Bradham bottled Pepsi for sale on store shelves. At this time, bottling was a new innovation in food packaging.
However, due to major increases in the price of sugar, Bradham began to lose money on Pepsi, and in 1923 he filed for bankruptcy. The Craven Holding Company of Craven County, North Carolina, purchased the company’s assets. In 1931 Charles G. Guth of the Loft Candy Company in New York City purchased Pepsi-Cola from the holding company. Guth had difficulty getting the business going again, but he increased sales by selling larger bottles at an unchanged price.
Growth
The Pepsi-Cola Company, meanwhile, had changed hands several times and grown greatly since 1933. The Loft Candy Company merged with the company in 1941, keeping the Pepsi-Cola name. About this time, Pepsi became the second-best selling soft drink in America behind its chief market rival, Coca-Cola (popularly known as Coke). In 1948 the Pepsi-Cola Company began canning drinks in addition to selling them in bottles. Alfred Steele, formerly an executive with the Coca-Cola Company, became president of the Pepsi-Cola Company in 1950. Former amateur boxer Donald Kendall took over as company president and chief executive officer (CEO) in 1963 and began marketing Pepsi to young people in an advertising campaign called “The Pepsi Generation.” The company acquired another popular soft drink, Mountain Dew, in 1964. In 1965 the Pepsi-Cola Company merged with Frito-Lay, Inc., to become PepsiCo, Inc., based in New York City. As president and CEO of the newly merged company, Kendall later moved the corporate headquarters to its current home in Purchase, New York.
The Cola wars
PepsiCo’s leading soft drink, Pepsi-Cola, and its chief rival, Coke, have dominated the soft-drink market for decades, although Pepsi has traditionally remained behind Coke. In 1950 Coke outsold Pepsi by 500 percent worldwide. But Pepsi’s aggressive advertising campaigns aimed at young consumers and major bottling and marketing deals made Pepsi a close rival to Coke by the 1980s. PepsiCo has also enjoyed great success with its canned and bottled Lipton brand iced teas, earning higher sales than the Coca-Cola Company’s Nestea products. Also, in the United States, Pepsi had virtually an even market share with Coke in the mid-1980s, when the Coca-Cola Company changed the formula for Coke. (It later reintroduced the original formula under a new name, Coke Classic.) However, as Coke regained popularity worldwide in the late 1980s and into the 1990s, it again became the global soft-drink leader. In 1996 Pepsi-Cola International, PepsiCo’s international beverage production and marketing division, suffered difficulties in Latin America, one of its most important markets. The company was particularly hurt by the loss of a bottling plant to the Coca-Cola Company in Venezuela.
Recent Developments
By the mid-1990s PepsiCo’s restaurant business consisted of 28,000 outlets worldwide, more than were owned by any other company. The company also supplied its own restaurants through a separate division, PepsiCo Food Systems (PFS). In 1997 PepsiCo sold PFS. Also that year, PepsiCo spun off its restaurant chains to form a new company. The move enabled PepsiCo to focus on its beverages and snack foods. In 2001 PepsiCo acquired The Quaker Oats Company, a food and Beverage Company.
Pepsi cola in Pakistan
In Pakistan, there have been consumed different types of soft drinks but Pepsi is the most frequently consumed soft drink. It is very much popular in the consumer; it has got big target market and is competing with the other companies of soft drinks. 10 units of Pepsi cola have been installed, in the different places of Pakistan i.e., Lahore, Multan, Gujranwala, etc., and working with the best utilization of their resources in the optimum way. Each of these units is owned by the different parties, which are strictly following the rules of the parent company. The company to made production has licensed each unit. These units have their own areas of selling and have different target markets. All these units are considered as separate firms, which are the franchisees of Pepsi cola international.
Introduction
In Pakistan, at present SHAMIM & Co. is the largest production unit out of 11 franchisees. SHAMIM & Co. covers the area of Southern Punjab which consists of Multan, Bahawalpur, Bahwalnagar, Dera Ghazi Khan, Sahiwal, Khanewal, Rajan Pur, Taunsa, Okara, Rahimyar Khan and Layyah. The company is properly serving all these areas with quality products.
Honors
In Pakistan, SHAMIM & Co. is in the list of top three out of eleven showing financial and sales growth according to their relative volume size basis. When franchise cross a certain volume, plant is classified as, “Mega Plant Status”. SHAMIM & Co. has achieved this status in 2000 and 2001. Also it has ISO 9002 Certification and for year 2005 Shamim and Company won the award of best quality unit among the eleven 11 units in Pakistan.
General Manager Operation
He is responsible for the whole administrative, shipping, workshop related activities to smooth on the factory operations without any hindrances.
Genaral Manager Technical eneral
departments’ heads are responsible to report him all about their performances and matters.
He is unlike Sales department performs key role as to manage Production Department producing quality Products as per need of the sales department. Quality Control Department also works under him.
General Manager Operation
He is responsible for the whole administrative, shipping, workshop related activities to smooth on the factory operations without any hindrances.
General Manager Technical
High-Performance design
Actually Pepsi is getting the competitive edge in our region on the basis of its quality and the quality is its taste. Through a complete marketing research they found that sweet taste is liked more by this region. That’s why in Pakistan Pepsi is dominant soft drink and it has almost 75% shares in this market. On the other hand when we look internationality then Coca Cola is the leading company. So Pakistan is a big market for the Pepsi, where Pepsi is generating a lot of revenues.
MANUFACTURING AND SERVICES STRATEGIES
Make-To-Stock Strategy
In Pepsi, Make-To-Stock manufacturing strategy is used. Bottles are produced in a standardized process because the competitive priority is consistent quality. Firstly, marketing department forecasts the demand then according to this forecasting MPS is made and after making bottles Pepsi distribute these bottles to the market.
