PepsiCo is the second biggest player in the global food and beverage industry.

To maintain this position, PepsiCo’s

operations management (OM) practices must effectively address business needs in the 10 strategic decision areas.
These decision areas refer to the aspects of business that need to be streamlined together to achieve optimal
performance. PepsiCo’s continuing international growth and expansion also warrant continuing reforms in such
operations management practices. However, PepsiCo’s operations management approaches are generally
appropriate for the global organization. Thus, PepsiCo’s policies and approaches effectively address the main issues
and concerns linked to the 10 strategic decisions of operations management.

PepsiCo has an integrated approach to the 10 strategic decisions of operations management (OM). This approach
considers variations in PepsiCo’s business areas and markets, as well as different productivity requirements based
on product, market conditions, and other variables.

PepsiCo’s Operations Management, 10 Strategic

Decision Areas
1. Design of Goods and Services. The objective in this strategic decision area of operations management is to
match goods and services, organizational capacity and market demand and preferences. PepsiCo’s operations
management does so through market-based research and development and product innovation. For example,
PepsiCo conducts market research about current trends, such as consumer lifestyles. The results of such research
are used to determine future directions of PepsiCo’s products, such as future variants of Pepsi.

2. Quality Management. This strategic decision area has the objective of optimizing quality based on business and
consumer expectations. PepsiCo’s operations management aims to provide the highest quality products under the
company’s “Human Sustainability” goals. For example, new PepsiCo products are usually improved variants, such as
low-calorie Pepsi products and less-salt Frito-Lay products.

3. Process and Capacity Design. Capacity utilization and process efficiency are the emphases in this strategic
decision area of operations management. PepsiCo aims to maximize its productivity-cost ratio in this area. For
example, the company’s manufacturing facilities are designed with high-output assembly lines. Also, many of
PepsiCo’s production processes are automated for optimal efficiency.

4. Location Strategy. PepsiCo has many company-owned facilities and partner-owned facilities in strategic
locations. Such an operations management approach is based on this strategic decision area’s objective of maximal
reach to target markets. In PepsiCo’s case, such facilities are located in key areas near most retailers. PepsiCo is
especially interested in large retail outlets and food service establishments with high sales volume.

5. Layout Design and Strategy. Efficient movement of people, materials and information is the operations
management concern in this strategic decision area. In PepsiCo’s case, spaces are designed with efficiency and
productivity in mind. For example, layout design in PepsiCo production facilities is centered on the principles of
assembly line production and total quality management (TQM).

6. Job Design and Human Resources. PepsiCo’s human resource management addresses this strategic decision
area through a combination of global corporate HR practices and divisional HR practices. The main operations
management objective in this area is to ensure the adequacy of PepsiCo’s workforce. For example, PepsiCo has an
HR policy and job design process for Frito-Lay, and separate HR policy and job design process for Quaker Foods.
However, all of these policies and processes comply with PepsiCo’s corporate standards and “Talent Sustainability”
policy.

7. Supply Chain Management. This strategic decision area focuses on operations management practices that
optimize the supply chain to match demand for materials and intermediary products. PepsiCo’s approach is to
diversify and distribute its supply chain hubs. For example, the company operates supply chain hubs for each
regional market. In this way, PepsiCo optimizes response times to fluctuations in demand.

8. Inventory Management. PepsiCo’s inventory management emphasizes automation. Adequacy, scheduling, and
cost minimization are the key objectives in this strategic area of operations management. PepsiCo does so through
computerized monitoring of inventory. Inventory managers can access real-time data to help them make decisions.

9. Scheduling. Facility and human resource schedules are the primary concern in this strategic decision area of
operations management. PepsiCo facility managers implement human resource schedules based on local data.
However, automated scheduling is also used for some of PepsiCo’s production space schedules.

10. Maintenance. PepsiCo’s maintenance concerns are widely varied, considering the company’s wide array of
products and markets. This strategic decision area of operations management focuses on adequate workforce and
other resources that grow with the business. PepsiCo continues to hire individuals and promotes from within the
organization to grow its workforce. Facilities are expanded, constructed or acquired to support PepsiCo’s growth.

Productivity at PepsiCo
PepsiCo’s operations management practices ensure high performance and productivity. The company uses different
measures or criteria to evaluate actual productivity. The following are some of the productivity measures used at
PepsiCo:
1. Batches per facility per day (PepsiCo production facility productivity)
2. New product ideas per year (product R&D productivity, such as for Pepsi)
3. New accounts per year (marketing productivity)
References
 Kachwala, T. T., & Mukherjee, P. N. (2009). Operations management and productivity techniques. PHI
Learning.
 Lawrence, K. D., & Weindling, J. I. (1980). Multiple goal operations management planning and decision
making in a quality control department. In Multiple Criteria Decision Making Theory and Application (pp. 203-217).
Springer.
 Liu, S., & Jiang, M. (2011). Providing Efficient Decision Support for Green Operations Management: An
Integrated Perspective. INTECH.
 Najdawi, M. K., Chung, Q. B., & Salaheldin, S. I. (2008). Expert systems for strategic planning in operations
management: a framework for executive decisions. International Journal of Management and Decision Making, 9(3),
310-327.
 PepsiCo 2014 Annual Report.
 PepsiCo Inc. (2012). PepsiCo Announces Strategic Investments to Drive Growth.
 Schrunder, C. P., Galletly, J. E., & Bicheno, J. R. (1994). A fuzzy, knowledge‐based decision support tool for
production operations management. Expert Systems, 11(1), 3-11.
 Verdaasdonk, P. (1999). Defining an information structure to analyse resource spending changes of
operations management decisions. Production Planning & Control, 10(2), 162-174.
 Verdaasdonk, P., & Wouters, M. (2001). A generic accounting model to support operations management
decisions. Production Planning & Control, 12(6), 605-620.
 Wild, R. (1983). Decision-making in operations management. Management Decision, 21(1), 9-21.
TAGS: 10 DECISION AREAS OF OPERATIONS
MANAGEMENT, CASE STUDY & CASE ANALYSIS, FOOD AND
BEVERAGE INDUSTRY, OPERATIONS
MANAGEMENT, PEPSICO
COPYRIGHT NOTICE:
 Copyright by Panmore Institute - All rights reserved.
 This article may not be reproduced, distributed, or mirrored without written
permission from Panmore Institute and its author/s.
 Educators, Researchers, and Students: You are permitted to quote or paraphrase
parts of this article (not the entire article) for educational or research purposes, as long as
the article is properly cited and referenced together with its URL/link.

