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INTERNSHIP PROJECT REPORT
ON
UNDERSTANDING AND STREAMLINING CRS
(CONTINOUS REPLENISHMENT SYSTEM)
BY
VIKRAM JAIN
CHRIST UNIVERSITY
DONE AT
Sudha Centre, 3rd floor, 31/19, Dr. Radhakrishnan Salai
Mylapore, Chennai
SUBMITTED TO
R. Srinath Reddy
INTRODUCTION:
India's food and beverage industry currently stands at US$ 40.3 billion and is expected to
touch US$ 66.3 billion by 2018, registering a growth of 18 per cent.
With a huge agriculture sector, abundant livestock, and cost competitiveness, India is fast
emerging as a sourcing hub for processed food. Estimated to be worth US$ 121 billion in
2012, the Indian food processing sector is poised for excellent growth in the coming years. It
is ranked fifth in terms of production, consumption and exports.
Anticipating the future growth, many big international players are entering the Indian market
by partnering with the domestic players. There are tremendous opportunities for large
investments in food and food processing. The Ministry of Food Processing Industries is
making all efforts to encourage investments in the sector, incentives for cold chain
development and also grant-in-aid for setting up laboratories that are equipped for testing
food products.
FOOD PROCESSING INDUSTRY:
Beverages
Consumption of non-alcoholic beverages in India is expected to increase by 16.5–19 per cent
over the next three years as more people are trading up to packaged drinks, according to a
report by the Indian Council for Research on International Economic Relations (ICRIER) and
the Indian Beverage Association (IBA).
Within the beverages market, the fruit-based beverages category is one of the fastest growing
categories. At present, the Indian packaged juices market is valued at Rs 1100 crore (US$
177.78 million) and is projected to grow at a compound annual growth rate (CAGR) of 15 per
cent over the next three years. Dabur India Ltd is the established leader, accounting for 54 per
cent market share through its Real fruit juice brand, followed by PepsiCo India with a 25–30
per cent market share through its Tropicana juice brand.
Expecting fast growth in value-added dairy products such as milk, foreign entities have
started looking at India as a dairy product market. Packaged milk segment in India is
projected to grow from US$ 7.76 billion to US$ 32.9 billion by 2030, registering an annual
growth of 8 per cent. The hot beverages market in India is also surprisingly concentrated with
the top 10 companies accounting for 65 per cent of the market.
KEY PLAYERS:
PepsiCo India plans to set up a new beverage plant, poised to be the company's largest
plant in India, at Sri City industrial park, close to the Andhra Pradesh–Tamil Nadu
(TN) border. The plant would produce the full range of beverages – carbonated
drinks, fruit-based drinks and sports drinks.
GOVERNMENT INITIATIVES:
The Government of India has allowed 100 per cent FDI under the automatic route in the food
processing sector, in agri-products, milk and milk products, and marine and meat products. A
100 per cent tax exemption is also allowed for five years, followed by 25 per cent tax
exemption for the next five years for new agro-processing industries.
The Ministry has launched a Centrally Sponsored Scheme namely, National Mission on Food
Processing (NMFP) during the 12th Plan to be implemented through State/ UT Governments.
During the period, the government has also made a plan allocation of Rs 5,990 crore (US$
968.36 million) to implement various schemes for promotion and development of the food
processing sector.
The Ministry of Food Processing Industries and ‘Invest India' have entered into an agreement
for the setting up of an Investors' “Help Desk” for offering online support to investors, both
domestic and international, with regard to their queries, and guide them particularly at the
initial stage of setting up their units.
With the objective of providing incentive to create integrated cold chain and preservation
infrastructure facilities in the country, the Ministry is implementing the Scheme of Integrated
Cold Chain, Value Addition & Preservation Infrastructure.
The government plans to set up three mega food parks in the country during the next six
months with each project attracting an investment of Rs 400–500 crore (US$ 64.65-80.81
million).
Road Ahead
India is the world's second largest producer of food next to China, and has the potential of
being the biggest backed by its food and agricultural sector. The total food production in
India is likely to double in the next 10 years.
