Pepsi Americas Building an Information Savvy company

Abstract

• How IT and Business Leaders created an information savvy organization

• Stream of Investments & org. changes evolve PAS from business that shipped just drinks to an enterprise that delivered hundreds of SKUs as needed to retailers.

• IT capabilities help respond to market, enhance competitiveness

• How will Pepsi leverage its information –based capabilities?

Introduction

• Global Economic Downturn.• Recession less threat compared to:• 1) Declining U.S market, carbonated soft drinks• 2) Powerful customer

• Transform business to address challenges• In 2001, business results depended on the effort of truck drivers• By 2009, reliance on central oversight of P-V dynamics and retailer

relationships• Conversion from low-tech firm to dependent on information and tech.• Learn to use IT not just automate processes, but informed decision

making

Changing Market – Conventional Route Sales Model

• Had long met needs of industry• Truck Drivers = Salespersons• Estimated day’s requirements, loaded product at distribution center• Called customer, took orders, stocking shelves• Worked: Pepsi & Mountain Dew = 90% of business

• Marketing & Advertising, basic• Network TV was major medium, reaching 90% of house holds –

Effective in exposure• Can packaging = 70% of the transportation volume• Efficient to produce, transport, store, and deliver.

Changing Market – Conventional Route Challenges

• Becoming impractical• Product line grew: water, energy drinks, juices, teas, coffees, etc.• Packaging: diverse• Bulky water bottles took 2.5 more transportation volume vs. canned soda• COO, Ken Keiser est: SKUs had grown from 30-40 in the early 90s to nearly

400 15 years later.• Truck drivers could no longer estimate product mix to be loaded on a truck• Constant innovation, trademark of industry

• “The ability to react to these changes quickly and without disruption to the supply chain and the entire organization is critical to our success” – Rich Frey, VP Sales Operations

Changing Market – Regional Structure

• 13 regional divisions• Production, distribution, sales

• Leaders within the regions designed system to own needs• Inefficient for diverse product line• Ineffective in meeting demands of retailers• IT-enabled business changes to address changing market

demand

Initiative#1: Next Gen: Defining a Common Platform

• First business change initiative: Next Gen

• Redesign sales & distribution process• Replaced CRS process with a pre-sell process• Pre-sell involved 3 specialists:• 1. Sales Rep: customer• 2. Driver: distribution center warehouse• 3. Merchandiser: stock shelves, displays

• Introduction of common systems & technology platform across its 13 regions

Next Gen: The handheld project

• Hand held devices for “presell”• Captured order data• Plan truck loads• Plan & execute the picking and loading of trucks

• Challenge of initial implementation:• No handheld devices on the market in ’01 to meet needs• Developed internally• Constantly fixing components: battery, wire, cell connection; only choice• Constant issues, billed this initiative as the “handheld project”

• Technology issues only tip of the iceberg….

Next Gen: Mixed Success, Painful Experience

• Underestimation of the impact of the change• One of greatest challenges: Reluctance for change• PAS formed from merger of small businesses; entrepreneurial culture

• Deviations limited gains and ability to meet needs• Next Gen’s success: mixed and experience: painful• Still great for PAS, no other way to keep up with increasing

number of SkUs or demands, had to be done.• Result: common tech. platform, rapid integration of

acquisitions

Initiative #2: Customer Alignment: Meeting Customer’s Needs

• Reorganize to accommodate the firm’s national customers• “Organized around ourselves versus around our customers”• Inconsistencies in business process and duplication of effort

limited ability to serve growing and powerful retailers • Customer Alignment initiative reorganized the firm around

centralized functions• Regional Sales & Distribution Structures Customer Segments• 1. Large customers that mandated shipments to warehouses• 2. Large DSD customers• 3. Small DSD customers• 4. Foodservice customers: restaurants, vending machines

Customer Alignment: Process Centralization

• Very little IT work• Already using Next Gen Platform• Customer Alignment drove process centralization• Sales managers were dispatched to take pre-sell orders• Empowered sales managers to address most powerful customers

• Call center workers captured orders for customers• Process improved control and enhanced decision making data• Standard pricing and activities with customer

