PepsiCo's Distribution and Logistics Operations

            
 
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Case Details:

Case Code : OPER031
Case Length : 12 Pages
Period : 1991 - 2003
Organization : PepsiCo.
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Industry : Food & Beverages

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Background Note

In 1898, Caleb Bradham (Bradham) invented Pepsi-Cola in his pharmacy in North Carolina, US. Bradham started marketing Pepsi-Cola in 1903 and a year later, purchased a factory to manufacture and bottle the new drink. Bradham started bottling his drink in 1904. He quickly developed a system of bottling franchises for the drinks. By 1909, Bradham had established a network of 250 bottlers for Pepsi-Cola with operations in 24 states in the US. By 1910, the network had increased to about 300 Pepsi-Cola bottlers.

Bradham went bankrupt in 1923, after incorrect speculation on sugar prices. Pepsi-Cola's ownership changed hands several times until Charles Guth (Guth), who headed Loft Candy Company, bought it in 1931.

Operations Management Case Studies | Case Study in Management, Operations, Strategies, Marketing Management, Case Studies

Guth employed aggressive pricing tactics in his efforts to increase Pepsi-Cola's sales. He doubled Pepsi-Cola's bottle size to 12 ounces for the same price two years later. He also used Pepsi-Cola syrups in his soda fountains. By the end of 1934, Pepsi-Cola's profits had increased and the company started an aggressive campaign to sign up more bottlers to join as its franchisees. By 1937, Pepsi-Cola was running five concentrate plants and 313 bottlers operating in the US.

By 1941, Guth had enfranchised 469 bottlers and began to offer loans to bottlers to make capital investments. In the same year, Loft Candy Company was merged into Pepsi-Cola and the merged entity was named Pepsi-Cola Bottling Company (Pepsi).

In 1949, Pepsi appointed Alfred Steele (Steele), a former Coca-Cola executive as President. He focused on the areas of quality control, product research, training programs and commitment to 'partnership' with Pepsi's bottlers. Steele commented, "Our job was not to sell the bottler something in the hope that he could sell it, but our true focus was to help him to move more goods at a profit."

He told the bottlers, "You can save your way to bankruptcy or spend your way to prosperity." Under Steele, the profitability of Pepsi's bottlers improved significantly. In the 1950s, Pepsi focused on modernizing its bottling operations. Between 1951 and 1957, new equipment (such as carton openers and electronic units) helped to increase the bottling plants productivity from 260 to 500 bottles per minute. About 140 new bottling plants began operations during the 1950s. At the end of the decade, there were nearly 550 Pepsi bottling plants in the US...

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