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Design Strategic Plan Individual Case Analysis (PepsiCo-2009) NAZIFA BTE ABD. GHANI (MR111037) Assoc. Prof. Dr. Mas Bambang Baroto International Business School University Technology Malaysia April, 2013

PepsiCo. Strategic Plan Design

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  • 314235540

    Design Strategic Plan Individual Case Analysis (PepsiCo-2009)

    NAZIFA BTE ABD. GHANI (MR111037)

    Assoc. Prof. Dr. Mas Bambang Baroto

    International Business School

    University Technology Malaysia

    April, 2013

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

    2 | P a g e

    Contents 1.0 Company background ....................................................................................................................... 3

    2.0 Description of Industry ..................................................................................................................... 4

    3.0 External Assessment ......................................................................................................................... 5

    3.1 Positioning Diagram Strategic Group Identification ..................................................................... 5

    3.2 Opportunities & Threats ............................................................................................................... 7

    3.3 EFE matrix................................................................................................................................... 10

    4.0 Internal Assessment ........................................................................................................................ 11

    4.1. Strengths & weaknesses ............................................................................................................ 11

    4.2 IFE Matrix .................................................................................................................................... 12

    4.3 Value Chain Analysis (Non-Alcoholic beverages Segment) ......................................................... 13

    5.0 Strategy Formulation ...................................................................................................................... 16

    5.1. SWOT Matrix .............................................................................................................................. 16

    5.2 IE Matrix ...................................................................................................................................... 18

    5.3 Strategy Formulation Conclusion ................................................................................................ 18

    6.0 Strategy Implementation ............................................................................................................ 19

    6.1 Operation Management Process.................................................................................................. 19

    6.1.1 Supply Management Process .............................................................................................. 19

    6.1.2 Production Management Process ........................................................................................ 25

    6.1.3 Distribution Process ............................................................................................................. 30

    6.1.4 Risk Management Process ................................................................................................... 33

    6.2 Customer Management Process .................................................................................................. 47

    6.2.1 Customer Selection Process ................................................................................................ 47

    6.2.2 Customer Acquisition Process ............................................................................................. 52

    6.2.3 Customer Retention Process ............................................................................................... 57

    6.2.4 Customer Growth Process .................................................................................................. 61

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    1.0 Company background

    Founder Caleb Bradham in New Bern, North Carolina, 1898

    Division Non-alcoholic Beverage Industry

    The salty or Savory Snack Food Industry Breakfast Food Industry * PepsiCo is organized into three business units.

    However, its three business units are comprised of six divisions: FLNA, QFNA, LAF,

    PAB, EKEU, and MEAA

    Net revenue

    2006 $

    (million)

    2007 $

    (million)

    2008 $

    (million)

    35,137 39,474 43,251 Net revenue by division

    2,615 2,845 2,959 FLNA

    554 568 582 QFNA 655 714 897 LAF 2,315 2,487 2,026 PAB 700 774 811 UKEU

    401 535 667 MEAA Mission &

    vision Mission statement: Our mission is to be the worlds premier consumer products company focused on convenient food 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 we operate. And in everything we do, we strive for honesty, fairness and integrity.

    Vision statement: PepsiCos responsibility is to continually improve all aspects of the world in which we operate-environment, social, economic-creating a better tomorrow than today. Our vision is put into action through programs and a focus on environmental stewardship, activities to benefits society, and a commitment to build shareholder value by making PepsiCo a truly sustainable company.

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    2.0 Description of Industry

    * Because of the lack information given in the case study and time limitation, the whole

    analysis for this report will be only focused on Non-alcoholic beverages segment.

    Name of the industry

    Non-Alcoholic Beverage Industry

    Industry Market Cap

    Make up a $395billion world market with carbonated drinks the largest share of the market at $150 billion.

    Industry Net Income

    Main competitors in the industry

    1. Coca-Cola 2. PepsiCo

    Industry products and services

    PepsiCo: PepsiCo of late has a more focused strategy in the snack, breakfast food and non-alcoholic beverage markets. The company produces Mountain

    Dew, Mug Root Beer, Sierra Mist, Slice, Aquafina, Dola Juices and SoBe.

    Coca Cola: Coca Cola has continued to strengthen their juice, ready-to-drink tea and coffee products, water and sport drinks along with the introduction of Truvia as a sweetener. *The industry composed of carbonated soft drinks, fruit and vegetables juices, bottled water, sports and energy drinks, concentrates and ready-to-drink coffee and teas.

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    3.0 External Assessment

    3.1 Positioning Diagram Strategic Group Identification

    *Because of lack of information on Non-alcoholic beverages segments competitors, the

    analysis is only focused on PepsiCo and Coca Cola Company since it is clear mentioned in

    the case study that both of them are the major player in the industry.

    Case facts of X axis - Market Share

    Coca Cola and PepsiCo holding the largest share of the U.S market at 23 percent and

    25percent respectively .Coca Cola however holds the largest share of the U.S cola market

    at 41 percent with Pepsi second at 36.7 percent (Pg 74, Para 5).

    Pepsi and Coke have fought the cola wars for decades and has generally beaten out Pepsi

    for market share (Pg. 78, Para 3)

    Case facts of Y axis Financial Position

    The financial for Coca Cola shows a strong cash position of $4,979 billion and long term

    debt only $2,781 billion. Coca Cola net profits of $5,807 billion in 2008 (See Exhibit 8) (Pg.

    76, Para 1). Coca Cola shows a strong financial position and smaller long term debt

    compare to PepsiCo.

    Cost of sales for PepsiCo has increased as would be expected. These costs have increased

    from 41.32 percent of sales to 43.43 percent of sales net income has decreased from $5.6

    billion to $ 5.1 billion , return on assets has dropped from 18.81 percent to 15.17 percent ,

    inventory turnover has decreased from 8.02 times to 7.81 times and long term debt has

    increased from $4,203 billion in 2007 to $7.858 in 2008 (Pg.73, Para1).

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    Size of circle Product Diversification

    Pepsi as bottlers of soft drinks. The company produces alsoMountain Dew, Mug Root Beer,

    Sierra Mist, Slice, Aquafina, Dola Juices and SoBe (Pg.69, Para 4). In addition, Pepsi Co

    includes the brands of Tropicana and Gatorade and this is just a partial list of the branded

    products sold by Pepsi (Pg. 69, Para 4). PepsiCo has developed liquid refreshment products

    that are light, calorie free, sugar free, caffeine free, sport and energy directed and flavoured

    (Pepsi, Aquafina, Voltage). (Pg.70, Para1). Pepsi has ventured into conglomerate

    diversification from van moving lines to sporting goods to fast foods. PepsiCo of late has a

    more focused strategy in the snack, breakfast food and non-alcoholic beverage markets (Pg.

    69, Para3). Today PepsiCo is a larger and more diversifies company than Coca Cola (Pg. 78,

    Para 3).

    Coca Cola has kept a fairly narrow focus. Coca-Cola seems to be following a very

    concentrated strategy by focusing almost exclusively on non-alcoholic beverages with little

    tendency to diversify. Additional as the demand for dark colas has diminished, Coca Cola has

    continued to strengthen their juice, ready to drink tea and coffee products, water and sports

    drinks along with the introduction of Truvia as a sweetener (Pg.76, Para 2).

    U.s

    Market Share

    Fin

    an

    cial P

    ositio

    n

    Coca Cola

    (25%)

    PepsiCo

    (23%)

    10%

    Strong

    20%

    Weak

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    3.2 Opportunities & Threats To choose opportunities and threats I tried to find those that were critical for company and

    able to give greatest impact to PepsiCo.

    No. Opportunities

    1. Steady overall growth for the last five years of around 9 percent with sports drinks, bottled water, and energy drinks showing the largest growth (Pg.74, Para 4).

    2. A recent environmental campaign against plastic containers has impacted the sales of bottled water and forced manufacturers to develop more environmentally friendly

    containers (Pg74, Para 6).

    3. The market for these products requires manufactures to constantly develop new products to meet those changing demands (Pg74, Para 6)

    Opportunities Probability Impact Justification

    O1: Steady overall growth for the last five years of

    around 9 percent with

    sports drinks, bottled

    water, and energy drinks

    showing the largest growth

    (Pg.74, Para 4).

    Almost certain

    Extraordinary

    Perform highest impact to PepsiCo in conjunction to reduction demand on

    carbonated drinks. Consumers start to concern more on their healthy lifestyle.

    O2: Growth in the carbonated drink market

    was largest in Asia and

    Europe (Pg74, Para 4).

    Possible

    Moderate

    Expanding business on these countries might help increase PepsiCo revenues

    and sales.

    O3: The market for these products requires manufactures to constantly develop new products to meet those changing demands (Pg74, Para 6)

    Likely

    Major

    Able to give impact on PepsiCo

    revenues and profits since the taste of consumers always change.

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    Probability

    Insignificant Minor Moderate Major Extraordinary

    Almost certain

    Low

    Medium High

    High

    High

    Likely Low

    Medium Medium High High

    Possible Low Low Medium High High

    Unlikely Low Low Low Medium Medium

    Rare Low Low Low Medium Medium

    No. Threats

    1. The downturn in the economy has also affected the sales of colas and water as some consumers have switched to store brands and tap water as cheaper alternatives to the national brands (Pg.74, Para 6).

