PepsiAmericas Case Study Spring 2021

Case description:

In 2009, PepsiAmericas (PAS) was the world’s second largest manufacturer and distributor of
Pepsi beverages, operating in the U.S. (69% of sales), central and Eastern Europe (26% of Sales)
and the Caribbean (5% of sales). Net sales in 2008 totaled nearly $5 billion or 20% of PepsiCo’s
total US beverage sales. A recession hit the U.S. economy, but PepsiAmericas was also faced
with two more important long-term challenges: (1) a declining U.S. market for carbonated soft
drinks, and (2) increasingly powerful retailers who were squeezing PAS profit margins. In
addition, PepsiAmericas product line had moved from 35-40 products in the mid-1990s to
nearly 400 products by 2009.

In the past, distribution was handled by the local delivery

person, who “owned” a particular route of retail customer
stores. The delivery person would load his/her truck in
anticipation of what was needed at each of his/her assigned
locations. Over time, the delivery person knew what to expect
and could pretty much address customer needs on a day-to-day
basis. This “on-the-route” sales approach was sufficient when neither driver turnover or
market dynamism were significant. No longer. At the same time, business units, organized into
13 regional divisions, designed and implemented discrete information systems to meet regional
needs. According to CIO Ken Johnsen, there were several different back office systems, in
addition to different systems across large portions of the firm for sales, supply chain, and
human resources. As Pepsi considered moving to a centralized, call-center sales model (which
relied upon customer contact well before delivery date), they realized that their systems and
business processes were not capable of supporting their long-term plans.

Market developments forced PepsiAmericas to embrace a completely new operating model. As

Pepsi moved from 35 to 400 products and as the packaging for these products became less
uniform, it proved difficult to know about, let alone carry in
inventory, the right mix of products in the truck. Furthermore,
chains like Wal-Mart, CVS, and Mobil Gas Stations, preferred
highly centralized procurement arrangements and national
contracts. Pepsi was therefore obliged to create a three-tier
distribution platform that would address the needs of (1) national,
(2) regional, and (3) local customers.

In response to these pressures and challenges, PepsiAmericas invested heavily in supply-chain

management (SCM) and enterprise resource planning (ERP) systems. With these systems the
firm integrated its core business processes (i.e. procurement, manufacturing, selling, and
warehousing and distribution) and automated data capture at every key step along its value
chain. To PepsiAmericas, one of the biggest benefits of its ERPs was the collection and
measurement of business process outcomes for better performance assessment, forecasting,
and risk mitigation. The company used these rich data resources and related process

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 PepsiAmericas Case Study Spring 2021

knowledge to negotiate better contracts for raw materials, lower supply chain operating costs,
more accurately monitor consumer demand, and ultimately strike more profitable deals with its
large retail customers. In effect PepsiAmericas employed customer data as a competitive asset,
collecting vast amounts of data as part of daily operations (transacting) and then employing
that data for management and control as well as for innovation in product development and
customer service.

This transformation process was dubbed the “Customer Optimization to the 3 rd power –
Planning + Selling + Delivery” program and was intended to reduce inventory management
issues, increase productivity across PepsiAmericas’ production platforms, and improve overall
customer service. For example, national customers, like Wal-Mart, fed point-of sales data
directly into PAS’s SCM system, informing the detailed product mix and quantities going from
PAS to particular sales location. And at the other end of the spectrum, those PAS employees
serving the small local shops had access to detailed historical sales data to forecast the
requirements for local stores and to provide the right mix of products day in and day out. The
ability to consistently adjust prices was also significantly improved. Prior to having integrated
systems and aligned operations, PAS customers within the same ZIP code would have different
prices depending upon who they dealt with in PAS and the pricing data available to that sales
person. In addition, productivity for PAS customer service representatives rose noticeably.

Figure 1 – IT Architecture PepsiAmericas (Customer Optimization to the 3rd Power)

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 PepsiAmericas Case Study Spring 2021

Source: Beath & Ross (2010)

Continuous data feeds from PAS SCM and ERP systems to the firm’s decision support systems
provided PepsiAmericas executives with ready access to real-time data to finetune business
processes and to promptly address performance and customer servicing issues. This same
approach drove decisions concerning the acquisition of both additional production capabilities
and new lines of products. It also contributed to the continuous improvement of ongoing firm
business processes and services, and the shift to a more data-driven decision making culture
across the organization. PepsiAmericas leadership employed their data assets to build
competitive knowledge in three areas that were critical to their long-term success, namely:
customer alignment and relationship management, supply-chain process improvement, and
enabling more dynamic pricing across the company. PAS continues to mine data across the
enterprise to measure business results and to inform best practices.