PepsiCo is the second biggest player in the global food and beverage industry. The company offers a diverse array of
products. PepsiCo’s generic competitive strategy is based on the need to address market pressure coming from its
biggest rivals, including the Coca-Cola Company. A firm’s generic strategy (based on Porter’s model) defines the
basic strategy used to maintain competitive advantage. On the other hand, PepsiCo’s intensive growth strategies are
a response to the evolving global food and beverage market conditions. Intensive growth strategies outline how firms
support their growth. PepsiCo’s generic strategy for competitive advantage matches its intensive strategy to ensure
long-term growth.

PepsiCo’s intensive growth strategies enable the company to effectively use its generic strategy to maintain strong
competitive advantage. PepsiCo’s success is an indicator of the appropriateness of these strategic directions,
especially how the generic strategy supports competitiveness.

PepsiCo’s Generic Strategy (Porter’s Model)

 PepsiCo applies different generic competitive strategies, considering the company’s wide array of products. However,
the main generic strategies that contribute to PepsiCo’s competitive advantage are as follows:

1. Cost leadership
2. Broad differentiation
PepsiCo uses cost leadership as its primary generic competitive strategy. This generic strategy focuses on cost
minimization as a way to improve PepsiCo’s financial performance and overall competitiveness. For example, to
compete against Coca-Cola products, PepsiCo offers low prices based on low operating costs. The company also
sometimes has special promotional offers with discounted prices. On the other hand, PepsiCo uses broad
differentiation as its secondary generic competitive strategy. This generic strategy enables business competitive
advantage by attracting consumers to some unique features of the firm’s products. For example, PepsiCo’s Lay’s
potato chips are marketed as a healthful snack product because of reduced saturated fat content. A strategic
objective for the cost leadership generic strategy is to automate production processes to minimize PepsiCo’s
operating costs. In relation, PepsiCo’s strategic objective for the broad differentiation generic strategy is to innovate
products to address concerns about their health effects.

PepsiCo’s Intensive Strategies (Intensive Growth

Strategies)
Market Penetration. PepsiCo implements market penetration as its primary intensive growth strategy. This intensive
strategy supports business growth through increased sales, such as from a bigger market share. For example,
PepsiCo uses aggressive marketing to attract more consumers. A strategic objective linked to this intensive growth
strategy is to minimize costs and prices to attract more consumers despite market saturation. As such, PepsiCo’s
generic competitive strategy of cost leadership supports this intensive strategy for growth.

Product Development. PepsiCo’s secondary intensive growth strategy is product development. This intensive
strategy requires offering new products to capture more consumers. For example, PepsiCo continues to develop
products or variants of existing ones, such as low-calorie, reduced-salt, or low-saturated-fat variants of its food and
beverage products. A strategic objective linked to this intensive growth strategy is to boost R&D investments for
product innovation. PepsiCo’s generic competitive strategy of broad differentiation supports this intensive strategy by
offering unique or novel products to attract more consumers and grow the business.

Market Development. PepsiCo applies market development as its supporting intensive growth strategy. This
intensive strategy supports business growth by capturing new markets or market segments. For example, PepsiCo
continues to expand its distribution network to reach the last remaining markets or segments, especially in developing
regions. However, market development is only a supporting intensive growth strategy because PepsiCo already has
significant presence in all regional markets worldwide. A strategic objective for this intensive strategy is to expand
PepsiCo’s supply chain to support the growth of its distribution network. The cost leadership generic competitive
strategy enables PepsiCo to effectively use this intensive growth strategy through cost minimization despite additional
investments used for expansion to new markets or market segments.

References
 Dess, G. G., & Davis, P. S. (1984). Porter’s (1980) generic strategies as determinants of strategic group
membership and organizational performance. Academy of Management Journal, 27(3), 467-488.
 Merchant, H. (2014). Configurations of governance structure, generic strategy, and firm size. Global
Strategy Journal, 4(4), 292-309.
 PepsiCo Inc. (2009). Strategies to Drive Our Growth.
 PepsiCo Inc. (2012). PepsiCo Announces Strategic Investments to Drive Growth.
 Varadarajan, P., & Dillon, W. R. (1982). Intensive growth strategies: A closer examination. Journal of
Business Research, 10(4), 503-522.
TAGS: CASE STUDY & CASE ANALYSIS, FOOD AND
BEVERAGE INDUSTRY, GENERIC STRATEGY (PORTER'S
MODEL) & INTENSIVE GROWTH
STRATEGIES, PEPSICO, STRATEGY
COPYRIGHT NOTICE:
 Copyright by Panmore Institute - All rights reserved.
 This article may not be reproduced, distributed, or mirrored without written
permission from Panmore Institute and its author/s.
 Educators, Researchers, and Students: You are permitted to quote or paraphrase
parts of this article (not the entire article) for educational or research purposes, as long as
the article is properly cited and referenced together with its URL/link.