    2. Consumer taste continues to change, and Pepsi must also continue to change (Pg 69, Para 3). In United States, the carbonated soft drinks market has shown a decline of 0.4 percent as consumers shifted from soft drinks to bottled water and sports drinks (Pg. 74, Para).

    3. Fought the Cola wars, Coca Cola holds the largest share of the U.S cola market at 41 percent (Pg74, Para 5). Coca Cola is the largest producer and distributor in the world and is PepsiCos major competitor (Pg. 76, Para 1).

    Threats Probability Impact

    T1: The downturn in the economy has also affected the sales of colas and water as some consumers have switched to store brands and tap water as cheaper alternatives to the national brands (Pg.74, Para 6).

    Likely

    Major

    Able to reduce PepsiCo sales and

    revenues since the consumers have an ability to switch to their national brands as well as interested more on cheaper

    price.

    T2: Consumer taste continues to change, and Pepsi must also continue to change (Pg 69, Para 3). In United States, the carbonated soft drinks market has shown a decline of 0.4 percent as consumers shifted from soft drinks to bottled water and sports drinks (Pg. 74, Para).

    Almost certain

    Extraordinary

    In order to avoid competition from other rivals and as to retain loyal

    consumer, the company should fast responsive to the consumer

    preferences.

    T3: Fought the Cola wars,

    O2

    O3

    1

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    Coca Cola holds the largest share of the U.S cola market at 41 percent (Pg74, Para 5). Coca Cola is the largest producer and distributor in the world and is PepsiCos major competitor (Pg. 76, Para 1).

    Likely Major Able to give major impact towards PepsiCos business, growth and

    position in the industry since Coca Cola is the closest competitor. Coca Cola has

    a strong brand reputation and even posses strong financial position if

    compare to PepsiCo.

    Probability Consequences

    Insignificant Minor Moderate Major Extraordinary

    Almost certain

    Low

    Medium High

    High

    High

    Likely Low

    Medium Medium High High

    Possible Low Low Medium High High

    Unlikely Low Low Low Medium Medium

    Rare Low Low Low Medium Medium

    T2

    1

    T1 T3

    1

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    3.3 EFE matrix

    EFE Weight Ratings Weighted score

    No. Opportunities

    1.

    Steady overall growth for the last five years of

    around 9 percent with sports drinks, bottled

    water, and energy drinks showing the largest

    growth (Pg.74, Para 4).

    0.18 4 0.72

    2.

    Growth in the carbonated drink market was largest

    in Asia and Europe (Pg74, Para 4).

    0.13 3 0.39

    3.

    The market for these products requires

    manufactures to constantly develop new products

    to meet those changing demands (Pg74, Para 6)

    0.17 3 0.51

    No Threats

    1.

    The downturn in the economy has also affected the

    sales of colas and water as some consumers have

    switched to store brands and tap water as

    cheaper alternatives to the national brands (Pg.74,

    Para 6).

    0.16 3 0.48

    2.

    Consumer taste continues to change, and Pepsi

    must also continue to change (Pg 69, Para 3). In

    United States, the carbonated soft drinks market

    has shown a decline of 0.4 percent as consumers

    shifted from soft drinks to bottled water and

    sports drinks (Pg. 74, Para).

    0.20 4 0.80

    3.

    Fought the Cola wars, Coca Cola holds the largest

    share of the U.S cola market at 41 percent (Pg74,

    Para 5). Coca Cola is the largest producer and

    distributor in the world and is PepsiCos major competitor (Pg. 76, Para 1).

    0.16 3 0.48

    Total

    1

    3.38

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    4.0 Internal Assessment

    4.1. Strengths & weaknesses

    In order to choose the Strengths and weaknesses, I have classified the strength level into three

    significant categories (Competence, Core Competence and Distinctive Competence). In this

    case, Distinctive Competence will be chosen for further assessment as this category shows

    that PepsiCo able to perform unique capabilities that distinguish the organisation from its

    competitors .

    No. Strengths

    Competence

    1. Pepsi has ventured into conglomerate diversification from van moving lines to sporting goods to fast foods (Pg. 69, Para3).

    2. PepsiCo must appeal to the ultimate consumer through extensive advertising and promotional activities. This Pull marketing strategy is highly dependent on creative marketing and development of catchy slogans along with Pepsi Cola brands (Pg. 70, Para 1).

    3. PepsiCo recently offered $6billion to retake ownership of its two largest bottlers, Pepsi Bottling Group (PBG) and Pepsi Americas(PAS) (Pg. 68, Para 5).

    Core Competence

    4. Bradham followed the example of Coca Cola and used the bottling franchise system in which he produced the syrup and others bottled and distributed. This business model allowed for quick expansion and market penetration (Pg.69, Para69).

    5. Pepsi and Coke become the largest worldwide producer of non-alcoholic beverages (Pg. 69, Para3)

    6. PepsiCo., Inc. is indeed a large company and is defined in the 10K as a leading global beverage.. in approximately 200 countries with largest operations in North America (Unites States and Canada) Mexico and United Kingdom (Pg. 69, Para5)

    Distinctive Competence

    7. Doubled the size of its bottle to 12 ounces, charging one nickel, when the standard was 6ounces. This low- cost differentiation strategy proved very successful and become a major

    player in Cola industry (Pg.69, Para 2)

    8. Pepsi seems to be developing synergy between product categories with breakfast foods, and non alcoholic beverage markets and at the same time moving into the water and sport

    beverage market.(Pg69, Para3). These combinations and promotions allow PepsiCos bottlers enhanced ability to gain retail shelf space (Pg. 78, Para 4).

    9. Pepsi continues to expand its markets in beverage through market penetration, mergers and acquisitions (Pg. 69, Para6). Acquired Amacoco Nordeste Ltda and Amacoco Sudeste Ltda, Brazil largest makers of packaged coconut water drinks and is expanding its presence in South Americas largest nation (Pg. 78, Para 6).

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    No. Weaknesses Justification

    1. Highly dependent on supplies of clean water (Pg.74, Para 6).

    Most Incompetence Compare to PepsiCo closest competitor Coca Cola,

    PepsiCo should be able to

    establish its own water

    sources as producing

    contaminated carbonated

    drink results to damage

    PepsiCo brand reputation.

    2. Cost of sales has increased as would be expected, net income has decreased, return on assets has dropped , inventory turnover has decreased and long term debt has increased. The trends might indicate future problem areas.(Pg.73, Para1).

    Most Incompetence As Coca Cola posses strong

    financial position, PepsiCo

    encountered financial

    problem that need to be

    resolved. This financial

    instability gives impact

    towards PepsiCo performance

    and profitability in future.

    3. Force PepsiCo to innovate new products and at the same time re-evaluate current product offerings (Pg.78, Para4).

    Most Incompetence As meeting consumer demands is critical in this

    industry, innovation is the key

    success for PepsiCo

    4.2 IFE Matrix

    IFE Weight Ratings Weighted score

    No. Strengths

    1.

    Doubled the size of its bottle to 12 ounces,

    charging one nickel, when the standard was

    6ounces. This low- cost differentiation strategy

    proved very successful and become a major player

    in Cola industry (Pg.69, Para 2)

    0.22 4 0.88

    2.

    Pepsi seems to be developing synergy between

    product categories with breakfast foods, and non

    alcoholic beverage markets and at the same time

    moving into the water and sport beverage

    market.(Pg69, Para3). These combinations and

    promotions allow PepsiCos bottlers enhanced ability to gain retail shelf space (Pg. 78, Para 4).

    0.16 3 0.48

    3.

    Pepsi continues to expand its markets in beverage

    through market penetration, mergers and

    acquisitions (Pg. 69, Para6). Acquired Amacoco

    Nordeste Ltda and Amacoco Sudeste Ltda, Brazil

    largest makers of packaged coconut water drinks

    and is expanding its presence in South Americas largest nation (Pg. 78, Para 6).

    0.20 4 0.80

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    No. Weaknesses

    1.

    Highly dependent on supplies of clean water

    (Pg.74, Para 6). 0.18 1 0.18

    2.

    Cost of sales has increased as would be expected,

    net income has decreased, return on assets has

    dropped , inventory turnover has decreased and

    long term debt has increased. The trends might

    indicate future problem areas.(Pg.73, Para1).

    0.12 1 0.12

    3.

    Force PepsiCo to innovate new products and at the

    same time re-evaluate current product offerings

    (Pg.78, Para4).

    0.12 2 0.24

    Total 1 2.70

    4.3 Value Chain Analysis (Non-Alcoholic beverages Segment) Value Chain provides a model of how PepsiCo, makes revenue and profit from the raw

    materials. The facts in Value chain is the critical facts based on an internal assessment.

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    Culture Pepsis desire to own its own bottlers is to spur its non-carbonated health and

    wellness products, which are often smaller volume, slower moving products (Pg.

    68, Para 5). And in everything we do, we strive for honesty, fairness and

    integrity. At PepsiCo, were committed to achieving business and financial success

    while leaving a positive imprint on society-delivering what we call Performance

    with Purpose. (Pepsi Co Mission &Vision, March 2009).