Source:
Beath, Cynthia M. and Jeanne W. Ross, “PepsiAmericas: Building an Information Savvy
Company”, Feb. 2010, MIT Sloan School of Management Journal, accessed online
http://dspace.mit.edu/bitstream/handle/1721.1/68550/Pepsi%20BeathRoss2.pdf

Case Questions:
For the questions below, think first about the appropriate representation for your answer
(bullet list, multi-part bullet list, table) and then the appropriate course framework to ensure
both accuracy and completeness.

1. Describe the IT architecture (both type of IT architecture and its information system
elements) at PepsiAmericas before its Customer Optimization initiative.

 Distribution was handled by the local delivery person, who “owned” a particular route
of retail customer stores and would only load the truck according to its region demand
 The delivery person had to address customer needs on a day-to-day basis.
 Business units, organized into 13 regional divisions, designed, and implemented discrete
information systems to meet regional needs.
 Production was based on the predictions of delivery drivers.
 Pepsi had limited knowledge about customer wants and needs
 Pepsi did not have a centralized ERP and CRM system

2. Describe the customer intimacy and operational excellence related information

problems that drove PepsiAmericas to adopt a more aggressive attitude towards the
capture, use, and dissemination of information.

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Info problems
Customer Intimacy  The US recession affected customers
 A declining US market for soft drinks
 Powerful retailers were squeezing
PAS profit margins.
 Customers paid different prices for
PAS products (regardless of ZIP code)
because they depended on who in
PAS they were doing business with.
 This caused customer confusion and a
bad customer service

Operational Excellence  The “on the route” approach was not

efficient because it was not
considering customer’s information to
forecast sales, evaluate demand, and
manage inventory and deliveries
 Distribution was handed by a local
delivery person, leading to inefficient
results
 The “on-the-route” sales approach
was sufficient when neither driver
turnover or market dynamism were
significant.
 Drivers had to guess or estimate the
routes and the products to load on
the truck, leading to loss in sales

3. Describe the investments in information systems that were made to address these
information needs (excluding DSS).

 PepsiAmericas invested heavily in supply-chain management (SCM) and enterprise

resource planning (ERP) systems.
 With these systems the firm integrated its core business processes (i.e. procurement,
manufacturing, selling, and warehousing and distribution) and automated data capture
at every key step along its value chain.
 Employing customers
 Collecting vast amounts of data as part of daily operations (transacting) and then
employing that data for management and control as well as for innovation in product
development and customer service.
 An integrated system to keep track of products, inventory and delivery
 Invest on market research

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 PepsiAmericas Case Study Spring 2021

4. Explain the role of decision support systems (DSS) in enabling the business success of
PAS in terms of customer intimacy and operational excellence. Your answer should
include treatment of both structured and unstructured decisions. Describe one
additional way that a DSS could potentially enhance information processing within at
PAS.

Customer Intimacy Operational Excellence

Structured decision
Unstructured decision
 Pepsi can manage  Pepsi will know when
inventory so and how to produce
customers can order products
available products  With customer´s
 Pepsi will be able to information, the
evaluate customer´s company will be able
wants and needs to to forecast sales and
make its products analyze demand
 Pepsi will use  Correctly forecasting
customer´s personal demand will reduce
information to know costs because Pepsi
their preferences will only have the
 Pepsi can categorize necessary inventory
customers into  Trucks will be loaded
national, regional, or with the correct
local customers products
 The company will be
able to analyze data
in real time
 PAS can plan new  The company will be
products to gain new able to better forecast
customers sales planning
 They can also give  The company can give
recommendations to priority to popular
customers based on products to make
their previous sure they are
purchases produced effectively
 DSS can be used to  Forecasting will
improve customer enable Pepsi to make
service plans and take
advantage of
economies of scale
 The company will be
able to reduce

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 PepsiAmericas Case Study Spring 2021

inventory
management issues
and increase
productivity
 By having data about
the company, Pepsi
managers can analyze
what areas they need
to improve

5. [Optional – data dictionary practice] PAS collects lots of customer data as part of daily
operations (transacting). Two entities or events on which PAS is likely to collect data
include CUSTOMERS and ORDERS.

For each entity, think of 3 characteristics (fields/ also called data elements) that would be
important details for PAS to track (recognize that there are likely many more than 3). Be sure
to identify at least 1 characteristic (field=primary key) that could be used to uniquely identify
any CUSTOMER or ORDER.
Describe each characteristic (field/ data element) using metadata (e.g. clear description of the
characteristic, format allowed, values allowed, …).

Entity/ Primary Key Secondary Key Another characteristic

Event
CUSTOMER Field: Customer Name Field: Phone Number Field: Emergency
Contact (Phone
number)
Metadata: Maria Park Metadata: 6176973645 Metadata:6176874355

ORDER Field: Order ID Field: Address Field: Date of delivery

Metadata: Metadata: 1 Leighton St, Metadata: 07/08/2021

010339243532 02141, Cambridge MA

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