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Transforming Production Sourcing at Pepsi Bottling Group

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Vaidehi Addanki

on 26 March 2015

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Transcript of Transforming Production Sourcing at Pepsi Bottling Group

Transforming Production Sourcing at Pepsi Bottling Group
IBM ILOG Logic Tools
Over 250 companies use the LogicTools suite of supply chain applications for network design, production sourcing, inventory optimization and transportation planning, as well as production planning and scheduling.

The suite further enables IBM to provide solutions that let companies make better decisions faster by optimizing their logistics networks and transportation strategy, setting safety stock levels for their sales and operations planning, and improving their plant operations through sophisticated production planning and detailed scheduling.
Reason for the Transformation of Production Sourcing
Before transformation,PBG made annual reports and distributed the report to directors of business unit level.

PBG moved from a static sourcing strategy to a dynamic one by implementing an optimized production sourcing strategy aligning disparate business functions and demonstrating positive results.


1) Reduction in raw material and supplies inventory

2) Two Percentage decline in growth of transport

3) Increase in the return on invested capital

4) Reduction in warehouse out of stock level

Goals that has been achieved while delivering specific benefits
The creation of regular meetings bringing together the Supply Chain Strategy, Transport, Finance, Sales, and Manufacturing functions to discuss system sourcing strategies including pre-build strategies

Realignment of PBG’s Business Units and the Field Supply Planners to focus on system goals

The inclusion of optimized sourcing models into the Annual Infrastructure Review process evaluating various trade-offs and risk-related questions

An increase in the number of cases available to sell due to reduced warehouse out-of-stocks

Reduction in raw material and supplies inventory and the growth of transport miles even as PBG revenue grew

Improved return on investment capital

Finally, this approach has graduated from a project into a business process that
enables PBG to stay competitive.

Frame Work of PBG Implementing IBM ILOG tool
The Pepsi Bottling Group, Inc. was the world's largest manufacturer of Pepsi Cola Beverage.

PBG sales of Pepsi-Cola beverages accounted for more than one-half of the Pepsi-Cola beverages sold in the United States and Canada and about 40 percent worldwide.

On August 4, 2009, The Pepsi Bottling Group and another major Pepsi bottler, Pepsi Americas, were purchased by PepsiCo, headquartered in Purchase, New York.The purchases were completed on February 26, 2010, forming a wholly owned PepsiCo subsidiary, the Pepsi Beverages Company (PBC).

PBG had the exclusive right to manufacture, sell and distribute Pepsi-Cola beverages in all or a portion of 43 states, the District of Columbia, nine Canadian provinces, Spain, Greece, Russia, Turkey and Mexico
Mukunda Gampala
Sai Lakshmi Alla
Vaidehi Addanki
PBG’s transformation of its production sourcing strategy reaped benefits in improved organizational awareness, planning, and customer service.
One new element of the optimized production sourcing process is a regular meeting that brings together the Supply Chain Strategy, Transport, Finance, Sales, IT, and Manufacturing functions to discuss assumptions, prebuild strategy, and Logic Net Plus XE inputs assembled to create production sourcing.
PBG reorganized around a new production sourcing strategy by choosing IBM ILOG’s Logic Net Plus XE as its core.
By choosing this process it brought many business functions together across the supply chain to develop inputs into the Logic Net Plus models and to review the resulting optimized production sourcing plans. By this interaction it helped for the alignment of organization and also to coordinate activities which results in complete utilization of the supply chain.
Enhanced supply chain operation lead to:

Sustainable results confirm this improved
supply chain performance.

• Reduced warehouse out-of-stock percentages

• Increased return on invested capital

• lower raw material

• Mitigated transportation costs.

Finally, this approach has moved on from a project into a business process where PBG continuously asses and enhances production sourcing systems, empowering its supply chain to stay adaptable and PBG to stay competitive.
3 plants
22 warehouses in MI, MN, WI
400 Stock Keeping Units

PBG’s smallest and most self-contained Business Unit, permitted an up-close study, the process and developed confidence in the assumptions built into the Logic Net Plus XE model.

21 plants
145 warehouses
780 Stock Keeping Units

Discussions on the benefits of optimized sourcing and outlined the new production sourcing process.

The optimized solution recommended a great deal of cross Business Unit sourcing, a departure from normal business practice.

Transparency and support of senior leadership PBG overcame the initial resistance to change. Inputs into the sourcing optimization models were shared and discussed. LogicNet Plus XE makes correct sourcing decisions based on the data provided.

Central Business Unit
East Coast Region:
Optimized production sourcing helps to check costs by considering the tradeoffs between production, warehouse, and transportation costs yielding the lowest total system cost.

With the organization aligned to support optimized production sourcing, PBG was able to concentrate on future network design, a core process required for supply chain excellence.

This enabled PBG to continue to expand revenue with corresponding profit growth with lower capital investments.

By this improved planning and organizational behavior resulted in improved customer service.

Warehouse Out-of-Stock Percent
As PBG product variety and revenue continue to grow, supply chain complexity and risks significantly increase. This, together with rising energy costs and changing markets motivates the management team to focus on supply chain excellence to better utilize resources and infrastructure so as to reduce costs and increase profit.
Warehouse Out-Of-Stock Percentage, an internal
metric to measure service—calculated by the number of cases of product unavailable to be loaded at the warehouse divided by the cases out loaded.
IBM Network optimization
1. http://en.wikipedia.org/wiki The_Pepsi_Bottling_Group



4.Khattar, Sandeep. An Approach to Sourcing Optimization at a High Volume Soft Drink Manufac-turer. MBA and MSME Thesis. Massachusetts Institute of Technology, 2006.2. PBG 2007

5. Annual Report. http://www.pbg.com/pdf/PBG_AR_2007.pdf3.

6. Simchi-Levi, D., P. Kaminsky, and E. Simchi-Levi. Designing and managing the Supply Chain: Concepts, Strategies, and Case Studies. 3rd Edition, McGraw-Hill, 2007.
50 plants
280 warehouses
1000 SKUs
Full year model

The Finance,Transport, Manufacturing, IT, and Supply Chain Strategy functions collaborated to build the inputs to the Logic Net Plus XE model

PBG currently optimizes sourcing on a trimester basis with the year broken into an annual cycle of three periods with sixteen weeks, twenty weeks,and sixteen weeks

Demand is aggregated in the Logic Net Plus XE at the package/category level to reduce the complexity of the solutions

The LogicNet Plus XE models are used to understand the tradeoffs between pre-building product and using outside storage.
Annual Operating Plan

Traditionally, PBG’s supply chain planning process

-Modern supply chain Process

-Global optimization
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