    Management

    Finance

    R&D/ MIS

    Production

    PepsiCo recently offered $6billion to retake ownership of its two largest bottlers,

    Pepsi Bottling Group (PBG) and Pepsi Americas(PAS) (Pg. 68, Para 5). Pepsi has

    ventured into conglomerate diversification from van moving lines to sporting

    goods to fast foods (Pg. 69, Para3). PepsiCo is organised using three business units

    of PepsiCo Americas Foods, PepsiCo America beverages and PepsiCo

    International. (Pg. 69, Para7).

    First quarter 2009 PepsiCos net revenue of $8,263 million were down $70 million

    from the same quarter in 2008 (Pg.68,Para2). PepsiCo invest $1bilion in Russia

    over the next three years, bringing its total investment to$4billion over a ten year

    time span. PepsiCo will also invest over $1billion in China over the next 4 years

    (Pg.68, Para4) .

    PepsiCo opened a new factory in Shanghai in June 2009and plans to open another

    five plants in China over the next two year. The new plant will manufacture Pepsi

    Cola, Mountain Dew, Gatorade, Tropicana juices and bottled water. The new

    Pepsi plant uses 22 percent less water and 23 percent less energy than the

    average Pepsi plant in China (Pg.68, Para3). PepsiCo control costs by decreasing

    cost of goods sold by $90million (Pg.68,Para2). Initiated projects to increase

    recycled materials and reduce materials used in packaging (Pg.74,Para2).

    Appealing Web pages with the latest ads and product-related games (Pg.70, Para2).

    Raw

    Material

    Production/

    Operation

    Product/ Service Marketing Distribution

    The principal

    ingredient of

    its primary

    product is

    waterdevel

    oped countries

    (Pg.74, Para2).

    PepsiCo results

    continued the down

    ward trend with

    beverage volume

    down 6 percent.

    However international

    beverages volume was

    up 6 percent (Pg.68,

    Para2). Loft doubled

    the size of its bottle

    to 12 ounces,

    charging one nickel,

    when the standard was

    6ounces. This low-

    cost differentiation

    strategy proved very

    successful (Pg.69,

    Para 2).

    Pepsi manufacture the

    concentrates and

    syrups which are then

    sold to bottlers (

    Pg.74, Para 6).

    Operates in Canada,

    Latin America,

    Europe, Middle East,

    Asia, Northern Asia,

    Australia and Asia

    Pacific (Pg. 69,

    Para5).

    Bradham followed

    the example of Coca

    Cola and used the

    bottling franchise

    system in which he

    produced the syrup

    and others bottled

    and distributed

    (Pg.69, Para69). .

    The company

    produces Mountain

    Dew, Mug Root

    Beer, Sierra Mist,

    Slice, Aquafina,

    Dola Juices and

    SoBe (Pg.69, Para4).

    Developed liquid

    refreshment products

    that are light, calorie

    free, sugar free,

    caffeine free, sports

    and energy directed

    and flavoured

    (Pepsi, Voltage,

    Aquafina) (Pg. 70,

    Para1)

    Pepsi and Coke become

    the largest worldwide

    producer of non-

    alcoholic beverages

    (Pg. 69, Para3).

    PepsiCo. in approximately 200

    countries with largest

    operations in North

    America

    Mexico and United

    Kingdom (Pg. 69,

    Para5). PepsiCo must

    appeal to the ultimate

    customer through

    extensive advertising

    and promotional

    activities. This pull

    marketing strategy

    highly dependent on

    creative marketing and

    development of catchy

    slogans(Pg70, Para1).

    Uses all available media

    to promote its products

    and attempts to attract

    younger consumers

    through Web-related

    media such as You tube

    and have appealing

    Web pages with the

    latest ads and product

    related games (Pg.70,

    Para2).

    PBG and PAS

    distribute

    nearly 75

    percent of

    Pepsi drinks in

    the United

    States,

    excluding

    Gatorade (Pg.

    68, Para5).

    PepsiCo works

    closely with its

    bottlers and

    retailers

    (Pg.70,Para2).

    Distribute the

    finished

    products to

    grocery stores,

    convenience

    stores,

    restaurant and

    vending

    machines

    (Pg.74, Para6).

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    Value Chain Flowchart

    (Non-Alcoholic beverages Segment):

    Consumers

    Received Raw materials from

    Supplier (The principal ingredient is

    water)

    Manufacturing (concentrate and

    syrups)

    Products:

    Serves non-alcoholic beverage markets: Pepsi-Cola,

    Mountain Dew, Mug Root Beer, Sierra Mist, Slice, Aquafina,

    Dola Juices and SoBe projectors, Gatorade, Tropicana juices

    &bottled water

    Marketing efforts: (Value Propositioning, brand development and management, market development, Channel management).

    Spent heavily on sales incentives, discounts, advertising and promotions.

    Works closely with bottlers and retailers in promoting and advertising its products.

    Creates memorable and catchy slogans to attract and hold consumers.

    Distribution (Value Delivery):

    PBG and PAS distribute nearly 75

    percent of Pepsi drinks in the United

    States, excluding Gatorade (Pg. 68,

    Para5). Bottlers Distribute the finished

    products to grocery stores, convenience

    stores, restaurant and vending machines

    (Pg.74, Para6).

    Reference:

    Process Flow :

    Information and Money :

    Flow

    Customers/ Retailers

    (Its major customers are large

    retailers Wall Mart)

    Service: Customer liaison

    Distributor liaison Product and service liability

  • [DESIGN STRATEGIC PLAN/SEM II/2012/2013] PepsiCo - 2009

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    5.0 Strategy Formulation

    5.1. SWOT Matrix

    SWOT Matrix Opportunities Threats

    1. Steady overall growth for

    the last five years of around 9

    percent with sports drinks,

    bottled water, and energy

    drinks showing the largest

    growth (Pg.74, Para 4).

    1. The downturn in the

    economy has also affected the

    sales of colas and water as

    some consumers have

    switched to store brands and

    tap water as cheaper

    alternatives to the national

    brands (Pg.74, Para 6).

    2. Growth in the carbonated

    drink market was largest in

    Asia and Europe (Pg74, Para

    4).

    2. Consumer taste continues

    to change, and Pepsi must also

    continue to change (Pg 69,

    Para 3). In United States, the

    carbonated soft drinks market

    has shown a decline of 0.4

    percent as consumers shifted

    from soft drinks to bottled

    water and sports drinks (Pg.

    74, Para).

    3. The market for these

    products requires

    manufactures to constantly

    develop new products to meet

    those changing demands (Pg74,

    Para 6)

    3. Fought the Cola wars, Coca

    Cola holds the largest share of

    the U.S cola market at 41

    percent (Pg74, Para 5). Coca

    Cola is the largest producer

    and distributor in the world and is PepsiCos major competitor (Pg. 76, Para 1).

    Strengths SO Matches ST Matches 1. Doubled the size of its bottle to 12

    ounces, charging one nickel, when the

    standard was 6ounces. This low- cost

    differentiation strategy proved very

    successful and become a major player in

    Cola industry (Pg.69, Para 2)

    SO1 : Utilize Total Quality

    Management Practice aiming for

    high quality of end products by

    simultaneously driving down cost

    (S1, O1,03)

    ST1: Innovate product line by

    offering healthier alternatives

    in order to differentiate

    PepsiCo from Coca Cola

    (S1,T3)

    2. Pepsi seems to be developing synergy

    between product categories with breakfast

    foods, and non alcoholic beverage

    markets and at the same time moving into

    the water and sport beverage

    market.(Pg69, Para3). These

    combinations and promotions allow

    PepsiCos bottlers enhanced ability to gain retail shelf space (Pg. 78, Para 4).

    SO2: Develop Innovative

    Customer-Oriented Product by

    relying on well-research

    customer needs to respond

    towards the growing demand of

    sports drinks, bottled water

    and energy drinks (S3,O1,03)

    ST2: Satisfy the buyer's

    requirements by offering more

    promotions and discounts to

    prevent sales from decreasing

    (S2,T1)

    3. Pepsi continues to expand its markets

    in beverage through market penetration,

    mergers and acquisitions (Pg. 69, Para6).

    Acquired Amacoco Nordeste Ltda and

    Amacoco Sudeste Ltda, Brazil largest

    makers of packaged coconut water

    drinks and is expanding its presence in

    South Americas largest nation (Pg. 78, Para 6).

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    Weaknesses WO Matches WT Matches

    1. This company highly dependent on

    supplies of clean water (Pg.74, Para 6).

    Improve business sales by

    responding towards increasing

    demands for sports drinks,

    bottled water and energy drinks

    (W2,O1)

    Forecast the trends by relying

    on marketing intelligence and

    Research & Development to

    distinctively different from the

    rest of the market.(W1,W3,T3)

    2. Cost of sales has increased as would

    be expected, net income has decreased,

    return on assets has dropped , inventory

    turnover has decreased and long term

    debt has increased. The trends might

    indicate future problem areas.(Pg.73,

    Para1).

