OPERATIONS MANAGEMENT

PROJECT REPORT
(SMBA Batch 34 - 2018)

Researched & Prepared By

Amit Patil

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TABLE OF CONTENTS
1.INTRODUCTION ............................................................................................................................... 3
2.PEPSICO LEADERSHIP ...................................................................................................................... 7
3.ENVIRONMENTAL MANAGEMENT ................................................................................................... 8
4.FUNCTIONAL GROUPS ................................................................................................................... 11
5.PRODUCTIONAL STRATEGY ............................................................................................................ 12
6.PLANT AND MACHINERY ............................................................................................................... 14
7.PLANNING AND SCHEDULING ........................................................................................................ 17
8.MATERIAL MANAGEMENT............................................................................................................. 20
9.QUALITY MANAGEMENT ............................................................................................................... 24
10.VALUE ENGINEERING................................................................................................................... 26
11.BIBLIOGRAPHY ............................................................................................................................ 28

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1. INTRODUCTION
ABOUT PEPSICO

PepsiCo is a world leader in convenient snacks, foods and beverages with revenues of more than
$60 billion and over 285,000 employees. It is a FMCG company. Their brands are available
worldwide through a variety of go-to-market systems, including direct store delivery (DSD),
broker-warehouse, and food service and vending.

PepsiCo, Inc. is founded by Donald M. Kendall, President and Chief Executive Officer of Pepsi-
Cola and Herman W. Lay, Chairman and Chief Executive Officer of Frito-Lay, through the
merger of the two companies. Pepsi-Cola was created in the late 1890s by Caleb Bradham, a
New Bern, N.C. pharmacist. Frito-Lay, Inc. was formed by the 1961 merger of the Frito
Company, founded by Elmer Doolin in 1932, and the H. W. Lay Company, founded by Herman
W.Lay, also in 1932. Expanding on a global scale and growing in volume & product mix it
crossed the profits of $1 billion in 1990. It went online in the year 1995. Since its establishment
PepsiCo has always expanded its operations into diverse products and across different locations
of the world. It has done so by acquiring & merging with companies to establish itself in the new
region. PepsiCo’s USP has always been its distribution network, marketing and branding
strategies adopted by the company by understanding the local culture.

Major products of the company are:

Pepsi-Cola Company - Pepsi-Cola (formulated in 1898), Diet Pepsi (1964) and

Mountain Dew (introduced by Tip Corporation in 1948). Pepsi has been bringing fun and
refreshment to consumers for over 100 years. It constituted around 13 billion units of
retail sales in the year 2010.
Frito-Lay, Inc. - Fritos brand corn chips (created by Elmer Doolin in 1932), Lay's brand
potato chips (created by Herman W. Lay in 1938), Cheetos brand cheese flavored snacks
(1948), Ruffles brand potato chips (1958) and Rold Gold brand pretzels (acquired 1961).
Employing over 48,000 people and bringing in over $11 billion of business, Frito-Lay
invigorates PepsiCo's portfolio of products with plenty of good food and 'good fun'.
Mountain Dew launches its first campaign "Yahoo Mountain Dew ... it'll tickle your
innards.
Fruit Juices – Tropicana (1947), the strongest name in juices, extends the PepsiCo
portfolio of brands with plenty of nutritious, high-quality flavors. It was founded by
Anthony Rossi as a Florida fruit packaging business was acquired by PepsiCo including
the Dole Juice Business in 1998.
Quaker Brand – PepsiCo merged with Quaker Oats Company in 2001. Quaker's power-
packed line of popular brands expands our portfolio with a wide range of healthy food
choices. Quaker brands have been around for over a century. They are symbols of

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 quality, great taste, and nutrition. Holding No.1 positions in their respective categories
are favorites such as Quaker Oats, Quaker Rice Cakes, Chewy Granola Bars and Rice-A-
Roni.
Gatorade Brands - Available in over 80 countries, Gatorade's line of performance drinks
adds over 40 years of rehydration and sports nutrition research to the PepsiCo portfolio.
The companies merged in 2001. In 2010, Gatorade introduced the G Series; a new line of
products from Gatorade that go beyond hydration to provide fuel, fluid and nutrients
before, during and after the game.

GLOBAL PRESENCE

PepsiCo is present in nearly 200 countries across the globe.

Awards –

First presentation of the international, Donald M. Kendall Bottler-of-the-Year Award

in 1980.
PepsiCo is named to the 'Best Companies for Multi Cultural Women' list by Working
Mother magazine in 2009.
PepsiCo products make 'Best Foods for Women' list in Women's Health magazine in
2009
Sabritas and PepsiCo Mexico Beverages receive three Effie 'Top Marketing
Campaign' awards
PepsiCo U.K. and Ireland were named as one of the 'Top 50 Places Where Women
Want To Work' by The Times,
PepsiCo ranks among top companies on Corporate Social Responsibility Index by the
Boston College Center for Corporate Citizenship
PepsiCo named to Ethisphere's 'Most Ethical Companies' for 2009
PepsiCo is listed in the top 20 'Ideal Employer MBA Ranking' in Fortune magazine
PepsiCo China beverage group named 'Supplier of the Year' by Wal-Mart China

PEPSICO INDIA

PepsiCo entered India in 1989 and in a short period of 20 years has grown into the largest and
one of the fastest growing food & beverage business in the country. PepsiCo India’s growth has
been guided by PepsiCo’s global vision of “Performance with Purpose”.