DEPARTMENTALIZATION
As it is a formalized company therefore there is a hierarchy of employees and the division of departments in the organization. Following are the departments
MANUFACTURING AND SERVICES STRATEGIES
Make-To-Stock Strategy
In Pepsi, Make-To-Stock manufacturing strategy is used. Bottles are produced in a standardized process because the competitive priority is consistent quality. Firstly, marketing department forecasts the demand then according to this forecasting MPS is made and after making bottles Pepsi distribute these bottles to the market.
DEPARTMENTALIZATION
As it is a formalized company therefore there is a hierarchy of employees and the division of departments in the organization. Following are the departments
QUALITY CONTROL
It has become crystal clear that high quality products have a distinct advantage in the market place, that market share can be gained or lost over the quality issue. Therefore quality is a competitive priority.
Quality is important due to the following reasons:
• Cost and market share
• Company’s reputation
• Product liability
• International implications
[b]Sugar Testing
The company from sugar mills purchases sugar. After the arrival of sugar at the plant, it has to pass through a strict quality check. It should be free from moisture.
First of all supervisor checks the quality of sugar. After this checking, a randomly selected sample from sugar bag is sent to laboratory for testing. After this testing, if the quality of sugar is according to the standards, then this sugar is stored for further processing. If the sugar quality is not up to the mark, then it is sent back to the sugar mill.
Planning Strategies
Chase Strategy
A chase strategy matches demand during the planning horizon by varying either (1) the workforce level or (2) the output rate.
Pepsi is also following the Chase policy. When higher production is required in the peak season, company hires the new workers, and during low production the workers are fired from the company to prevent from unnecessary cost. Company also tries to increase demand through advertising, price cuts and by giving different incentives.
FORECASTING
Planning and control for operations requires an estimate of the demand for the product or the service that an organization expects to provide in the future. Since forecasting should be an integral part of planning and decision making, the choice of a forecasting horizon (a week or a month, for example), a forecasting method with desired accuracy, and the unit of forecasting (dollar sales, individual product demand.) should be based on a clear understanding of how the output of the forecast will be used in the decision process.
SHAMIM & COMPANY (PVT) LTD uses the historical data for forecasting demand. As the company has seasonal business so the demand is high in the month of March, April, May, June, July, August and September. Sixty percent sale of the company takes place in these months. This is the peak season for the company.
Critical Material
Critical material is that which is directly related to the production so management gives full concentration to critical material to avoid irregularity in operation. The critical materials include:
• CONCENTRATE
• SUGAR
• CO2 GAS
• EMPTY BOTTLES
• CROWN CORK
• CAUSTIC SODA
The store provides a daily stock report of critical material with balance. If that material is reach at reorder point then they write that material in the daily stock in the column of urgent. If any material is going to be reordered, it is highlight with red pen. The procurement manager physically checks the stock and place order. They are managing high inventory in which order for concentrate is placed for 3 months and the order for the rest of the material is placed for 1 month.
Distribution
In Shamim & company, major item of inventory is finished product. There are two ways to distribute that finish inventory, the first method is direct and second is indirect method. In direct method they provide crates of bottles to their dealers at the required destination through their own transport, in indirect method the dealers have their own transport for distribution.
PEPSI is just one link in a customer value delivery system that includes thousands of dealers. It is a winner in this part of the world because they have superior dealer networks. Also the wholesalers and retailers involved are doing well because PEPSI supplies superior beverages. PEPSI also focuses on placement of their product such that the consumer can buy a PEPSI from nearby location. PEPSI also takes immediate action in delivering its products to market. Overall PEPSI is focusing on fastest delivery and great assortment.
Benchmarking in Pepsi
In 1970s Pepsi was the follower and Coca-Cola was the leader here in Pakistan as well. At that time Pepsi used to benchmark the Coca-Cola in order to prosper and progress. But after 1970s Pepsi stopped benchmarking strategies and procedures of Coca-Cola and adopted an idea of Out-of Box thinking.
Thinking Outside The Box
Thinking Outside the Box means thinking beyond the parameters of human consciousness and experience - to see beyond the norm - to be a visionary - to activate your DNA. We exist inside the box - the physical plane - but we soon evolve our conscious awareness back to its source of creation - outside the box.
What PEPSI found out from out-of-box thinking?
Pepsi got following findings from this idea:
Ø Cricket is the most Popular game in Pakistan.
Ø Pakistan is an immature market.
The tactics that Pepsi derived from above ideas are:
1. Contract with PCB
It is an admitted fact that there is a craze of cricket in Pakistani Nation irrespective of age factor. So the Pepsi thought to take the benefit from it and made a contract with PCB in mid 70s. This created a fantasy in the minds of people and market shares of Pepsi Cola started increasing. It gave real boost up to repute of Pepsi in world-cup 1992 and in very short span of time; Pepsi was able to double its sales.
Technology
Pepsi in Pakistan always benchmarks its parent Company for the sake of technology improvement. For instance they are going to start a new plant in Lahore, which would have the capacity to fulfill the total demand of Lahore district. And it would require only 3 operatives to operate this plant
.
ISO 9000
Now the situation has been changed. Products of low standards are not acceptable in international markets. These standards are ISO-9000 i.e., International Standard Organization. Now as the world has become a global village, therefore, there is a very tough competition among the companies. Especially for the companies of developing countries, they have to do much more smart work than the companies of developed countries because they have strong economy and their products are widely acceptable in the international market. For this purpose almost all organizations are doing struggle for getting ISO-9000 certificate. Shamim & Company (PVT) Ltd is one of those Pakistani organizations that struggled for ISO-9000 and awarded. They have been awarded ISO-9002 certificate.