    Increase presence in the

    International market and

    expand Pepsi Soda product in

    Asia and Europe in order to

    improve financial stability

    (W2,O2)

    Adjust production of bottlers

    with downturn in economy by

    utilising flexible manufacturing

    system to create differentiated

    products at low cost

    (W2,W3,T1)

    3. Force PepsiCo to innovate new

    products and at the same time re-

    evaluate current product offerings

    (Pg.78, Para4).

    SWOT conclusion:

    Based on the SWOT analysis the corporate level and business level strategies are as follows:

    Corporate Level Strategy

    No Type of strategy

    1. Cost Leadership (Type 2)

    SO1 : Utilize Total Quality Management Practice aiming for

    high quality of end products by simultaneously driving down cost

    (S1, O1,03)

    Business Level Strategy

    No Type of strategy

    1. Product

    Development

    SO2: Develop Innovative Customer-Oriented Product by relying

    on well-research customer needs to respond towards the growing

    demand of sports drinks, bottled water and energy drinks (S3,O1,03)

    *IE matrix will be used in the analysis in order to support the company strategy chosen

    from SWOT analysis.

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    5.2 IE Matrix

    The IFE Total Weighted Score

    4.0

    Strong

    3.0

    Average

    2.0

    Weak 1.0

    High

    3.0

    Grow and Build

    Medium

    2.0

    Low

    1.0

    EFE IFE

    3.38

    2.70

    The division falls into cell II which can be described as grow and build. Intensive strategies

    such as product development can be most appropriate for this division.

    5.3 Strategy Formulation Conclusion

    IE matrix results, shows that PepsiCo should Grow and Build its position. This means

    intensive and aggressive tactical strategies should be done. Therefore, related strategies with

    grow and build (market penetration, market development, and product development) will be

    extracted from S/O strategies (SWOT Matrix). These alternative strategies:

    The

    EFE

    Tota

    l Wei

    ghte

    d S

    core

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    Original Sentences:

    Business Level Strategy Cost Leadership (Type 2): SO1 : Utilize Total Quality Management Practice aiming for high quality of end products by simultaneously driving

    down cost (S1, O1,03)

    Corporate Level Strategy Product Development: SO2: Develop Innovative Customer-

    Oriented Product by relying on well-research customer needs to respond towards the growing

    demand of sports drinks, bottled water and energy drinks (S3,O1,03)

    6.0 Strategy Implementation

    6.1 Operation Management Process

    The theme of Operational Management Processes:

    Implement TQM practice for lowering the costs of production with better quality of

    produced products

    Produce new healthier drinks and sports drinks from well-research customer needs

    6.1.1 Supply Management Process

    Define the objectives in Supply Processes

    Reduce the cost of ownership for raw materials of sports drinks, bottled water and

    energy drinks

    Achieve Just-In-Time supplier capability

    Implement efficient supplier quality management

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    Objective Balance Scorecard (BSC)

    Measure Target

    Reduce the cost of ownership

    for raw materials of sports

    drinks, bottled water and

    energy drinks

    Price/cost of product,

    customer profitability

    10% reduction target

    5% Increase in terms of customer

    profitability (compare to

    competitor selling price)

    Achieve Just-In-Time

    supplier capability

    Quick response time,

    On-time delivery, correct quantity,

    Percent of late orders

    flexibility to respond to unexpected

    demand changes, willingness to

    participate in PepsiCo new product

    development

    5 % Increase in terms of speeding

    up customer response while

    minimizing inventories (compare

    to year before)

    Implement efficient supplier

    quality management

    Supplier feedback survey, supplier

    performance survey, quality level,

    presence of certification/ other

    documentation

    Percent of perfect order received,

    percent of supplier qualified to

    deliver without incoming

    inspection

    Zero defect production

    Linkage to Production

    Operation Management Processes (Supply) Production

    Objectives

    Reduce the cost of ownership for

    raw materials of sports drinks,

    bottled water and energy drinks

    LPCSDBW&ED

    Achieve Just-In-Time supplier

    capability

    LPCSDBW&ED

    Implement efficient supplier

    quality management

    EQCNPL

    Note:

    1. LPCSDBW&ED = Lower Production Costs of Sports Drinks, Bottled Water & Energy Drinks

    2. EQFNPL = Ensure Quality Control for New Production Line

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    Linkage to Risk Management

    Operation Management Processes (Supply) Risk Management

    Objectives

    Reduce the cost of ownership for raw

    materials of sports drinks, bottled

    water and energy drinks

    Achieve Just-In-Time supplier

    capability

    MSR, MTR1

    Implement efficient supplier quality

    management

    MQR1, MOR1

    Note (Supply) MQR1 = Manage Quality Risk MTR1= Manage Technological Risk MOR1 = Manage Operational Risk MSR = Manage Supplier Risk

    Linkage to Customer Perspective

    Operation Management Processes (Supply)

    Customer Perspective (Customer Value Proposition)

    Price

    Quality

    Availability

    Selection

    Brand

    Objectives

    Reduce the cost of

    ownership for raw

    materials of sports

    drinks, bottled water

    and energy drinks

    OLPV IPA FOPSC ICS

    Achieve Just-In-Time

    supplier capability

    LPC EQ IPA FOQSC ERBI*

    Implement efficient

    supplier quality

    EQ IPR FOQSC ERBI*

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    management

    Linkage to Financial Perspective

    Operation Management Processes (Supply)

    Financial Perspective

    Improve Cost

    Structure

    Increase Assets

    Utilization

    Expand Revenue

    Opportunities

    Enhance Customer

    Value Objectives

    Reduce the cost of ownership

    for raw materials of sports

    drinks, bottled water and

    energy drinks

    LPC IBV DCC

    Achieve Just-In-Time supplier

    capability

    MIC TD,MROI GHS, IOM

    Implement efficient supplier

    quality management

    RDC,

    RCSE

    EQIM IRG LTR-

    LT,

    OCC,

    PQP

    Note: (CVP)

    OLPV, IPA, FOPSC, ICS = Offer lower price with Value, Increase

    Product Availability, Focus on Price Sensitive Customer, Increase

    Customer Satisfaction

    LPC = Lower Production Costs

    FOQSC = Focus On Quality Sensitive Customer

    ERBI* = Enhance Reputation on Brand Image

    IPV = Increase Product Variety

    IPR = Increase product Reliability

    EQ = Enhance Quality

    *indirect objective through Customer Management processes

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    Linkage to Learning & Growth

    Operation Management Processes (Supply) Learning & Growth

    Objectives

    Human

    Capital

    Information

    Capital

    Organizational

    Capital

    Reduce the cost of ownership for raw

    materials of sports drinks, bottled

    water and energy drinks

    LPST,ACBMSC

    DTFPI

    IFS

    Achieve Just-In-Time supplier

    capability

    LPST,ACBMSC DTFPI ECA , IFS,FQC

    Implement efficient supplier quality

    management

    DSK,DSM DFC,DPC,QPC IQMS,IFS, FQC

    Note (Supply)

    LPC = Lower Production Costs

    IBV = Increase Business Volume

    DCC = Decrease Customer Costs

    ISPSC = Increase Satisfaction Among Price Sensitive Customers

    GHS, IOM = Generate Higher Sell, Increase Operating Margin

    MIC = Minimum Inventory Cost

    TD = Timely Delivery

    OCC = Offer Customers Convenience

    PQP = Provide Quality Product

    MROI = Maximize Return on Investment

    RDC, RCSE = Reduce Defect Cost, Reduce the Cost of Supplier Errors

    LTR-LT = Long Term Relationship-Loyalty and Trust

    MSCQ = Maximize supply Chain Quality

    RWC= Reduce Waste Cost

    IRG = Increase revenue Growth

    Those objectives should later be carried out to the Financial Pers. accumulatively

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    Note: LPST,ACBMSC =Learning the Principles, Skills and Technologies , Adequate Communications between the Members of Supply Chain ECA,IFS, FQC = Enhance Completive Advantage, Improve Finance Situation, Foster Quality Culture DTFPI = Develop Technology for Process Improvement ESCE,QPC = Enhance Supply chain Effectiveness, Quality Policies Conformity QFD,QPC = Quality Function Deployment, Quality Policy Conformity ECA = Enhance Completive Advantage DSK,DSM = Develop Self-Knowledge, Develop Self-Motion DFC,DPC,QPC= Develop Fishbone Chart, Develop Pareto Chart, Quality Policies & Conformity IQMS,IFS,FQC,ICS = Improve Quality Management System, Improve Finance Situation, Foster Quality Culture

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    6.1.2 Production Management Process

    Define the objectives in Production Processes

    Lower Production Costs of Sports Drinks, Bottled Water & Energy Drinks (Linkage from Supply Process)

    Ensure Quality of Finished Product (Linkage from Supply Process)

    Produce Innovative products based on well-research customer needs (New

    Objectives)

    Objective Balance Scorecard (BSC)

    Measure Target

    Lower Production Costs of

    Sports Drinks, Bottled

    Water & Energy Drinks

    Cost per unit of Output,

    Percent of operating income,

    Percent of cash flow improvement

    Increase 15% of company

    profitability (compared to

    year before)