The Ministry of Food Processing Industries (MOFPI) has formulated a Vision 2015 Action
Plan that includes trebling the size of the food processing industry, raising the level of
processing of perishables from 6 per cent to 20 per cent, increasing value addition from 20
per cent to 35 per cent, and enhancing India's share in global food trade from 1.5 per cent to 3
per cent.
There is a need to proactively market India as an attractive destination. In terms of market
size, India has a domestic market of over a billion people, with 300 million middle class
consumers. India's domestic food market is estimated to reach US$ 258 billion by 2015.
CONTRIBUTION TO GDP:
India's food processing industry is expected to touch Rs 4 lakh crore next fiscal from Rs 3.3
lakh crore in FY 12, says a FICCI-KPMG report. The report, released at the inaugural session
of FICCI's Food 360 here on 7th November 2013. It said that the opportunities in the food
processing industry are significant and expected to reach a size of Rs 400,000 crore by FY15
contributing around 6.5 per cent to the GDP.The sector attracted USD 1.97 billion
worth FDI from April 2000 to July 2013.
According to the report, ‘Enhancing Competitiveness of Indian Food Chain’, the Indian food
value chain is on the verge of a great transformation - from one characterised by high
wastage, low processing and low global contribution to one that is more streamlined, more
integrated and more significant in the global trade.Opportunities in the food processing
industry are significant. While there is very low level of food processing, domestic and export
demand exist and are growing. Increasing urbanisation and rise in disposable incomes are
expected to push demand for processed food further.
“Continuous financial and regulatory support from government, increasing participation of
private and public corporates, and increasing exposure of foreign players are likely to spur
investments in developing the infrastructure across the value chain right from farm inputs to
the consumers,” KPMG India partner and retail head, Rajat Wahi, said.
BACKGROUND AND HISTORY:
PepsiCo was established through the merger of Pepsi-cola and Frito-Lay. Pepsi-Cola was
created in the late 1880s by Caleb Bradham, a New Bern, N.C. pharmacist. Frito-Lay, Inc.
was formed by the 1961 merger of the Frito Company, founded by Elmer Doolin in 1932, and
the H.W.Lay Company, founded by Herman W.Lay, also in 1932. Herman Lay, former
chairman and CEO of Frito-Lay, was chairman of the board of directors of the new company;
Donald M. Kendall, former president and CEO of Pepsi-Cola, was president and chief
executive officer. Indra Krishnamurthy Nooyi is the current CEO of PepsiCo which is
headquartered in Purchase, Harrison, New York, with interests in the manufacturing,
marketing and distribution of grain-based snack foods, beverages, and other products.
In 1893 Caleb Badham was just playing around with the ingredients and he came up with a
new kind of drink which he named as Brad’s Drink. It basically contained a blend of
carbonated water, sugar, pepsin, kola nut extract, vanilla and ‘rare oils’ at his location. On
August 28, 1898 he renamed his drink as Pepsi-Cola as he added two new ingredients that is
‘pepsin and ‘cola’. His drink aided in digestion much like pepsin enzyme does and was
believed to be healthy. Frito Lay traces its origin in 1930s. In the midst of the Great
Depression many people were losing their jobs and hence had to turn to entrepreneurship.
Among these were the two men, Elmer Doolin and Herman W.Lay who merged in
September, 1961 to form Frito-Lay, Inc. In 1965 the two companies merged and PespsiCo
was the formed.
The pepsi logo has changed many times over the years. From being all red to a combination
of three colours that is red, blue and white. This was mainly done to give a sign of support for
America during World War II. That is why the colours on the logo are red, white, and blue
and have been the same ever since.
MISSION, VISION AND VALUES OF PEPSICO.
Mission:
"Our mission is to be the world's premier consumer Products Company focused on convenient
foods and beverages. We seek to produce financial rewards to investors as we provide
opportunities for growth and enrichment to our employees, our business partners and the
communities in which we operate. And in everything we do, we strive for honesty, fairness and
integrity."
