Case One

PepsiCo Implements New Procurement System to Minimize Costs. PepsiCo is a world

leader in manufacturing convenience foods and beverages, with annual revenues of about
$25 billion and more than 142,000 employees. The company consists of the snack
businesses of Frito-Lay North America and Frito-Lay International; the beverage
businesses of Pepsi-Cola North America, Gatorade/Tropicana North America, and
PepsiCo Beverages International; and Quaker Foods North America, manufacturer and
marketer of ready-to-eat cereals and other food products. PepsiCo brands are available in
nearly 200 countries and territories. The volume of supplies and ingredients purchased by
PepsiCo’s Frito-Lay division alone is huge. The company purchases raw materials from
hundreds of vendors, which deal in everything from ingredients for potato chips to office
products. To manage procurement processes across its divisions, PepsiCo implemented a
system it named Purchase to Pay. Purchase to Pay tracks a variety of processes from
product purchases to procurement management to vendor selection and payment.
In the company’s ongoing mission to reduce costs, PepsiCo turned to the Purchase to Pay
system to see whether it could assist staff in negotiating the best deal with suppliers. The
investigation uncovered a considerable amount of waste in the procurement process.
PepsiCo was not getting good deals on supply purchases and sometimes was being
overcharged. PepsiCo needed to improve the system to control its spending. The
company’s IS staff set out to develop a standardized system to allow them to better track
and analyze purchases. PepsiCo wanted to negotiate volume discounts with vendors and
control individual, or maverick purchases that were above negotiated prices. In exploring
existing procurement solutions from vendors, PepsiCo decided on a system from
Business Objects Corporation. That vendor’s system would store procurement data in a
database and provide business intelligence information through a Web-based user
interface over the corporate intranet. ‘Ease of use, scalability, and support are some of the
reasons why we chose the Business Objects solutions to be an integral part of PepsiCo’s
Business Intelligence strategy,’ said Tien Nguyen, vice president of application services
at PepsiCo Business Solutions Group. ‘The real value in Purchase to Pay comes in the
ability to analyze our spending patterns and identify cost saving opportunities,’ explains
Yelak. ‘Business Objects is the ideal solution for this, and we can replicate the benefits as
we extend it across our corporation.’ Biru, Business Intelligence and Integration team
member. One example of how Business Objects has improved the Purchase to Pay
system can be found in PepsiCo’s raw materials payment system. PepsiCo typically pays
vendors upon receipt of goods. During any month, the company may receive multiple
deliveries from a vendor and will cut a check for each of those deliveries. Using the
Business Object solution, PepsiCo can make one monthly payment that provides vendors
with an itemized statement detailing each bill of lading, invoice number, the amount of
each check, and the grand total, all via an extranet. PepsiCo has minimized its expenses
by streamlining the Purchase to Pay process. The company anticipates a savings of more
than $10 million in the system’s first year of operation and more than $43 million over
the next three years. Within the next few years, the majority of business intelligence
reporting will be done using solutions from Business Objects. As users learn the system
and as PepsiCo develops more reports, users are expected to experiment with ad hoc
queries and dig deeper into the data. PepsiCo’s new and improved Purchase to Pay
system is a perfect example of the benefits of continuous improvement through the
systems development process. By implementing a new system that is flexible and
scalable, PepsiCo has simplified and improved its procurement processes both now and
for the future as it changes to meet new challenges.

Assuming that you were responsible for designing and implementing the new
procurement system at PepsiCo, what problems, and opportunities would you have
considered in conducting your initial systems investigation?
1. What was PepsiCo’s main business objective for this project?
2. What factors were present to motivate the company to implement this project?
3. Who were the main participants PepsiCo had to involve in developing
the Purchase to Pay system?
4. Which systems development life cycle approach would have been best used for
PepsiCo’s project? Explain your answer.