    Ensure Quality of Finished

    Product

    Percent of defect reduction

    Number of customer complains,

    Survey of customer satisfaction,

    Percent of shipments returned due

    to poor quality

    Zero defect

    Produce Innovative

    products based on well-

    research customer needs

    Percent of sales obtained from new

    products,

    Number of New Product Launches,

    Measure of how well the company

    identifies the customers future need

    Increase sales from new

    products,

    customer needs met,

    customer satisfaction

    customer retention

    Linkage to Distribution

    Operation Management Processes (Production)

    Distribution

    Objectives

    Lower Production Costs of Sports

    Drinks, Bottled Water & Energy Drinks

    LCS

    Ensure Quality of Finished Product PSDBWEDMQE

    Produce Innovative products based on

    well-research customer needs

    Note: LCS=lower Cost to Serve PSDBWEDMQE = Production of Sports Drinks, Bottled Water and Energy Drinks Meet Quality Expectation

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    Linkage to Risk Management

    Operation Management Processes (Production)

    Risk Management

    Objectives

    Lower Production Costs of Sports

    Drinks, Bottled Water & Energy Drinks

    MOR2

    Ensure Quality of Finished Product MQR2

    Produce Innovative products based on

    well-research customer needs

    MFCR MTR2

    Note (Production) MOR2 = Manage Operational Risk MTR2= Manage Technological Risk MFCR = Manage Forecast Cost Risk MQR2 = Manage Quality Risk

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    Linkage to Customer Perspective

    Operation Management Processes (Production)

    Customer Perspective (Customer Value Proposition)

    Objectives

    Price Quality Availability Selection Brand

    Lower Production Costs of

    Sports Drinks, Bottled Water

    & Energy Drinks

    LCC HPA FOPSC EBV

    Ensure Quality of Finished

    Product

    ORP EQP HPA,DOT FOQSC EBV, LTR-CL&T

    Produce Innovative products

    based on well-research

    customer needs

    ORP ICL RRCP FOCHL EBV, LTR-CL&T

    Note: LCC =Lower customers cost ORP = Offer Reasonable Price FOPSC = Focus on Price Sensitive Customers FOQSC = Focus on Quality Sensitive Customers FOCHL = Focus on Consumers Healthy Lifestyle EQP = Excellence Quality Product EBV = Enhance Brand Value DOT = Deliver on Time HPA = High Product Availability ICL = Increase Customer Loyalty RRCP = Rapid Respond to consumer Preferences LTR-CL&T = Long Term Relationship Customer Loyalty & Trust

    * Those objectives should later be carried out to Customer Pers. Accumulatively.

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    Linkage to Financial Perspective

    Operation Management Processes (Production)

    Financial Perspective

    Objectives

    Improve Cost

    Structure

    Increase

    Assets

    Utilization

    Expand

    Revenue

    Opportunities

    Enhance

    Customer

    Value

    Lower Production Costs of

    Sports Drinks, Bottled

    Water & Energy Drinks

    DPC,RIC,

    RWC, IOI

    MROI,

    IPE&P MFAU

    ISG,

    IRFNPS

    ICP

    Ensure Quality of Finished

    Product

    RD, RWC IRMCE ICP, ICS

    Produce Innovative

    products based on well-

    research customer needs

    IRRRCP,

    IRCPI

    ICS

    *Those objectives should later be carried out to the Financial Pers. Accumulatively

    Note DPC, RIC, RWC, IOI = Decrease Production Costs , Reduce Incurred Cost, Increase Operating

    Income

    RD, RWC = Reduce Defects, Reduce Waste Costs

    MROI, IPE&P = Maximizing Return on Investment, Increase Process Efficiency

    &Productivity

    ISG = Increase Sales Growth

    IRMCE = Increase Revenue for Meeting Customer Expectation

    IRCPI = Increase Revenue for continual Product Improvement

    IRRRCP = Increase Revenue for Rapidly Respond to Consumer Preferences

    ICP = Increase Customer Profitability

    ICS = Increase Customer Satisfaction

    MFAU = Maximize fixed asset utilization

    IRFNPS = Increase Revenue From Number of Product Sold

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    Linkage to Learning & Growth Perspective

    Operation Management Processes (Production)

    Learning & Growth

    Objectives

    Human

    Capital

    Information

    Capital

    Organizational

    Capital

    Lower Production Costs of Sports

    Drinks, Bottled Water & Energy Drinks

    ISTQM,CEPI,

    ETITQME

    IABC DTQMC,IOE,

    IFS

    Ensure Quality of Finished Product ETIQA, DSK,DSM,

    PHACCPTP,

    PGMPTP

    ICPI, ICSL,

    GMP,HACCP

    IQC,

    IQMS,GCA

    Produce Innovative products based on

    well-research customer needs

    DCS ICSL, ITFPI DP, FIC,

    CCII&C,

    DC-OC

    Note:

    ISTQM, CEPI, ETITQME= Improve Skills in Total Quality Management, Competence Employee in

    Process Improvement, Employees Training in TQM Environment

    IABC = Implement Activity-Based Costing

    DTQMC, IOE, IFS = Improve Operational Efficiency, Improve Finance Situation, Develop TQM

    Culture

    ITFPI = Improve Technology that Facilitates Product Improvement

    DP, FIC, CCII&C, DC-OC = Develop Patent, Foster Innovation Culture, Culture of Continuous

    Improvement, Innovation and Creativity, Develop Customer-Oriented Culture

    ETIQA, DSK, DSM = Employees Training in Quality Assurance, Develop Self-Knowledge, Develop Self-

    Motion

    ICPI, ICSL = Improve Customer Preferences Information , Improve Customer Satisfaction

    Level

    IQC, IQMS, GCA = Improve Quality Culture, Improve Quality Management System, Gain

    Competitive Advantage

    DCS = Develop Creativity Skills

    ICSL, ITFPI = Improve Customer Satisfaction Level, Improve Technology that Facilitates

    Product Improvement

    PHACCPTP = Provide Hazards Analysis Critical Control Points Training Program

    PGMPTP = Provide Good Manufacturing Practice Training Program

    GMP = Good Manufacturing Practices

    HACCP = Hazard Analysis Critical Control Points

    *Those Objectives should be carried out to the Learning &Growth Perspective accumulatively

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    6.1.3 Distribution Process

    Define the objectives in Distribution Processes

    Lower Cost to Serve (Linkage from Production)

    Production of Sports Drinks, Bottled Water and Energy Drinks Meet Quality

    Expectation (Linkage from Production)

    Responsively Delivery Capability (New Objective)

    Objective Balance Scorecard (BSC)

    Measure Target

    Lower Cost to Serve *ABC cost of storage and delivery

    to customers,

    Cycle Time

    15 % Increase in Sales

    Growth, Decrease Cycle

    Time

    Production of Sports Drinks,

    Bottled Water and Energy

    Drinks Meet Quality

    Expectation

    Percentage of shipments returned

    Due to poor quality, Number of

    items reworked

    5 % decrease of shipment

    returned, Increase quality

    Responsively Delivery

    Capability

    Percent of Delivery On-Time

    Number of overdue deliveries,

    Customer Response Time

    Increase On-Time Delivery

    Linkage to Risk Management

    Operation Management Processes

    (Distribution)

    Risk Management

    Objectives

    Lower Cost to Serve MOR3

    Production of Sports Drinks, Bottled Water

    and Energy Drinks Meet Quality

    Expectation

    MQR3

    Responsively Delivery Capability MDR,MTR3

    Those objectives should later be carried out to the Risk Management as

    accumulative Objectives.

    Note (Distribution) MTR3 = Manage Technology Risk MOR3= Manage Operational Risk MDR = Manage Distribution Risk MQR3 =Manage Quality Risk

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    Linkage to Customer Perspective

    Operation Management

    Processes (Distribution)

    Customer Perspective (Customer Value Proposition)

    Price Quality Availability Selection Brand

    Objectives

    Lower Cost to Serve DPP HPA FOPSC EBI

    Production of Sports Drinks, Bottled Water and Energy

    Drinks Meet Quality Expectation

    EQ HPA FOQSC, FOCHL

    ILTBN

    Responsively Delivery

    Capability EQ DOT ILTBN

    Those objectives should later be carried out to Customer Pers. Cumulatively.

    Note:

    HPA = High Product Availability

    DOT = Deliver on Time

    EQ = Excellence Quality

    FOPSC = Focus on Price Sensitive Customers

    FOQSC = Focus on Quality Sensitive Customers

    FOCHL = Focus on Consumer Healthier Lifestyle

    BPA = Broader Range of Products

    ICT =Increase Customer Trust

    EBI = Enhance Brand Image

    ILTBN = Increase Loyalty to Brand Name

    MPQ = Maintain Product Quality

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    Linkage to Financial Perspective

    Operation Management

    Processes (Distribution)

    Financial Perspective

    Improve

    Cost

    Structure

    Increase

    Assets

    Utilization

    Expand

    Revenue

    Opportunities

    Enhance

    Customer

    Value

    Objectives

    Lower Cost to Serve EVA, DCGS ICF,IRPSC,ISG ICP

    Production of Sports Drinks, Bottled Water and Energy Drinks Meet

    Quality Expectation

    IRMCE, IRQSC

    Responsively Delivery Capability

    Those objectives should later be carried out to the Financial Pers. Cumulatively

    Linkage to Learning & Growth Perspective

    Operation Management Processes

    (Distribution)

    Learning & Growth

    Human

    Capital

    Information

    Capital Organizational

    Capital

    Objectives

    Lower Cost to Serve MSC IFS

    Production of Sports Drinks, Bottled Water

    and Energy Drinks Meet Quality Expectation

    CEIQC IQAP, SOCS, QPC

    IQMS, FQC

    Responsively Delivery Capability CEDPI DTFPI IQMS

    Those Objectives should be carried out to the Learning &Growth Perspective cumulatively.