Vision:
Vision is put into action through programs and a focus on environmental stewardship,
activities to benefit society, and a commitment to build shareholder value making PepsiCo a
truly sustainable company.
"PepsiCo's responsibility is to continually improve all aspects of the world in which we operate -
environment, social, economic - creating a better tomorrow than today.”
Also Performance with Purpose is what we strive for. At PepsiCo, the commitment is to
achieve business and financial success while leaving a positive imprint on society.
Our approach to superior financial performance is straightforward - drive shareholder value.
By addressing social and environmental issues, we also deliver on our purpose agenda, which
consists of human, environmental, and talent sustainability
Values and Philosophy:
The values and philosophy of PepsiCo reflect the socially and environmentally responsibility
that it aspires to possess. Being socially and environmentally responsible are the foundation
for every business decision.
They are committed to deliver sustained growth through empowered people acting
responsibly and building trust.
Sustained growth here means the fundamental to motivate and measure success. It
stimulates innovation, places a value on results, and helps us understand whether
today's actions will contribute to our future. It is about the growth of people and
company performance. It prioritizes both making a difference and getting things
done.
Empowered people means having the freedom to act and think in ways that will get
the job done, while adhering to processes that ensure proper governance and being
mindful of company needs beyond own.
Responsibility and trust form the foundation for healthy growth. The company
holds both personally and corporately accountable for everything they do. By acting
as good stewards of the resources entrusted to them, they strengthen that trust by
walking the talk and following through the commitment of succeeding together.
PRODUCT LINE:
Good-For-You: PepsiCo’s growing Good-for-You portfolio is comprised of nutritious foods
and beverages that include fruits, vegetables, whole grains, low-fat dairy, nuts, seeds and key
nutrients, with levels of sodium, sugar and saturated fat that are in line with global dietary
recommendations. Also included are offerings that provide a functional benefit, such as
addressing the performance needs of athletes
Better-For-You: PepsiCo have improved the nutritional profile of many of its social snacks
and beverages. In snacks, they have reduced saturated fat levels and sodium content, and are
dialing up baked offerings and whole grains. In beverages, they are increasing the number of
low- and zero-calorie choices and reducing added sugar.
Fun-For-You: The Fun-For-You portfolio includes treats that are enjoyed all over the world as well as
regional favourites.
PepsiCo India’s expansive portfolio includes iconic refreshment beverages Pepsi, 7UP,
Nimbooz, Mirinda, Slice and Mountain Dew, in addition to low-calorie options such as Diet
Pepsi, hydrating and nutritional beverages such as Aquafina drinking water, isotonic sports
drink Gatorade and fruit juices such as Tropicana and Tropicana 100%.
COMPETETION:
Pepsico operates in highly competitive markets. Beverage, snack and food brands compete
against global, regional, local and private label manufacturers and other value competitors. In
many countries in which Pepsico does business, The Coca-Cola Company is our primary
beverage competitor. Other food and beverage competitors include Nestle, ITC, Haldirams in
India. In markets, we also compete against numerous regional and local companies.
Pepsico’s beverage, snack and food brands compete on the basis of price, quality, product
variety and distribution. Success in this competitive environment is dependent on effective
promotion of existing products, the introduction of new products and the effectiveness of our
advertising campaigns, marketing programs, product packaging, pricing, increased efficiency
in production techniques and brand and trademark development, protection and distribution.
PRODUCT INTEGRATION AND INNOVATION:
The first core competency is their product integration and innovation. Pepsico is able to
enhance their product line by carrying fruit drinks like Gatorade. PepsiCo India has been
on the cutting edge of product innovation, or “indovation” as they call it, developing new
and exciting beverages, foods and snacks that appeal to all the consumers. This allows
them to promote their products and services more efficiently while being able to reach a
much broader group of individuals. Through integration, they are able to eliminate
potential competitors while creating a more diverse product line.
BRANDING AND MARKETING:
Secondly, Pepsi’s strength lies on its branding and marketing. Pepsi had always come up
with the unique and the campaign’s focusing towards its target market. This uniqueness
in advertising and branding has given it a competitive advantage over its competitors.