Large investor: PepsiCo is one of the largest US multinational investors in India with an
investment of over $1 billion, PepsiCo India provides direct and indirect employment to over
1,50,000 people across the country. It’s beverage and snack food business is supported by 36
beverage bottling plants, (13 company and 23 franchisee owned) and three state-of-the-art food
plants. PepsiCo India’s diverse portfolio includes iconic brands like Pepsi, Lay’s, Kurkure,

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Tropicana 100%, Gatorade, Quaker and young but immensely popular and fast growing brands
such as Nimbooz and Aliva.

No.1 food & beverage business in India: PepsiCo India has not only grown to become the
country’s largest food and beverage business but has also become a powerful and consistent
driver of PepsiCo’s global growth.

Model partnership with over 22,000 farmers: PepsiCo has pioneered and established a model
of partnership with farmers and now works with over 22,000 happy farmers across ten states.
More than 45% of these are small and marginal farmers with a land holding of one acre or less.
PepsiCo India’s farming program has improved their livelihoods and incomes by providing
assured buy back of their produce at pre-agreed prices thus insulating them from open market
price fluctuations. PepsiCo provides 360 degree support to the farmer through quality seeds,
extension services, disease control packages, bank loans, weather insurance, and latest
technological practices.

Global leader in water conservation: In 2009, PepsiCo India achieved a significant milestone,
by becoming the first business in the PepsiCo system to achieve ‘Positive Water Balance’
(PWB).

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Plant Locations –
Divisions
PepsiCo reports its operations results as follows, by six segments:
PepsiCo Americas Beverages (PAB)
Frito-Lay North America (FLNA)
Quaker Foods North America (QFNA)
Latin America Foods (LAF)
Europe
Asia, Middle East & Africa

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2.PEPSICO LEADERSHIP

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3.ENVIRONMENTAL MEASUREMENT
PepsiCo India’s employees are driven by the company’s global commitment to sustainable
growth, Performance with Purpose (PWP), which works on four planks:

Replenishing water,

Partnering with farmers,

Converting waste to wealth and

Nurturing healthy kids.

REPLENISHING WATER

In 2009, PepsiCo India achieved a significant milestone, by becoming the first business in the
PepsiCo global system to achieve ‘Positive Water Balance’ (PWB), a fact validated by Deloitte
Consulting.

Their goal is to conserve, replenish and thus offset the water used in our manufacturing process
through community water recharge projects and water conservation projects in agriculture.In
2009, the company achieved a significant milestone: Positive Water Balance.

Through various initiatives of recharging and replenishing water, it was able to give back to the
community more water than it consumed in its manufacturing processes. In 2010, PepsiCo has
further increased the amount of water saved and is now water positive by 4.3 billion liter, a fact
verified by Deloitte Touche’ Tohmatsu India Pvt Ltd.

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PARTNERING WITH FARMERS

Their journey began with successful introduction of a high-yielding variety of tomato, and went
on to help paddy farmers increase their crop. Today their ventures into crop diversification and
the farming of high-quality potatoes and other edibles have transformed the lives of thousands of
Indian farmers. They plan to strengthen farmer connect from 21,000 in 2009 to 50,000 by 2012.
They have partnered with State Bank of India to get soft loans to all our contact farmers, thus
reducing their cost of cultivation and saving them from the clutches of moneylenders
CONVERTING WASTE TO WEALTH

A unique income-generating partnership with leading environmental NGO, Exnora a pioneer in

waste management. Households segregate their bio-degradable waste from their recyclable
waste, and the programme recycles 85 percent of household garbage. Bio-degradable waste is
converted into organic manure through the process of vermi-culture. This project provides
livelihood to more than 500 community members.
NURTURING HEALTHY KIDS

The project catalyzes community-based interventions to deliver integrated health and nutrition
solutions to children under 5, young mothers and pregnant and lactating women. Save the
Children works with community health educators to provide families important information
about health, nutrition, water, sanitation and hygiene.Invested $4.4mn during 2009–11 in the
Save the Children project
WORK MEASUREMENT:

In 2009, we announced 12 new goals and commitments to achieve Talent Sustainability. Their
commitments include enabling our associates to thrive in a diverse, inclusive culture; providing a
safe and empowering workplace; providing opportunities that strengthen our associates' skills
and capabilities; and contributing to better living standards in the communities.
CULTURE

Enable our people to thrive by providing a supportive and empowering workplace

Ensure high levels of employee engagement and satisfaction
Encourage our employees to lead healthier lives by offering workplace wellness
programs.
Ensure a safe workplace
Support ethical and legal compliance through annual training in our Code of Conduct

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CAREER

Provide opportunities that strengthen our employees' skills and capabilities to drive
sustainable growth.
Create a work environment in which employees know that their skills, talents and
interests can fully develop.
Conduct training for employees from the frontline to senior management

COMMUNITY

Contribute to better living standards in the communities we serve.

