Pepsi Americas Case Analysis PDF

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PepsiAmericas Case Study Spring 2019 Case description:

In 2009 PepsiAmericas (PAS) was the world’s second largest manufacturer and distributor of Pepsi beverages, operating in the U.S. (69% of sales), central and Eastern Europe (26% of Sales) and the Caribbean (5% of sales). Net sales in 2008 totaled nearly $5 billion or 20% of PepsiCo’s total US beverage sales. A recession hit the U.S. economy, but PepsiAmericas was also faced with two more important long-term challenges: (1) a declining U.S. market for carbonated sof drinks, and (2) increasingly powerful retailers who were squeezing PAS profit margins. In addition, PepsiAmericas product line had moved from 35-40 products in the mid-1990’s to nearly 400 products by 2009. In the past, distribution was handled by the local delivery person, who “owned” a particular route of retail customer stores. The delivery person would load his/her truck in anticipation of what was needed at each of his/her assigned locations. Over time, the delivery person knew what to expect and could pretty much address customer needs on a day-to-day basis. This “on-the-route” sales approach was sufficient when neither driver turnover or market dynamism were significant. No longer. At the same time, business units, organized into 13 regional divisions, designed and implemented discrete information systems to meet regional needs. According to CIO Ken Johnsen, there were several different back office systems, in addition to different systems across large portions of the firm for sales, supply chain, and human resources. As Pepsi considered moving to a centralized, call-center sales model (which relied upon customer contact well before delivery date), they realized that their systems and business processes were not capable of supporting their long-term plans. Market developments forced PepsiAmericas to embrace a completely new operating model. As Pepsi moved from 35 to 400 products and as the packaging for these products became less uniform, it proved difficult to know about, let alone carry in inventory, the right mix of products in the truck. Furthermore, chains like Wal-Mart, CVS, and Mobil Gas Stations, preferred highly centralized procurement arrangements and national contracts. Pepsi was therefore obliged to create a three-tier distribution platform that would address the needs of (1) national, (2) regional, and (3) local customers. In response to these pressures and challenges, PepsiAmericas invested heavily in supply-chain management (SCM) and enterprise resource planning (ERP) systems. With these systems the firm integrated its core business processes (i.e. procurement, manufacturing, selling, and warehousing and distribution) and automated data capture at every key step along its value chain. To PepsiAmericas, one of the biggest benefits of its ERPs was the collection and measurement of business process outcomes for better performance assessment, forecasting, and risk mitigation. The company used these rich data resources and related process knowledge prepared for MISM 2301 by RMK, rev’d by MD Spring 2019

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PepsiAmericas Case Study Spring 2019 to negotiate better contracts for raw materials, lower supply chain operating costs, more accurately monitor consumer demand, and ultimately strike more profitable deals with its large retail customers. In effect PepsiAmericas employed customer data as a competitive asset, collecting vast amounts of data as part of daily operations (transacting) and then employing that data for management and control as well as for innovation in product development and customer service. This transformation process was dubbed the “Customer Optimization to the 3 rd power – Planning + Selling + Delivery” program and was intended to reduce inventory management issues, increase productivity across PepsiAmericas’ production platforms, and improve overall customer service. For example, national customers, like Wal-Mart, fed point-of sales data directly into PAS’s SCM system, informing the detailed product mix and quantities going from PAS to particular sales location. And at the other end of the spectrum, those PAS employees serving the small local shops had access to detailed historical sales data to forecast the requirements for local stores and to provide the right mix of products day in and day out. The ability to consistently adjust prices was also significantly improved. Prior to having integrated systems and aligned operations, PAS customers within the same ZIP code would have different prices depending upon who they dealt with in PAS and the pricing data available to that sales person. In addition, productivity for PAS customer service representatives rose noticeably.