Pepsi’s target audience is mainly teens and young adults and their advertising reflects
this in every possible manner. Back in 1940s Pepsi-Cola Company made advertising
history with "Nickel, Nickel," the first advertising jingle ever broadcast nationwide on
radio. The song referred to the price and the quantity of the drink and became very
popular. The song was a hit record and was ultimately translated into 55 languages. Also
other successful Ad campaigns like ‘yeh dil maange more’, ‘Youngistan’ created a huge
impact on its target group. Apart from these, several factors mentioned below have been the reason to strengthen
PepsiCo over the years and still have been backing up its core competencies in different
ways. It is the number one maker of snacks (Frito-Lay), such as corn chips, potato chips
with the spice of innovation which makes it different. Secondly, merger of two strong
companies, PepsiCo and Quaker Oats. Company offers more than just soft drinks and in
the beverage section they have variety.
PORTER’s FIVE FORCE MODEL:
The five forces model of Porter is and outside-in business unit strategy tool that is used
to make an analysis of the attractiveness (value) of an industry structure. Allows the
development of a competitive strategy.
Traditional competition:
Prices of Coca Cola, local brands
Market share
Promotional actions of competition
New entrants:
New “look-alike” manufacturers
Substitute products:
Fashionable new drinks, milk drinks, coffee, beer, water, smoothies, food products
also.
Suppliers:
Price and availability of ingredients on world market.
Quality, speed, safety, traceability, flexibility of supply chain.
Buyers/consumers:
High as a result of intense competition both among branded and unbranded products.
Combined purchase power of shops, bars, supermarket.
SUPPLY CHAIN:
A supply chain is a system of organizations, people, activities, information, and resources
involved in moving a product or service from supplier to customer. Supply chain activities
transform natural resources, raw materials, and components into a finished product that is
delivered to the end customer.
Due to high competition and advancement in the technology the companies are adapting
different ways to defeat one another and supply chain being an important component in a
business (especially which provide products) it is necessary for the organizations to develop
the supply chain.
Distribution is the most difficult part of the supply chain, as India being one of the largest
countries in the world it becomes difficult for the organizations to distribute their range of
products in every store. To make it simple different organizations use different ways. But
PEPSICO designed a system named CRS which is a part of SAP which is user friendly.
CRS (Continuous Replenishment System):
CRS refers to continuous replenishment system. It is a system which has been divided by the
Pepsico inside SAP. This system helps in the auto creation of distributor sales orders based
on the NORMS and the previous day’s closing stock. This order makes an online order for
the distributor based on the closing stock of the previous day and the agreement.
CRS changes the traditional replenishment process of retailer generated orders to one of
partnership amongst trading partners where the supplier determines the replenishment
quantities based on the information of stock and sales received from the customer.
GOALS OF CRS:
Increase inventory turns
Reduce inventory levels
Decrease stock out
Improve customer service levels
Boost warehouse efficiency
IMPORTANCE OF CRS:
To improve the speed and the certainty of the supply
To increase range availability
Only the required stock is supplied to the distributor on demand
Reduce the stock out situation
Increases the revenue of the distributor as it reduces the loss of opportunity to sell
ISSUES RELATED TO CRS:
1. Fill rate issue: when the supplier gives less no of stock than agreed in the norm then
the distributor might be facing an out of stock situation of market.
For example, let us consider the agreed norm is of 100 boxes but the supplier can only
provide 80 cases then the 80% of the stock is the fill rate issue. Even though if the
supplier has the required the stock available the computer doesn’t show that.so the
remaining order is manually ordered which involves a lot of time and labour.
2. Out of stock situation: this situation occurs when there is a shortage of stock with the
retailer or the distributor. This can be due to many reasons like logistics, problem in
the manufacturing plant and etc.