Create local jobs by expanding operations in developing countries.

Support education through PepsiCo Foundation grants.

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4.FUNCTIONAL GROUPS
The various functional departments in the Organization are:

MARKETING DEPARTMENT

The Marketing Department looks after the Customer Order and Processing.
Salman Amin- Executive Vice President and Chief Marketing Officer, PepsiCo

PRODUCTION AND PLANNING DEPARTMENT

Production planning, Inspection of production, Preventive maintenance & Breakdown

maintenance are the various functions of this department.
Rich Beck- Senior Vice President, Global Supply Chain Operations, PepsiCo

PERSONNEL DEPARTMENT

This department deals with Training and Staffing of personnel.

Julie Hamp- Senior Vice President, Consumer Relations & Chief Communications
Officer, PepsiCo

Cynthia M. Trudell- Executive Vice President, Human Resources and Chief Personnel
Officer, PepsiCo

PURCHASE DEPARTMENT

The job of the Purchase Department is to select and evaluate the various suppliers of raw
materials, buyout items, etc. Thus, the job of the purchase department is to select the right vendor
for buy-outs and the correct supplier of raw materials based on the Quality, Rate, time for
procurement, etc.

Grace Puma- Senior Vice President & Chief Procurement Officer, PepsiCo

DESIGN DEPARTMENT

This Department looks after the procedure of Design and Development of the job which is being
produced.

Dr. Mehmood Khan- Chief Scientific Officer, PepsiCo,Chief Executive Officer, Global
Nutrition Group

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5.PRODUCTION STRATEGY
The system starts with the finest ingredients available – kola nuts, vanilla beans, flavor oils,
citrus, sweeteners and the purest waters we can distill. Then we add the best technology and all
the care we can muster to blend our ingredients.

And during the 100-plus years we've been making soft drinks, we've also created our own
exacting production and quality standards, monitored with constant testing to guarantee quality
and consistency in our products.

Finally, we have our own local distribution system. It's designed to make sure that the Pepsi
you open at home is as fresh and delicious as it was when we sealed it at our plant. And it serves
every city and town in the United States.

Complicated? For sure. And expensive, too. But there's no other way we can be certain that
Pepsi-Cola products you buy are the highest
quality, best value products we can make.

Now, here's what all of those steps look like:

Flavor concentrates are shipped from special

Pepsi-Cola manufacturing plants in heavy-duty,
air-tight containers. Liquid sweeteners are
transported in special tanker trucks. All
ingredients and food products are stored in
clean, sanitary areas, and items requiring
refrigeration are kept in temperature-controlled
areas.

The bottles and cans that will eventually be filled with Pepsi are manufactured elsewhere,
and shipped to Pepsi plants wrapped and sealed for protection. Labels, cartons, caps, the carbon
dioxide used to carbonate soft drinks and other supplies are also produced for Pepsi by other
companies. On arrival, everything is subject to careful inspection to make certain all of the
ingredients and materials meet high Pepsi standards.

Special equipment is used to uncase and depalletize incoming shipments of bottles and cans.
Cans are by far the most popular package with consumers because they're lightweight and easy
to store. Though bulky, the cartons and pallets on which the empty packages arrive are also
relatively light in weight, so it's easy for the machines to automatically remove the cans from
their shipping containers at high speed. The machines then transfer the individual packages to a
conveyor belt.

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 Once on the belt, cans are part of an enclosed, controlled environment that keeps them
sanitary and helps ensure quality throughout the filling process. They travel rapidly through a
printer that applies a production code to each can. Then they're automatically turned upside
down, and rinsed thoroughly with filtered water before proceeding directly to the filler.

Water is a key ingredient in all soft drinks. Pepsi-Cola takes special care to purify the water it
uses – a procedure that involves careful treatment, filtration and purification. Pepsi standards are
precise and closely monitored at every step of the process. The result of this kind of painstaking
attention to detail is that the water used in Pepsi-Cola and all of our beverages is among the
purest available anywhere.

Pepsi-Cola flavor concentrate is carefully combined with sweeteners and other ingredients in
large stainless steel mixing tanks. Quality control audits performed by specially trained
technicians are a critical part of the manufacturing sequence for each batch, and are typical of the
attention to detail that's necessary if the highest possible quality standards are to be maintained.
Cleanliness is also vital, so all internal and external surfaces of the production system, including
syrup lines, proportioning, cooling and carbonating equipment, are meticulously sanitized.