Figure 1 – IT Architecture PepsiAmericas (Customer Optimization to the 3rd Power) Source: Beath & Ross (2010)

prepared for MISM 2301 by RMK, rev’d by MD Spring 2019

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PepsiAmericas Case Study Spring 2019 Continuous data feeds from PAS SCM and ERP systems to the firm’s decision support systems provided PepsiAmericas executives with ready access to real-time data to fine tune business processes and to promptly address performance and customer servicing issues. This same approach drove decisions concerning the acquisition of both additional production capabilities and new lines of products. It also contributed to the continuous improvement of ongoing firm business processes and services, and the shif to a more data-driven decision making culture across the organization. PepsiAmericas leadership employed their data assets to build competitive knowledge in three areas that were critical to their long-term success, namely: customer alignment and relationship management, supply-chain process improvement, and enabling more dynamic pricing across the company. PAS continues to mine data across the enterprise as a means to measure business results and to inform best practices. Source: Beath, Cynthia M. and Jeanne W. Ross, “PepsiAmericas: Building an Information Savvy Company”, Feb. 2010, MIT Sloan School of Management Journal, accessed online http://dspace.mit.edu/bitstream/handle/1721.1/68550/Pepsi%20BeathRoss2.pdf

Case Questions:

For the below questions think first about the appropriate representation for your answer (bullet list, multi-part bullet list, table) and then the appropriate framework to ensure both accuracy and completeness. 1. Describe the IT architecture (both type of IT architecture and its information system parts) at PepsiAmericas before its Customer Optimization initiative. 1. Delivery Driver a. Owns a Particular Route b. Inventory Needs for each location c. Customer Information (Address, Contact Name) 2. Backend information systems implemented at the regional level a. Sales b. Supply Chain c. Human Resources

2. Describe the customer intimacy and operational excellence related information problems that drove PepsiAmericas to adopt a more aggressive attitude towards the capture, use, and dissemination of information.

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Customer Intimacy Chains like Wal-Mart, CVS, and Mobil Gas Stations preferred highly centralized procurement arrangements and national contracts

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prepared for MISM 2301 by RMK, rev’d by MD Spring 2019

Operational Excellence Pepsi moved from 35 to 400 products, vastly increasing the complexity and variety of orders, which required additional information systems to help Page 3

PepsiAmericas Case Study Spring 2019 

In response, PepsiAmericas created a three-tier distribution platform  National  Regional  Local Customers

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keep track of Increasingly powerful retailers were squeezing PAS profit margins, driving an analysis of systems for potential improvements

3. Describe the investments in information systems that were made to address these information needs (excluding DSS). 1) “Customer Optimization to the 3rd power – Planning + Selling + Delivery” program and was intended to reduce inventory management issues, increase productivity across PepsiAmericas’ production platforms, and improve overall customer service. 2) ERP and SCM systems integrated core PAS business processes: a) Procurement b) Manufacturing c) Selling d) Warehousing e) Distribution 3) ERP (PeopleSof) a) Collected and measured business outcomes for better performance assessment, forecasting, and risk mitigation. 4) SCM a) PAS used SCM in combination with historical sales data to predict the requirements for local stores and provide the right mix of products day in and day out.

4. Explain the role of decision support systems (DSS) in enabling the business success of PAS in terms of customer intimacy and operational excellence. Your answer should include treatment of both structured and unstructured decisions. Describe one additional way that a DSS could potentially enhance information processing within at PAS.

Overview

Structured Decisions

Unstructured Decisions

Customer Intimacy DSS provides PepsiAmericas executives with ready access real time data to fine tune business processes and promptly address customer servicing issues, to ensure timely and quality service for customers Which products to recommend to customers based on their historical data Whether it is worth investing in a

prepared for MISM 2301 by RMK, rev’d by MD Spring 2019

Operational Excellence Data provided by DSS also helps executives improve business processes and quickly address performance issues, to keep PAS at the peak of its production and performance capacity Order Processing, Inventory Planning Budget and Sales Preparations Page 4

PepsiAmericas Case Study Spring 2019 new service/support sofware platform for customers

PepsiAmericas could potentially use DSS more in marketing to predict demand in a given region based on historical sales data, customer data, and inventory flow. PepsiAmericas can then use the data from DSS to help decide in which regions their marketing efforts will have the greatest impact.

prepared for MISM 2301 by RMK, rev’d by MD Spring 2019

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