Coke vs Pepsi

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This is short comparative analysis of the outbound logistics of Coca-cola and Pepsi

Text of Coke vs Pepsi

Coca-Cola vs. Pepsi: An outbound logistics comparative analysis for India Jonathan MarquetKris OTooleSanjit Kumar SahooPareenay Ad Waala Mehrotra Kagiso Mamabolo3Continent Master of Global ManagementProfessor Course: Global Supply Chain Management

Content1Introduction12Indias main challenges13Coca-Cola23.1Introduction23.2Global Distribution Strategy23.3Coca-Cola in India33.3.1General information33.3.2Distribution channels43.3.3Demand forecasting63.4Challenges63.4.1Hub-and-spoke system73.4.2Information systems73.4.3RED84Pepsico94.1Global Distribution Strategy94.2PepsiCo in India94.2.1General Information94.2.2Distribution Channels114.3Challenges144.3.1Rate Cutting144.3.2Too near Wholesalers144.3.3Communication of schemes154.3.4Duplicate Brands154.3.5Refrigerator problems154.3.6Maaza Scheme154.3.7Reverse Supply Chain Management155Conclusion166Bibliography16

IntroductionVigorous 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 firms 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. Indias main challengesThe Council of Logistics Management defines SCM as:The systematic, strategic coordination of the traditional business functions and tactics across these business functions within a particular organisation and across business within a supply chain for the purpose of improving the long term performance of the individual organisation and supply chain as a whole .Main problems faced by companies in India are:1. High cost of Logistics - Logistic cost is 13% of Indias GDP in comparison to 11% in Europe and 9% in US. Of the total cost transport represents 39% while warehouse, package and inventory accounts for 24% of total cost (365 businessdays.com). Higher logistics costs are mainly due to poor infrastructure in the country.1. Physical Infrastructure a bottleneck Insufficient infrastructure bottlenecks and distribution channels restrict the scope to reach consumer of product nationwide. Though the country has developed the largest road network in the world, yet the regional concentration of manufacturing in Indian but geographically diversified distribution activities as well as infrastructure bottlenecks, e infrastructural facility is not compared to developed countries. A lot of infrastructure development ye needs to be done in terms of better road connectivity. The lack of GPS technology and to some extent the lack of IT in the warehouses have been a bottleneck also the delay in infrastructure in comparison to other developing countries like China, Brazil is acting as a hindrance in GSCM.1. The low acceptance of integrated third party logistics (3PL) Apart from the infrastructural challenges, business in India doesnt have the access to the best supply chain services for a variety of reasons. The low acceptance of integrated 3rd party logistics firm in India is one part of the problem. The cost difference between the 3rd party logistics firm and existing transport firm is wide. Shippers have a hard time justifying the cost of 3PL even though they would be receiving high technology support and also good quality services from such a provider. Further the above mentioned infrastructure development acts as a hindrance for 3PL in operating efficiently.1. Cost of Quality Services According to industry analysts, logistics cost in India are among the worlds highest. Also the delivery time for cities outside metros is also uncertain. Technology Usage and inadequate investment in IT - Technology usage is very low in India it restricts the scope of increasing productivity and efficiency (365business.com). Though India is a leading exporter of IT yet most of the companies in India still are inhibited in terms of usage of these technologies. For companies that use IT services have a clear bias in usage of standalone IT system. There is still a long way for Indian companies in terms of usage of technologies that are in sync with the recent developments in the world. The sooner the companies start accepting the changes in the IT industry and are comfortable in usage of these technologies. The SCM would become much more smoother and streamlined.Coca-ColaIntroductionCoca-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 worlds 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. Global Distribution StrategyCoca-Cola uses a franchising system to distribute its drinks around the world. Coca-Cola manufactures the syrup, concentrates and beverages, owns the brand name and decides on the marketing strategy, while bottling companies around the world buy the syrup and concentrates and then produce the different drinks. Therefore Coca-Cola is using two types of systems: Company Owned Bottling Operations (COBO) and Franchise Owned Bottling Organisation (FOBO). The former is a 100% subsidiary bottling plant of the Coca-Cola Enterprise, while the latter is a franchise company who has the rights to produce the final product and distribute it within a designated area. (Dubey, 2014)Coca-Colas supply chain and distribution system has been vital for the survival of the company in a sluggish market. Because of increasing concerns over health, the market for Carbonated Soft Drinks (CSD) has been negatively affected. In several schools in the US for example, CSD have been banned since 2006. When ex-CEO Nevell Isdel came back as CEO in 2004, his main tasks was to save the ship from sinking. Therefore he decided to improve and change Coca-Colas network of bottlers. He decided to consolidate all the companys owned bottlers and increased the interest in their bottlers partners through the purchase of stakes. He believed by combining the production and distribution system, Coca-Cola would be able to respond more quickly to changes in the market (Gupta, 2008). To make sure the quality of its products does not vary, Coca-Cola set up a strong communication network with its suppliers. Through the Supplier Guiding Principles, Coca-Cola clearly communicates its values and expectations with its suppliers. Coca-Cola in IndiaGeneral informationUntil 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 didnt agree and they were forced to leave India. This was the sign for Coca-Colas 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 Indians 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-Colas share was equal to 52.4%. (Gupta, 2008)Figure 31: Manufacturing locations Coca-Cola India

Copied from Hindustan Coca-Cola. (Hindustan Coca-Cola, 2015) Presently, Coca-Colas 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 Indias main challenges. 700,000 retail outlets, 8000 distributors and small 10 tonne open bay three wheelers successfully deliver Coca-Colas product to its end consumer. Coca-Colas business model in India is shown on Figure 3.2. (Gupta, 2008)Figure 32: Business Model Coca-Cola India

Source: Copied from Krishna. (Krishna, 2010)Distribution channelsHindustan Coca-Cola Beverages Pvt. Ltd. (HCCBPL) formulated four routes according to the type of customer (Titus, 2012):1. Key Accounts: These are key customers who have a large share in the total share of Coca-Colas sales. These customers mostly consist of fine clubs, restaurants, hotels, and buy Coca-Colas products in large quantities. Because of the higher bargaining power, the customers benefit from 15 days to one month credit. 1. 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.1. 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. 1.