In the last step of the manufacturing process, as the now-rinsed cans reach the filler, they're
reinverted, immediately filled and the lid is applied – at an average speed of 1,200 cans per
minute. The filler is where the syrups from the mixing tanks are combined with the purified
water from the filtration process. The liquid is then carbonated. This carbonation process gives
soft drinks the special sparkle – fizzy bubbles – that adds to their quality of refreshment.

All Pepsi cans and bottles are imprinted with a freshness date, which is a date code that tells
you your soft drink is fresh. A final quality check ensures that the package is properly filled,
sealed and labeled.

As products leave the manufacturing line, they're combined into a variety of packages – six-
or 12-packs, 24- or 30-can cases or cases of individual two-liter bottles. The finished packages
are stacked on shipping pallets and moved to temporary holding areas or to a central warehouse
for shipping.

The storage is purely temporary, since freshness is an important part of delivering the best
possible product to our consumers. Some of our products will be quickly transported by large
trucks to outlying districts and towns. Most, however, are loaded into Pepsi-Cola delivery trucks
you see calling on food stores in your own neighborhood. Other trucks deliver Pepsi-Cola syrup
to restaurants and fountains. To make sure there's always enough Pepsi for everyone who wants
one, our trucks are on the road every single day. Many individual stores actually receive
deliveries several times per week – a big reason why the Pepsi products you buy and use are
always fresh and great tasting.

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6.PLANT AND MACHINERY
PEPSICO BOTTLING PLANT

Pepsi Bottling Group constructed a new bottle production and distribution centre in the city
of Las Vegas in Nevada, US. The construction commenced in 2007 and was completed in 2008.
The plant has been owned by PepsiCo since the acquisition of Pepsi Bottling Group in February
2010.

The $100m facility is located near the north east corner of Rainbow Boulevard and
Sunset Road, adjacent to the 215 Beltway. It has a design and layout similar to PepsiCo's
Wytheville bottling plant which was opened in 2004.
The Las Vegas plant has two buildings with a total floor area of 387,400ft². One of the
buildings serves as a warehouse and distribution space, and the other as a production unit.
The plant is custom built and manufactures small-PET bottles in three production lines. It
also has a dedicated water line, 167,000gal under effluent tank and a fountain bag-in-box
line.
The facility will receive business and tax incentives of $4.5m for a period of ten years
from the Nevada Commission on Economic Development (NCED), a state agency
providing financial support and assistance to communities to become self reliant.
The new facility is believed to have created 34 full-time jobs with benefits.

CONTRACTORS INVOLVED IN PEPSICO'S PROJECT

The plant was design-built by Lexington-based Gray Constructions who have been involved in
the other Pepsi projects as well. The Las Vegas plant is supposed to be the largest project
undertaken by Gray Construction. Cox Kliewer of Virginia is the main architect of the plant.
They were the architects for PepsiCo's Wytheville Bottle facility as well. Denver-based company

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Conception to Reality was the design, procurement and management contractor of the processing
equipment.

CONSTRUCTION OF THE NEW BOTTLE PRODUCTION AND DISTRIBUTION

CENTRE

The new bottling and distribution centre is built on 35.2 acres of land. The construction
involved excavation of more than 200,000 cubic yards of caliche rock. The conventional steel
structure is built of load-bearing insulated and textured concrete pre-cast walls and Forma wall
metal panels.

BENEFITS OF THE NEW PLANT

PepsiCo already enjoys more than 60% of the beverage market share in the Las Vegas. The site
was chosen as it provides unique business opportunities to the company. The city of Las Vegas
has grown tremendously in terms of population and is also a global destination for tourists.
Adding to PepsiCo's advantages is
the abundant supply of water
which is required in the bottle
manufacturing process. To further
increase its market share in Las
Vegas, Pepsi Bottling Group
signed exclusive fountain, can and
bottle soft drink supply contracts
with Riviera, the Grand Canal
Shoppes at the Venetian, the
Fremont Street Experience and
the Hooters Hotel and Casino.

THE WYTHEVILLE FACILITY

The Wytheville production facility is the first greenfield facility built by Pepsi Bottling Group in
over a decade. The plant manufactured 30 million cases in its first year. Spacious interiors of the
plant facilitate ease of work flow and maintenance. The layout is designed to optimize the
product and traffic flow. All the factory wiring comes from a single source, which allows for
single point of control. This centralized control system allows the workers to monitor and
address operational problems quickly.

The production building has four production lines with a 19-bay configuration. The state-of-the
art, fully automated syrup room and CIP system was built by Cortez. The Graphic Packaging
fridgemate machine, a ring-carrier applier, Torque cap test system and Kisters shrink wrapper
provide adequate flexibility and secondary packaging options. The floor of the warehouse
building is designed for multilevel racking system to facilitate expanded warehouse capabilities.