3. Un-necessary stock: this situation depends on the season. For example, let’s consider
Cheetos it is very famous among the young ones but during the holidays (long term
holidays) the sales of the Cheetos decreases as it is mostly sold in the or near the
school areas so there is a decrease in the demand of Cheetos. Therefore the retailer
doesn’t buy the product and the product lies in the warehouse.
4. Distribution: Pepsi has to stress more on it distribution to overcome the competition
against ITC and Haldirams.
To overcome these issue we can use VMI (vendor management inventory).
VENDOR MANAGED INVENTORY:
VMI is means of optimizing Supply Chain performance in which the manufacturer is
responsible for maintaining the distributor’s inventory levels. The manufacturer has access to
the distributor’s inventory data and is responsible for generating purchase orders. Under VMI
manufacturer receives electronic data (usually via EDI or the internet) that tells him the
distributor’s sales and stock levels. The manufacturer can view every item that the distributor
carriers as well as true point of sale data. The manufacturer is responsible for creating and
maintaining the inventory plan. Under VMI, the manufacturer generates the order, not the
distributor.
Following are some of objectives of VMI
Increase in-stock inventory
Increase sales
Improve customer service
Increase gross margins
Reduce overall inventory in the supply chain
Stabilize vendor’s production
INFORMATION FLOW IN VMI:
There are 3 main levels of information flows in VMI -Inventory Levels, Order proposals and
Sales history. Informations flows back and forth between manufacturer and distributor
Inventory levels – From distributor to manufacturer
The current stock quantity
The quantity in order
The quantity reserved for some customer orders
The backorder quantity (stock out)
Order proposal – From manufacturer to distributor
The Ship To location
The order quantity
Sales history – From distributor to manufacturer
The quantity sold over the last period
The number of sold lines
Forecasts can also be provided by the distributor
TWO STAGE VMI SUPPLY CHAIN
VMI MODEL: From the supplier’s perspective, a VMI Model generally entails:
1. Receiving stock levels from the customer.
2. Receiving sales forecast from a customer.
3. Generating the replenishment orders.
4. Sending the dispatch advice to the customer.
5. Receiving the sales report from the customer.
6. Sending the invoices to the customer.
Supplier benefits:
Visibility to the customer’s point-of-sale data simplifies forecasting.
Promotions can be more easily incorporated into the inventory plan.
Customer ordering errors are reduced.
Stock level visibility helps identify priorities (replenish stock versus a stock out).
The supplier can see the potential need for an item before the item is ordered (demand
variation).
Customer benefits:
Fill rates from the supplier, and to the end consumer, improve.
Stock outs and inventory levels often decrease.
Planning and ordering costs decrease since the responsibility is on supplier.
Overall service level is improved by having the right product at the right time.
The supplier is more focused than ever on providing superior service.
Overall benefits:
Data entry errors are reduced due to computer-to-computer communications.
Overall processing speed is improved.
Both parties strive to offer better service to the end consumer.
A true collaborative partnership is formed between the supplier and the customer.
Example: This model is implemented in WAL-MART. As a product’s barcode is swiped at
the checkout aisle, the information is instantaneously is sent to Wal-Mart’s data warehouse.
The data warehouse projects when the item needs to be replenished and then places the order
directly to the vendor or to the distributor. This “just-in-time” inventory management reduces
overhead associated boxes of unneeded product sitting in the warehouse.
OTHERS USES OF VMI:
-Pepsi has to stress on its distribution process because of the competition from ITC and other
local groups. ITC’s main strength is its distribution process and to remain the largest food
company in India we have to improve our distribution. We are more preferred than any other
brand due to the taste and brand name, so to gain an additional advantage we have to stress
hard on the distribution.
-By using VMI we can maintain a balance in the market by providing all the flavours at the
same time.
-By using VMI in supermarkets we can decide the amount of the stock that the retailer should
keep. By this we can do a bulk display through which the customers will be attracted and lays
being an impulse products it will be sold to the customers easily.
IMPROVEMENTS TO CRS SOFTWARE:
1. Time phased future orders (dynamic reorder point)
2. Better methods to plan safety stock
3. Insure even run out for each SKU for each in a distributor’s warehouse