    Note

    EVA,DCGS = Economic Value Added, Decrease Cost of Goods Sold

    ICF, IRPSC,DFG = Increase Cash Flow, Increase Revenue of Price Sensitive

    Customers, Increase Sale Growth

    IRQSC = Increase Revenue of Quality Sensitive Customers IRMCE = Increase Revenue for Meeting Customer Expectation IRQSC = Increase Revenue of Quality Sensitive Customers

    ICP = Increase Customer Profitability

    Note

    CEDPI = Competence Employees in Distribution Process Improvement

    IFS = Improve Finance Situation

    MSC = Maintain Staff Competence

    CEIQC = Competence Employees in Quality Control

    IQAP, SOCS,QPC = Improvement on Quality Assurance Policies, Survey on

    Customer Satisfaction, Quality Policy Conformity

    DTFPI = Develop Technology for Process Improvement

    IQMS, FQC = Improve Quality Management System, Foster Quality Culture

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    6.1.4 Risk Management Process

    Define the objectives in Risk Management Processes (Importing from previous

    processes)

    Define the objectives in Risk Management Processes (New)

    MFR= Manage Financial Risk

    Note: (Supply)

    1. MQR1 = Manage Quality Risk 2. MOR1 = Manage Operational Risk 3. MTR1= Manage Technological Risk 4. MSR = Manage Supplier Risk

    Note: (Production)

    1. MOR2 = Manage Operational Risk 2. MTR2= Manage Technological Risk 3. MFCR = Manage Forecast Cost Risk 4. MQR2 = Manage Quality Risk

    Note: (Distribution)

    1. MTR3 = Manage Technology Risk 2. MOR3= Manage Operational Risk 3. MDR = Manage Distribution Risk 4. MQR3 = Manage Quality Risk

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    Define the objectives in Risk Management Processes

    1. MOR1 = Manage Operational Risk from Supply

    2. MOR2 Manage Operational Risk from Production

    3. MOR3= Manage Operational Risk from Distribution

    4. MQR1 = Manage Quality Risk from Supply

    5. MQR2 = Manage Quality Risk from Production

    6. MQR3 = Manage Quality Risk from Distribution

    7. MTR1= Manage Technological Risk from Supply

    8. MTR2= Manage Technological Risk from Production

    9. MTR3 = Manage Technology Risk from Distribution

    10. MSR = Manage Supplier Risk from Supply

    11. MDR = Manage Distribution Risk from Distribution

    12. MFCR = Manage Forecast Cost Risk from Production

    13. MFR = Manage Financial Risk

    Linkages to Customer Perspective

    Operation

    management

    process

    Customer Perspective (Customer Value Proposition)

    Objectives

    Price Quality Availability Selection Service Partnership Brand

    Manage

    Operational

    Risk from

    Supply

    RRO

    P

    FOPSDB

    WED

    JVP

    EBI

    Manage

    Operational

    Risk from

    Production

    RRO

    P

    FOPSDB

    WED

    EBI

    Manage

    Operational

    Risk from

    Distribution

    RRO

    P

    EOTD FOPSDB

    WED

    EBI

    Manage

    Quality Risk

    from Supply

    EPQ FOHQ

    SDBWED

    ICTL

    Manage

    Quality Risk

    EPQ FOHQ

    SDBWED

    ICTL

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    from

    Production

    Manage

    Quality Risk

    from

    Distribution

    EPQ

    FOHQ

    SDBWED

    ICTL

    Manage

    Technological

    Risk from

    Supply

    FOMTRR

    PSDBWE

    D

    EBI

    Manage

    Technological

    Risk from

    Production

    FOMTRP

    SDBWED

    EBI

    Manage

    Technological

    Risk from

    Distribution

    EOTD,

    ESD

    FOMTRP

    SDBWED

    EBI

    Manage

    Supplier Risk

    from Supply

    ASRMFPS

    DBWED

    JVP EBI

    Manage

    Distribution

    Risk from

    Distribution

    EOTD,

    ADR,

    HPA

    OTDSDB

    WED

    JVP ICTL

    Manage

    Forecast Cost

    Risk from

    Production

    FOCHL

    EBI,

    ICTL

    Manage

    Financial Risk

    RCC

    FOPSC

    EBI

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    Those objectives should later be carried out to Customer Pers. Accumulatively.

    Note

    RROP =Reduce The Risk of Overpaying

    FOHQSDBWED = Focus on High Quality Sports Drinks, Bottled

    Water and Energy Drinks

    FOPSDBWED = Focus on Production of Sports Drinks, Bottled Water

    and Energy Drinks

    FOMTRPSDBWED = Focus on Managing Technology Related to

    Production of Sports Drinks, Bottled Water and

    Energy Drinks

    ASRMFPSDBWED = Adequate Supply of Raw Material for

    Production of Sports Drinks, Bottled Water and

    Energy Drinks

    OTDSPBWED = On-Time Delivery of Sports Drinks, Bottled Water and

    Energy Drinks

    FOPSC = Focus on Price Sensitive Customers FOCHL = Focus on Consumer Healthier Lifestyle

    ESD = Ensure Secure Delivery

    EOTD = Ensure On-Time Delivery

    EBI = Enhance Brand Image

    EPQ= Excellence Product Quality

    ICTL = Increase Customer Trust and Loyalty

    RCC = Reduce Customer Cost

    HPA = High Product Availability

    ADR = Avoid Delay Risk

    JVP = Joint Venture Partners

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    Linkage to Financial Perspective

    Operation management

    process

    Financial Perspective

    Objectives

    Improve Cost

    Structure

    Increase

    Assets

    Utilization

    Expand

    Revenue

    Opportunities

    Enhance

    Customer Value

    Manage Operational

    Risk from Supply

    LIC, RSCC DOCFPSDBWED

    ICVTROC

    Manage Operational

    Risk from Production

    LIC, ROC, DOCFPSDB,WED

    MFAU IBV, ICP IMS

    ICVTROC, SPSC

    Manage Operational

    Risk from

    Distribution

    LIC, DOCFPSDBWED

    ICVTROC

    Manage Quality Risk

    from Supply

    IRTHQP ICSL, SQSC

    Manage Quality Risk

    from Production

    IRTHQP ICSL, SQSC

    Manage Quality Risk

    from Distribution

    IRTHQP ICSL, SQSC

    Manage

    Technological

    Risk from Supply

    RSCC

    Manage

    Technological Risk

    from Production

    LIC

    Manage

    Technological Risk

    from Distribution

    LIC IRTHTD OCC

    Manage Supplier

    Risk from Supply

    RSCC IRFNC

    Manage Distribution

    Risk from

    Distribution

    LIC OCC

    Manage Forecast

    Cost Risk from

    Production

    IRFMCD

    ICLL

    Manage Financial

    Risk

    LIC, IROI IBV, IMS, ICP SPSC

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    Linkage to Learning &Growth Perspective

    Operation management

    process

    Learning & Growth

    Objectives

    Human Capital Information Capital Organizational

    Capital Manage

    Operational Risk

    from Supply

    PETQMTR, DCE ESC, IKS, ISCS DTQMC ,IOE, IKM

    Manage

    Operational Risk

    from Production

    PETQMTR, DCE, PHACCPTP, PGMPTP

    IKS, GMP, HACCP DTQMC,IOE, IKM

    Manage

    Operational Risk

    from Distribution

    PETQMTP ,DCE IKS DTQMC , IOE, IKM

    Manage Quality

    Risk from Supply

    DEKOQMS, PETQMTP, PHACCPTP,

    PGMPTP

    ESC, IKS, GMP, HACCP DTQMC , IKM

    Manage Quality

    Risk from

    Production

    DEKOQMS, PETQMTP, PHACCPTP,

    PGMPTP

    IKS, GMP, HACCP DTQMC, IKM

    Manage Quality

    Risk from

    DEKOQMS, PETQMTP, PHACCPTP,

    IKS, IDP, GMP, HACCP DTQMC, IKM

    Note:

    LIC = Less Incurred Cost

    ROC = Reduce Operating Costs

    RSCC = Reduce Supply Chain Costs

    MFAU = Maximize fixed asset utilization

    ICP = Improve Company Profitability

    IRTHTD = Increase Revenue through High Technology Distribution

    ICVTROC = Improve Customer Value Through Reduction of Operational Cost

    SPSC = Satisfy Price Sensitive Customers

    SQSC = Satisfy Quality Sensitive Customers

    IRTHQP = Increase Revenue Through High Quality Product

    IRFMCD = Increase Revenue for Meeting Customer Demands

    DOCFPSDBWED = Decrease Operational Costs from Production of Sports

    Drinks, Bottled Water and Energy Drinks

    IBV = Increase Business Volume

    ICSL = Increase Customer Satisfaction Level

    ICLL = Increase Customer Loyalty Level

    OCC = Offer Customers Convenience

    IMS = Increase Market Share

    IROI = Increase Return On Investment

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    Distribution PGMPTP

    Manage

    Technological

    Risk from

    Supply

    PETTMT ESC, IKS IKM

    Manage

    Technological Risk

    from Production

    PETTMT IKS IKM

    Manage

    Technological Risk

    from Distribution

    PETTMT IKS, IDP IDP, IKM

    Manage Supplier

    Risk from Supply

    IKS, ISCS IKM

    Manage

    Distribution Risk

    from Distribution

    IKS, IDP IKM

    Manage

    Forecast Cost

    Risk from

    Production

    DCE RDTNP DC-OC, IKM

    Manage Financial

    Risk

    RCE IKMS EPRBE

    Note:

    DEKOQMS = Develop Employees Knowledge on Quality Management System

    PETQMTP = Provide Essential Total Quality Management Training Program

    PETFTH = Provide Extensive Training to Manage Technology

    PHACCPTP = Provide Hazards Analysis Critical Control Points Training Program

    PGMPTP = Provide Good Manufacturing Practice Training Program

    ESC = Enhance Supply Chain

    DTQMC = Develop TQM Culture

    DC-OC = Develop Customer Oriented Culture IKS = Increase Knowledge Sharing

    IKM = Improve Knowledge Management

    IOE = Improve Operation Efficiency

    IDP = Improve Distribution Process

    RDTNP = Reduce Development Time of New Products

    RCE = Retain Competence Employees

    ISCS = Improve Supply Chain System

    EPRBE = Enhance Performance Retain Better Employees

    IKMS = Improve Knowledge Management System

    GMP = Good Manufacturing Practice

    HACCP = Hazard Analysis Critical Control Points

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    Summarizing the objectives Operation Management Processes

    No Operation

    Management

    Processes

    Objectives

    Measure

    Target

    1

    Supply

    Reduce the cost of

    ownership for raw

    materials of sports

    drinks, bottled water

    and energy drinks

    Price/cost of product,

    Customer Profitability

    10% reduction

    target (ideal

    standard)

    5% Increase in

    terms of

    customer

    profitability

    (compare to

    competitor selling

    price)

    2

    Achieve Just-In-Time

    supplier capability

    Quick response time,

    On-time delivery, correct

    quantity,

    Percent of late orders

    flexibility to respond to

    unexpected demand changes,

    willingness to participate in

    PepsiCo new product

    development

    5 % Increase in

    terms of speeding

    up customer

    response while

    minimizing

    inventories

    (compare to year

    before)

    3

    Implement efficient

    supplier quality

    management

    Supplier feedback survey,

    supplier performance survey,

    quality level, presence of

    certification/ other documentation

    Percent of perfect order received,

    percent of supplier qualified to

    deliver without incoming

    inspection

    Zero Defect

    Production

    5

    Operation

    and

    Production

    Lower Production Costs of

    Sports Drinks, Bottled Water

    & Energy Drinks

    Cost per unit of Output,

    Percent of operating income,

    Percent of cash flow improvement

    Increase 15% of

    company

    profitability

    (compared to year

    before)

    7

    Ensure Quality of Finished

    Product

    Percent of defect reduction

    Number of customer complains,

    Survey of customer satisfaction,

    Percent of shipments returned due

    to poor quality

    Zero defect

    8

    Produce Innovative products

    based on well-research

    customer needs

    Percent of sales obtained from

    new products,

    Number of New Product

    Launches,

    Measure of how well the

    Increase sales from

    new products,

    customer needs

    met,

    customer

    satisfaction

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    company identifies the customers future need

    customer retention

    9

    Distribution

    Lower Cost to Serve *ABC cost of storage and

    delivery to customers,

    Cycle Time

    15 % Increase in

    Sales Growth,

    Decrease Cycle

    Time

    10 Production of Sports Drinks,

    Bottled Water and Energy

    Drinks Meet Quality

    Expectation

    Percentage of shipments returned

    Due to poor quality, Number of

    items reworked

    5 % decrease of

    shipment returned,

    Increase quality

    11 Responsively Delivery

    Capability

    Percent of Delivery On-Time

    Number of overdue deliveries,

    Customer Response Time,

    Customer loyalty level

    Increase On-Time

    Delivery ,

    5 % Increase in

    terms of customer

    retention level

    (compare to year

    before

    Summarizing the objectives Operation Management Processes Linkages

    No Processes Objectives Measure Target

    Financial

    Perspective

    SUPPLY:

    1 Lower Production Costs Percent of supply chain target cost achieved

    10% cost reduction

    target (ideal

    standard)

    2 Increase Business Volume Company market share 15% increase in terms of

    PepsiCo

    market share

    3 Decrease Customer Costs Customer cost ratio 5% Increase in terms of

    customer

    profitability (compare to

    competitor

    selling price)

    4 Increase Satisfaction Among Price Sensitive Customers

    Customer profitability 5% Increase in terms of

    customer

    profitability (compare to

    competitor

    selling price

    5 Generate Higher Sell, Increase Operating Margin

    Customer growth, Profitability

    15% increase in terms of

    PepsiCo

    market share

    6 Minimum Inventory Cost Ordering

    7 Timely Delivery Relative Response Time, time-based measures

    8 Offer Customers Convenience Customer feedback survey

    19 Provide Quality Product Quality-oriented measure, defect rates

    Met customers

    Needs

    PRODUCTION:

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    10 Decrease Production Costs , Reduce Incurred Cost, Increase Operating Income

    Cost per unit of sport drinks

    production, Cost per unit of bottled water

    production, cost per unit of

    energy drinks production, Non value-added costs

    Percent of target cost

    achieved, Manufacturing cost,

    warehousing cost,

    10% cost

    reduction

    target (ideal

    standard)

    11 Reduce Defects, Reduce Waste Costs Number of defect produced, Supply Chain cost of

    ownership

    Zero defects

    12 Maximize supply Chain Quality Quality-oriented measures

    13 Maximizing Return on Investment, Increase Process Efficiency &Productivity

    Profit margin, supply chain

    cycle efficiency

    Customer margins

    earned should

    increase as the length of the

    relationship

    increase

    14 Increase Sales Growth Customer growth, Profitability

    Sales growth

    Increase to

    15%, The sales for

    any one

    customer should steadily

    increase each

    year

    15 Increase Revenue for Meeting Customer Expectation

    Customer growth, Profitability

    Increase 15% of company

    profitability

    (compared to year before)

    16 Increase Revenue for continual Product Improvement

    Customer growth,

    Profitability

    Increase 15%

    of company

    profitability (compared to

    year before)

    17 Increase Revenue for Rapidly Respond to Consumer Preferences

    Customer growth,

    Profitability

    Increase 15%

    of company profitability

    (compared to

    year before)

    18 Increase Customer Profitability Customer profitability ratio 5 % Increase in terms of

    speeding up

    customer response while

    minimizing

    inventories (compare to

    year before)

    19 Increase Customer Satisfaction Customer satisfaction Level, CVR

    5 % Increase

    in terms of customer

    satisfaction

    level (compare to year before)

    20 Maximize fixed asset utilization Return on supply chain assets 10 % increase in efficiently

    use of its

    assets

    DISTRIBUTION:

    21 Economic Value Added, Decrease Cost of Goods Sold

    Customer Value

    Ratio, transportation cost,

    22 Increase Cash Flow, Increase Revenue of Profit margin

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    Price Sensitive Customers

    23 Increase Sales Growth Customer growth for sports drinks, bottled water and

    energy drinks, Profitability

    Sales growth

    Increase to

    15%, The sales for

    any one

    customer should steadily

    increase each

    year

    24 Increase Revenue of Quality Sensitive Customers

    Customer growth, Profitability

    Each new customers

    added should

    be profitable

    25 Increase Revenue for Meeting Customer Expectation

    Customer growth, Profitability

    Each new customers

    added should

    be profitable

    26 Increase Revenue of Quality Sensitive Customers

    Customer growth, Profitability

    Each new customers

    added should

    be profitable

    Customer Perspective

    SUPPLY:

    27 Offer lower price with Value, Increase Product Availability, Focus on Price Sensitive

    Customer, Increase Customer Satisfaction

    Customer Value Ratio,

    5% Increase in terms of

    customer

    profitability (compare to

    competitor

    selling price)

    28 Lower Production Costs Percent of target cost achieved

    10% cost

    reduction

    target (ideal

    standard)

    29 Focus On Quality Sensitive Customer Measure of customer satisfaction level on product

    quality

    30 Enhance Reputation on Brand Image Measure of customer perception in terms of

    31 Increase Product Variety

    32 Increase product Reliability Number of defect Zero defects

    33 Enhance Quality Quality-oriented measures

    PRODUCTION:

    34 Lower customers cost Non value-added costs, , cost per unit of production

    5% Increase in terms of

    customer

    profitability (compare to

    competitor

    selling price)

    35 Offer Reasonable Price Customer profitability ratio 5% Increase in terms of

    customer

    profitability (compare to

    competitor

    selling price)

    36 Focus on Price Sensitive Customers Measure of consumer satisfaction in terms of selling

    price of energy drinks, bottled

    water and sports drinks

    5% Increase in

    terms of

    customer

    profitability (compare to

    competitor

    selling price

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    37 Focus on Quality Sensitive Customers Measure of consumer acceptance on quality of sport

    drinks, bottled water and energy drinks produced

    38 Focus on Consumers Healthy Lifestyle Customer Perception of Flexible Response,

    Measure of consumer acceptance on sports drinks,

    bottled water and energy

    drinks produced

    Customer feels

    free to make

    customized choices

    39 Excellence Quality Product Quality product checklist 5 % Increase in terms of

    customer

    satisfaction level (compare

    to year before)

    40 Enhance Brand Value Measure of customer perception on PepsiCo brand

    image of healthier drinks

    41 Deliver on Time Relative Customer Order Response Time

    42 High Product Availability Number of product delayed

    43 Increase Customer Loyalty Measure of customer loyalty level

    44 Rapid Respond to consumer Preferences Customer Perception of Flexible Response

    Customer feels free to make

    customized

    choices

    45 Long Term Relationship Customer Loyalty & Trust

    Measure of customer loyalty level

    DISTRIBUTION :

    46 High Product Availability Number of Customer Contact Points

    47 Deliver on Time On-Time Delivery as defined by customers,

    Relative Customer Order Response Time

    48 Excellence Quality Quality survey , measure customer retention level

    5 % Increase

    in terms of

    customer retention level

    (compare to

    year before

    49 Focus on Price Sensitive Customers Measure of customer satisfaction level in terms of

    selling price

    5 % Increase in terms of

    customer

    satisfaction

    level (compare

    to year before)

    50 Focus on Quality Sensitive Customers Measure of quality survey 5 % Increase in terms of customer

    satisfaction

    level (compare to year before)

    51 Focus on Consumer Healthier Lifestyle Measure of consumer acceptance on sport drinks,

    bottled water and energy drinks

    5 % Increase

    in terms of

    customer satisfaction

    level (compare

    to year before

    52 Broader Range of Products Measure of customer retention level,

    Number of new products

    produced

    5 % Increase

    in terms of

    customer

    retention level

    (compare to

    year before

    53 Increase Customer Trust Measures for warranty, defects and returns

    5 % Increase in terms of

    customer

    retention level

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    (compare to

    year before

    54 Enhance Brand Image Measure on customer retention level for brand

    image,

    Measure of customer

    perception on PepsiCo brand image of healthier drinks.

    5 % Increase

    in terms of customer

    retention level

    (compare to year before

    55 Increase Loyalty to Brand Name

    Measure of customer loyalty

    level

    5 % Increase

    in terms of

    customer retention level

    (compare to

    year before

    Learning & Growth

    perspective

    SUPPLY:

    56 Learning the Principles, Skills and Technologies ,Adequate Communications

    between the Members of Supply Chain

    Percent of employees trained

    supply chain management

    techniques, The number of

    shared data sets relative to total data sets

    Zero defect,

    reduce waste,

    cut cost

    57 Enhance Completive Advantage, Improve Finance Situation, Foster Quality Culture

    Measure of financial

    improvement

    10% cost

    reduction

    target (ideal

    standard) ,

    cost-centric

    culture

    58 Develop Technology for Process Improvement

    Process improvement rate, Efficiency Rate

    Continuous Innovation &

    learning

    59 Enhance Supply chain Effectiveness, Quality Policies Conformity

    Quality-oriented measures Continuous

    Innovation & learning

    60 Quality Function Deployment, Quality Policy Conformity

    Forecast errors Continuous

    Innovation &

    learning

    61 Enhance Completive Advantage Quality Control & Assurance checklists, quality- Oriented

    measure

    Met Customers

    Needs

    62 Develop Self-Knowledge, Develop Self-Motion

    Self-Assessments Continuous

    Innovation & learning

    63 Develop Fishbone Chart, Develop Pareto Chart, Quality Policies & Conformity

    Forecast errors Met

    Customers Needs

    64 Improve Quality Management System, Improve Finance Situation, Foster Quality

    Culture

    Quality Control & Assurance

    checklists, quality- Oriented

    measure

    Continuous

    Innovation &

    learning

    65 PRODUCTION:

    66 Improve Skills in Total Quality Management, Competence Employee in Process

    Improvement, Employees Training in TQM

    Environment

    In house Training Hours, Percent of employees trained

    quality management

    techniques, process improvement rate

    Continuous Innovation &

    learning

    67 Implement Activity-Based Costing Activity-base-cost 10% cost reduction

    target (ideal standard),

    cost-centric culture

    68 Improve Operational Efficiency, Improve Finance Situation, Develop TQM Culture

    Production Schedule

    Continuous

    Innovation &

    learning

    69 Improve Technology that Facilitates Product Improvement

    Percentage of sales from new products, process

    improvement rate

    Continuous Innovation &

    learning

    70 Develop Patent, Foster Innovation Culture, Culture of Continuous Improvement,

    Product Finalization Point,

    Product Category Commitment Ratio, Demand

    To push sports

    drinks, bottled water and

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    Innovation and Creativity, Develop

    Customer-Oriented Culture

    Forecast for Healthier drinks energy drinks

    produced as

    close to the final customer

    in an effort to

    reduce inventories

    and minimize

    the risk of unsold

    product.

    71 Employees Training in Quality Assurance, Develop Self-Knowledge, Develop Self-

    Motion

    In house Training Hours,

    Percent of employees trained quality management

    techniques

    Continuous

    Innovation & learning

    72 Improve Customer Preferences Information , Improve Customer Satisfaction Level

    Forecast Errors, customers

    survey

    Met

    Customers Needs

    73 Improve Quality Culture, Improve Quality Management System, Gain Competitive

    Advantage

    Human resource management

    measure, quality- Oriented

    measure

    Continuous

    Innovation &

    learning

    74 Develop Creativity Skills Self-Assessment Continuous Innovation &

    learning

    75 Improve Customer Satisfaction Level, Improve Technology that Facilitates Product

    Improvement

    Performance trajectories of

    competing Technologies

    Assess which

    emerging

    technologies may become a

    threat to

    PepsiCo Operation

    76 Provide Hazards Analysis Critical Control Points Training Program

    In house Training Hours,

    Percent of employees trained

    HACCP procedures

    HACCP

    Certification

    for production of energy

    drinks, bottled

    water and sports drinks.

    77 Provide Good Manufacturing Practice Training Program

    In house Training Hours,

    Percent of employees trained

    GMP procedures

    78 Good Manufacturing Practices Certification GMP Certification

    for production

    of energy drinks, bottled

    water and

    sports drinks

    79 Hazard Analysis Critical Control Points

    Certification

    HACCP Certification

    for production of energy

    drinks, bottled

    water and sports drinks

    DISTRIBUTION:

    80 Economic Value Added, Decrease Cost of

    Goods Sold

    Customer Value

    Ratio , The number of shared

    data sets relative to total data sets

    Zero

    duplication,

    zero waste & respond

    flexibly to

    customers

    81 Increase Cash Flow, Increase Revenue of Price Sensitive Customers, Increase Sale

    Growth

    Point-of-sale data for sports

    drinks, bottled water and

    energy drinks

    Increase 15% of company

    profitability

    (compared to year before)

    82 Increase Revenue of Quality Sensitive Customers

    Customer growth,

    Profitability

    Each new

    customers

    added should be profitable

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    83 Increase Revenue for Meeting Customer Expectation

    Number of Advance shipping

    Notices for sport drinks,

    bottled water and energy drinks.

    Met

    Customers Needs

    84 Increase Customer Profitability Customer Profitability Ratio

    5% Increase in

    terms of

    customer

    profitability (compare to

    competitor selling price)

    6.2 Customer Management Process

    The Theme of Customer Management Processes:

    Focus on Managing Customer Relationship with Continuous Product Innovation by relying

    on Well-Research Customer

    Providing High Quality and Low Price Product Offering to Respond towards the Growing

    Demand of Sports Drinks, Bottled Water and Energy Drinks

    6.2.1 Customer Selection Process

    Define the objectives in Customer Selection Processes

    Understand Customer Segments

    Screen unprofitable customers

    Target High-Value Customers

    Objective Balance Scorecard (BSC)

    Measure Target

    Understand Customer

    Segments

    Profit contribution by segment

    Increase 15% of company

    profitability (compared to year

    before)

    Screen unprofitable

    customers

    Percent of unprofitable customers 20% reduce in screening

    unprofitable customers

    Target High-Value Customers Number of Strategic accounts 20% Increase in terms of strategic accounts number

    Allocate 10 percent marketing resources to active sports minded and health Conscious customer segments

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    Linkage to Customer Acquisition

    Customer management processes (Selection)

    Customer Acquisition

    Objectives

    U