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 The Wytheville plant won the 'Plant of the Year' award in its second year of operations by
Beverage Worls for its innovative design that provided operational excellence.

INDIA

Features

Headquartered at Gurgaon, Haryana.

Currently, PepsiCo has 36 soft drinks plants- 13 are company owned & 23 Franchisee
owned
Three state-of-the-art food plants.
Plants at – New Delhi, Faridabad, West Bengal
First state of the artplant in Chano, Sangpur district of Punjab.
Soft drinks from all over the world are tested.
U.P. Gujrat, West Bengal, Karnataka, Maharashtra & Tamil nadu Bihar, Assam & A.P –
franchisee plants

Advantages

Cheaper Land Rate

Presence of many vendors for buyout materials in the vicinity
Outsourcing facilities also in the neighbourhood.

Disadvantages

Suppliers of raw materials.

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7.PLANNING AND SCHEDULING
PRODUCTION PLANNING AND CONTROL

Production planning is usually done at the following three horizon levels.

Long Term (Capacity Planning)

Medium Term (Aggregate Planning)

Short Term (Operational Planning)

Diagrammatic representation production planning overview is given below.

Production planning components with time horizon and Unit of Measure is given below for
better understanding. The explanation is given below the diagram.

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Long Term (Capacity Planning)

Upto 5 Years ahead or more

Capital Intensive in nature
This deals with Strategic and business issue. In the long term we deal with those issue
which help us to create demand for our products and generating sufficient revenue for the
company.
Reflect in process choice and equipment selection. Since selection of equipment and
facilities require lot of investment and decision is irreversible, one should pay utmost care
keeping in mind customer requirements.

Medium Term (Aggregate Planning)

How demand can be met from existing facilities and resources. Here we are trying to
utilizing our existing resources (manpower, machine, facilities etc) to satisfy the market
demand

Short Term (operational Planning)

In short term we monitoring the production activities on day to day basis and compare the
output against the plan and take corrective action.

Master Production Schedule (MPS)

Is a statement of how many finished items are to be produced and when they are to be
produced.

Material Requirement Planning (MRP)

System that uses net demand from the MPS and explodes it using the bill of materials
(BOM).

Items (SKU or Stock Keeping Unit)

The final products delivered to the downstream customers. The downstream customer is
the one who intend to consume or use the product for personal use.
Product Families – Group of items that share a common manufacturing setup cost. In
other words those items that have similar production requirements.

AT PEPSICO

Long term capacity Planning - Marketing does the yearly forecast at Product group like Pepsi
and Miranda (not SKU level) and country (India) level for next 5 to 10 years based on expected
yearly product growth rate. This aggregated yearly plan quantities are compared against the
existing capacity planning in terms of facility, manpower, current production rate etc. If the
existing capacity is not sufficient to meet long term (5 to 10 years) expected sales volume growth
then the management will go for increasing the existing capacity by increasing manpower,
deploying additional machines, having more shift in the plant. Even this does not meet the long

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term yearly demand then the management may feel like to go for additional plant which is capital
incentive or looking for third party manufacture to produce their products under their brand name
and sell it in the market. The reason for Long term capacity planning to meet increasing demand
for existing products and also to launch new products in future to generate more revenue for the
company.

Medium term Aggregate Planning - Marketing does the monthly Rolling Forecast at SKU and
Distribution centre level, for one year. One should note that one year is rolling period and not
calendar year. For example if marketing is forecast during July’09, one year period means
July’09 to June’10 which is called rolling forecast. The SKUs of Pepsi and Miranda are 100ml
bottle, 200 ml can, Pet bottle size of 500ml, 1 liter and 2 liters. Sales & Marketing and customers
are concerned about pack wise product. But production department aggregate the quantity /Net
demand of all sizes pertaining to particular product ( Pepsi and Miranda separately) at country
(India) level and arrive total quantity required to manufacture that particular product on monthly
basis. If the monthly production rate is less than expected demand rate then the company will go
for overtime, hiring more temporary workers etc. Due to unavoidable circumstances if the
company is not able to increase the production capacity then the current production rate will be
treated as expected demand rate. This process is termed as Aggregate Planning.

Short Term Planning (MPS & MRP) - Once the Aggregate planning quantity at Product
family and country level is decided for a month then this quantity is disaggregated in to SKU and
Distribution level as the plant need to produce products as per selling units. Now the production
unit can sent the entire demand quantity in single lot to distribution centre. But the logistics team
require the part quantities against the demand to be dispatched to distribution centers on different
date in order to utilize the warehouse space and manpower efficiently. Hence the part quantity
and schedule receipt date at distribution centre will be worked out and agreed upon by demand
and supply planners. This process is called Master Production Schedule (MPS).