• By 2007, Customer Alignment: savings of $15-$17M; improved data• Aggregation of data and realigning of responsibilities exposed

opportunities for improvement

Initiative #3: Building an IT-Business Partnership

• Drive value from technology initiatives• Agreed that difficulties from Next Gen came from

misunderstanding of capabilities & limitations of IT• Common technology platform leadership role for I.T.• From ‘01 to ‘04, CIO Ken Johnsen initiated management

changes to enhance the leadership capabilities of the IT unit.• Created an IT governance board that included the CEO, COO and

most of the senior executive team.• Results of the Customer Alignment initiative led to establishment of

IT investment priorities

Initiative #4: Building an IT-Business Partnership: Project Management Organization

• IT management change: project management organization (PMO)

• Implement a more disciplined project management and systems development methodology

• To support new methodology:• Business leads were paired with IT leads

• Major projects, PAS created execution teams• ex-dispatchers, ex-warehouse people that wanted to learn something

new: how to change management.• Resulted in new solutions

Building an IT-Business Partnership: I.T part of strategy for growth

• The PMO led to a stronger IT-business partnership• Partnership between business execs and IT: biggest change

for the organization• IT representative at executive staff meetings• Business representative at IT staff meetings• IT no longer a support department, but part of the firm’s

strategy as the firm moves forward

Initiative #5: Competitive Edge: Building IT Infrastructure for Business Agility

Competitive Edge Component#1: Information Backbone

• Though improved performance, Customer Alignment Initiative exposed inconsistencies in data definitions• i.e.: idiosyncrasies in customer naming conventions, impossible to

roll up data • Provide accessible data for both operation decision making

and business analysis• IT unit created 2 important data assets:• 1. A Central Data Repository (CDR): set of transaction files from

where can obtain and store data• 2. A Data Warehouse (DW): extracted & organized historical data for

subsequent analysis.

Competitive Edge: Central Data Repository and the Data Warehouse

•CDR: gateway to shared transactional data, existing and new•Data interfaces with CDR vs. own customer records•Allows for:• Reduced redundancy• Increased integrity

•DW stored long-term data

The data warehouse – 360◦ view of the business

•Information on each customer transaction

•Are we giving the right price to our customers for us?

•CDR and DW designed to create data that would be used across the company

•IT unit formatted data to meet PAS specific data needs.

Competitive EdgeComponent #2: Mobile Platform

• IT Management unable to find software to meet needs• PAS developed own software

• Thousands of employees rely on mobile technology• Drive benefits from its technology expertise by reusing

technology, data, and business process components• Upgraded handhelds to reuse parts for other handheld

applications• Reduce the cost of developing and maintaining IT systems

Initiative #6:Customer OptimizationReaping the Benefits

• Competitive Edge Initiative: time to learn application• Customer Optimization ³ (CO³), initiated in ’07• Focus: drive value from capabilities• Use data to improve performance of cross functional processes

• Three components:• Demand Planning• Algorithms to calc demand/pricing from historical data• Avoid out-of stocks/excess inventory in warehouse

• Power pre-sell• Introduced handheld device for firms frontline sellers• Statistical forecasting algorithm produced a “suggested order”• Avoid out-of stocks in stores; by ‘09, decreased from 14% to 3.7%• Backroom inventory in stores dropped by 52%

• Perfect Pallet• Standard warehouse layout, loaders wearing voicepick headsets.• Voicepick automatically ID’ed out of stock items, adjust invoices, replenish SKUs

Epilogue

• In August of 2009, PepsiCo announced that it would acquire its two largest bottlers, Pepsi Bottling Group (PBG) and Pepsi Americas (PAS)

• “Fully integrated beverage business will enable PepsiCo to bring products faster, streamline manufacturing and distribution and react more quickly to changes in the marketplace” –Indra Nooyi, CEO of Pepsi Co.

• Better position to compete and grow now and in years ahead

Questions

Q: Which initiative was billed the “hand held” project?

Questions

Q: Which initiative was billed the “hand held” project?A: Next Gen

Questions

Q: What element did Richard Frey, VP of Operations say was critical for Pepsi Americas success?

Questions

Q: What element did Richard Frey, VP of Operations say was critical for Pepsi Americas success?

A: Ability to react quickly without disruption to the supply chain and the entire organization

Questions

Q: Which organization led to a stronger IT-Business partner relationship?

Questions

Q: Which organization led to a stronger IT-Business partner relationship?

A: Project Management Organization