Now the Production unit is having the quantity to be produced and date of production as per
distribution center requirement from MPS. But the product Pepsi drink require certain
ingredients (raw materials) at certain quantity. The Pepsi company will be having BOM (Bill Of
Materials) for each SKU. BOM will contain all raw materials and packing items the quantity
required to produce one unit. According to BOM details the raw materials quantity are calculated
and then purchase orders are placed to the suppliers based on lead time. Lead time is the time
taken by the supplier to produce and deliver the raw materials to the Pepsi plant against the order
date. This explosion from finished goods to the raw materials is called Material
Requirement Plan (MRP).

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8.MATERIAL MANAGEMENT
Material requirements planning (MRP) is a production planning and inventory control system
used to manage manufacturing processes. Most MRP systems are software-based, while it is
possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

Ensure materials are available for production and products are available for delivery to
customers.
Maintain the lowest possible material and product levels in store
Plan manufacturing activities, delivery schedules and purchasing activities.

INVENTORY CONTROL

“The formal management of the timing and quantities of goods to be ordered and stocked by
an organization in order that demand can always be satisfied without excess expenditure.”

From an operational perspective, the primary goal of the materials management organization
in a maintenance, repair and operations (MRO) environment is to provide unflinching material
support to plant maintenance and production. In other words, have the right parts at the right
place at the right time.

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 Assuring supply can easily be achieved by stocking the shelves with every imaginable spare
part in such enormous quantities that almost any combination of required materials is in stock at
any given time. Unfortunately, nothing in life is free. Materials cost money and take up plenty of
space, and very few materials managers have access to unlimited funds. Finance and plant
management are responsible for making sure that purchasing budgets are monitored and
controlled, and inventory investment levels are optimized.

Uncontrolled spending leads to bloated inventory, which in turn often results in mandated
investment reductions. But managing inventory is not as easy as just setting the objective and
then expecting it to happen all by itself. Nor is it simply a matter of cutting off funding or
randomly eliminating parts from the storeroom. These may have the desired effect on
investment, but what about service and, more importantly, the potential impact in terms of lost
production?

This leaves materials management in the difficult predicament of having to concurrently

maintain adequate levels of material supply while also prudently managing the company's
resources. To effectively support maintenance and production, it is critical to have the required
parts available when needed. Finance and plant management will generally support the purchase
of materials necessary to keep plant equipment running in order to maintain production levels.
However, "available" doesn't have to mean "on the shelf," and "when needed" doesn't necessarily
imply "right away." There is a point at which both service and investment are optimized so that
they become mutually achievable objectives.

Effective inventory management requires an understanding of the fundamental material

management principles, data and work processes that impact material supply and contribute to
the total cost of the MRO operation. It also involves the establishment of realistic and
measurable goals, along with disciplined approaches for achieving them. Most importantly, it
requires a commitment of time from knowledgeable individuals to make informed, intelligent
and often difficult decisions.

The blueprint for success is Integrated Inventory Management. This methodology provides
a vehicle that helps arrive at the right decisions about what to buy, when to buy it, what to keep
in stock and what to eliminate. It provides a disciplined process that effectively controls
storeroom investment and associated inventory costs while maintaining an acceptable level of
service.

In most established markets around the world, soft drinks rank first among manufactured
beverages, surpassing even milk and coffee in per capita consumption. With product demand
continuing to increase, soft drink manufacturers have shifted to faster, more automated
machinery. However, as production lines become faster and more complex, many plants are
struggling to keep maintenance costs in check. This was precisely the problem that managers at
Pepsi Bottling Group’s facility battled for several years.

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 Pepsi Bottling Group is the world’s largest manufacturer, seller and distributor of Pepsi-Cola
beverages. With annual sales of nearly $11 billion, the company’s fastest growing segment is
non-carbonated beverages, including the number one brand of bottled water in the U.S.,
Aquafina, as well as Tropicana juice drinks and Lipton Ice Tea. As part of a 24/7 production
operation, the company’s Detroit plant ships about 27 million cases per year.

Production at the plant begins as empty bottles are unloaded from trucks via conveyor and
transported to a depalletizer. From there, they are, rinsed, dried and sent to a filling machine
(filler speeds at the plant vary based on bottle size, ranging from 350 to 1,000 bottles per
minute). The bottles leave the fillers and make their way to a packaging machine, and then to a
palletizer. Each pallet is wrapped for distribution and moved to the warehouse for shipping.

While controllers and software are the brains behind any production operation, sensors play a
critical role as the eyes and ears. The plant uses a variety of sensors to monitor bottles as they
travel through the sequence of steps and to manage the flow to the individual stations. Line
sensors match the speed of the conveyor (controlled by variable speed drives) to the precise
spacing needed for accomplishing each production step. However, these sensors became a
significant issue for the plant over the years.

Like many high-volume manufacturing plants, Pepsi’s primary focus is on quality and
productivity, with less attention given to issues like parts inventory and technology migration. As
a result, the company’s inventory of sensors swelled over the years to include more than 120
different varieties. Many of these included multiple styles of the same product stocked under
different brands. A similar problem was developing with its drives inventory, which had grown
to over 50 different part numbers.

The wide variety of sensors made it progressively more complex and time-consuming to
replace a faulty device. Despite its fast, high-performance machinery, the increasingly lengthy
and more frequent downtime was beginning to impact the company’s ability to meet its
productivity goals. In addition, operating costs were on the rise due to the excess spares
inventory.

“Because of the extensive number of sensors we had in inventory, including multiple styles
and brands, simply finding the right replacement could result in an hour of downtime,” said
Tony Yanora, maintenance manager, Pepsi Bottling Group. “We had a lot of specialized
sensors that we didn’t really need which increased our inventory costs and made it a nightmare
for our technicians to make repairs – if we even had the right parts in stock.”

A more strategic approach to maintenance was necessary, as even the smallest of delays
could cost the plant thousands of dollars in lost production and overtime. Knowing that effective
parts management and fast, reliable equipment repair lies at the heart of efficient manufacturing,
the company explored ways to get its inventory and maintenance processes under tighter control.
That’s when it decided to turn to Rockwell Automation for help.

Performance with Purpose Page 22

USE OF SOFTWARE PROGRAMS

PepsiCo Inc. has selected SAP's full mySAP Business Suite to streamline its distribution and
delivery processes, improve planning and forecasting, and give better visibility to its global
supply chain.

PepsiCo, which manufactures, distributes and markets Frito-Lay snacks, Pepsi-Cola beverages,
Gatorade sports drinks, Tropicana juices and Quaker foods, is aiming to better link its supply
chain and inventory data with its customer data.

Pongr engineers excel in image-recognition technology. Pongr's computer vision platform is

being used by Pepsi to power a fan photo-scanning contest to promote Simon Cowell's THE X
FACTOR. Nearly 300 million cases of Pepsi product are being branded with THE X FACTOR
promotion, an opportunity to win 56 grand prizes of trips to Los Angeles to see the show
broadcast live.

Software Costs
We capitalize certain computer software and software development costs incurred in connection
with developing or obtaining computer software for internal use when both the preliminary
project stage is completed and it is probable that the software will be used as intended.
Capitalized software costs include only

External direct costs of materials and services utilized in developing or obtaining

computer software
Compensation and related benefits for employees who are directly associated with the
software project
Interest costs incurred while developing internal-use computer software. Capitalized
software costs are included in property, plant and equipment on our balance sheet and
amortized on a straight-line basis when placed into service over the estimated useful
lives of the software, which is approximately five to ten years. Software amortization
totaled $119 million in 2009, $58 million in 2008 and $30 million in 2007. Net
capitalized software and development costs were $1.1 billion as of December 26,
2009 and $940 million as of December 27, 2008.

Performance with Purpose Page 23

 QUALITY MANAGEMENT
The term Quality management has a specific meaning within many business sectors. This
specific definition, which does not aim to assure 'good quality' by the more general definition
being considered to have four main components: quality planning, quality control, quality
assurance and quality improvement. Quality management is focused not only on
product/service quality, but also the means to achieve it. Quality management therefore uses
quality assurance and control of processes as well as products to achieve more consistent quality.

PepsiCo are the world’s second-largest food and beverage business. Their brands — which
include Quaker Oats, Tropicana, Gatorade, Frito-Lay and Pepsi — are household names that
stand for superior quality and great taste throughout the world. As a global company, they also
have strong regional brands such as Walkers in the U.K., Gamesa and Sabritas in Mexico,
Amacoco in Brazil, Lebedyansky in Russia, Alvalle in Spain and Smith’s in Australia.

Goals & Commitments:

In 2009, they announced 11 ambitious global goals and commitments to help improve the well-
being of people in both developed and developing countries. They are focusing work on the
products we make and on key policies and partnerships to help address global nutrition
challenges.

Products: Provide more food and beverage

choices made with wholesome ingredients that
contribute to healthier eating and drinking.
Increase the amount of whole grains, fruits,
vegetables, nuts, seeds and low-fat dairy in
our global product portfolio.
Reduce the average amount of sodium per
serving in key global food brands, in key
countries, by 25 percent by 2015, with a
2006 baseline.
Reduce the average amount of saturated fat
per serving in key global food brands, in key
countries, by 15 percent by 2020, with a
2006 baseline.
Reduce the average amount of added sugar
per serving in key global beverage brands, in key countries, by 25 percent by 2020, with
a 2006 baseline.

Performance with Purpose Page 24

Marketplace: Encourage people to make informed choices and live healthier.
Display calorie count and key nutrients on our food and beverage packaging by 2012.
Advertise to children under 12 only products that meet our global science-based nutrition
standards.
Eliminate the direct sale of full-sugar soft drinks to primary and secondary schools
around the globe by 2012.
Increase the range of foods and beverages that offer solutions for managing calories, like
portion sizes.

Community: Actively work with global and local partners to help address global nutrition
challenges.
Invest in our business and research and development to expand our offerings of more
affordable, nutritionally relevant products for underserved and lower-income
communities.
Expand PepsiCo Foundation and PepsiCo Contributions initiatives to promote healthier
communities, including enhancing diet and physical activity programs.
Integrate our policies and actions on human health, agriculture and the environment to
ensure they support each other.

Performance with Purpose Page 25

 VALUE ENGINEERING
PEPSI BEVERAGE CO. INSTALLS ROBOTIC PALLETIZERS AND WAREHOUSE
AUTOMATION SYSTEMS AT TAMPA PLANT

Pepsi Beverages Co. (PBC) has recently installed an automated storage and retrieval system
(AS/RS) and warehouse control system (WCS) at its plant in Tampa, FL. The WCS handles two
storage/retrieval machines of the AS/RS, conveying systems for pallets and cases, five robots for
layer picking/palletizing, pallet squaring stations, stretch wrapping, print-and-apply labeling and
the integration of the WCS to PBC's existing enterprise resource planning and warehouse
management system (ERP/WMS).

The systems, from Westfalia Technologies Inc., help PBC meet its commitment to the
environment and to the "reduce waste" principles of Six Sigma. Compared to a conventional
warehouse, the multiple deep design of Westfalia's Go Green with High Density AS/RS design
has major financial benefits as storage space is maximized, which translates into reduced
building construction costs, lower sustainable operating costs (reduced energy, labor and product
waste costs), as well as increased inventory accuracy through Westfalia's Savanna.NET WCS.
An addition to the existing facility, this new compact warehouse uses only 30 percent of the
footprint of a conventional facility, thereby having less impact on the environment, too.

The flexible, high density AS/RS meets PBC's need for maximum storage, high throughput,
buffers for handling peak production from its bottling plant, and aids in preparing various types
of pallets to ship to customers. Savanna.NET WCS manages and controls all products flows
throughout the facility from receiving to order fulfillment. It is a complex system as PBC
requires full layer and mixed layer palletizing to have "store ready" pallets loaded onto its
straight and bay trucks.

"Automated order fulfillment at the case and layer level is clearly the direction many of our
clients are heading. Our focus of integrating reserve storage and automated replenishment
delivers fully integrated solutions for the beverage industry, combining automation of deep
reserve and order selection," says Dan Labell, president of Westfalia Technologies Inc.

From the bottling lines, palletized products are delivered to the AS/RS for storage. As pallets are
needed for order selection, they are placed by the SRMs into pick and build positions, and
transferred via Westfalia's TC1500 Single Transfer Car with Satellite into a buffer zone serviced
by a Kuka Linear Gantry. Known as the High Speed Layer Pick (HSLP) system, the gantry picks
single SKU layers at the rate of 3,000 cases per hour using two robotic layer grippers suspended
from an overhead gantry. Two additional robotic gantry grippers are used to remove and
replenish the empty pallets.

Performance with Purpose Page 26

Another component of the automated system is the Mixed Layer Pick (MXLP) system, which
through manual Pick-to-Light case picking,
automated material handling conveyors
and robotic palletizing form and build
layers of mixed SKU by like package type
cases, at a rate of 2,000/hr. These HSLP
and MXLP rates are more than five times
the manual pick rates of PBC's traditional
warehouses. Kuka Systems' unique layer
forming software is used to build the
layers, and all product movements and
robot missions are tracked and managed by
Savanna.NET WCS.

"The cooperation with Westfalia has been key to the success of this project. They are a company
we can trust and they always have their partners and their customers' best interests in mind when
executing a project. From the robustness of the equipment to the flexibility of the software the
Westfalia products are reliable," says Aaron Corcoran, director of logistics at Kuka Systems NA.

The Pepsi Beverage Co., based in Somers, NY, is the largest manufacturer, seller and distributor
of Pepsi beverages, with more than 100 plants worldwide and 545 distribution centers. Among
the brands they handle are Pepsi, Aquafina, Aqua Minerale, Tropicana, Lipton Iced Tea,
Starbucks Frappuccino, Dole juices, Mountain Dew, Sierra Mist and the SoBe line of beverages.

Performance with Purpose Page 27

11. BIBLIOGRAPHY
http://www.pepsico.com/

http://www.packagingdigest.com/article/517601-
Pepsi_Beverage_Co_installs_robotic_palletizers_and_warehouse_automation_systems_at
_Tampa_plant.php

http://www.articlesnatch.com/Article/The-Importance-Of-Planning-In-Business/583763

http://smallbusiness.chron.com/importance-planning-scheduling-5131.html

http://www.reliableplant.com/Read/20149/pepsi-improves-equipment-reliability,-cuts-
spare-parts-inventory

www.beverage-digest.com/pdf/Pepsi_System_TOC.pdf

http://searchsap.techtarget.com/news/969439/SAP-Pepsis-software-for-a-new-generation

PepsiCo Annual Report 2017

Performance with Purpose Page 28