Pepsi and Kraft Foods Inventory Management - Case Study Example

? PEPSI and Kraft Foods inventory management Types of inventories for PEPSI and Kraft Foods and their characteristics Pepsi Companyis a multinational food and beverage company that was founded in 1965. Its headquarters are located in New York and operate in the beverage industry. The corporation key operations entail manufacturing, marketing as well as distribution of grain based snack foods, beverages and others products. Kraft foods is an American based grocery that operates in the food processing industry. The core activities of the Kraft foods entail manufacturing and processing of grocery. Kraft was founded in 1903 and currently operates in the United States and Canada. Pepsi Company manages three types of inventories. These are: raw materials, work in progress and finished goods. Kraft Foods Company maintains two kinds of inventory: raw materials and finished products. Raw materials comprise unprocessed items to be consumed in the production process. Raw materials also include purchased components that will be used in making the finished product. Work-in-progress comprises partially completed merchandise in terms of raw materials, costs and labor. Finished product include merchandise held by the company that is readily available for sale (Olson, 2011). How Pepsi and Kraft Foods goods and service design concepts are integrated Pepsi Company employs a vendor managed inventory system to integrate goods and service. The design manager is responsible for hands on design and design management of branding and packaging. The supply chain managers play an active role in the inventory optimization to address the factor of variability in supply of key commodities and seasonal variability in consumer demand. The supplier assumes the responsibility for management of a retailer’s inventory. Kraft Foods Company owns the product until it crosses the checkout counter. The grocery store acts as the broker between the producer and the consumer. The managers of both companies along with other employees integrate products design by identifying customer needs, generation of product concepts, prototyping and design-for-manufacturing. The role of inventory in Pepsi and Kraft foods performance, operational efficient and customer satisfaction Getting a product or service to the right place at the right time in the modern business remains a challenge, as most businesses have to grapple between the cost of maintaining huge inventory while operating efficiently and effectively. Pepsi maintains a stock of inventory up to a period of twelve days (Hieber, 2002). At the same time, Pepsi Company employs an N-tier demand management, which is a classic bull-whip. N-tier demand management seeks to further suppliers from customers as far as possible. An N-tier demand management helps the company and suppliers to see the final consumer demand at the same time (Radhakrishnan, 2001). Kraft Food Company adopts just in time mode of inventory, where the company makes just the right amount of products for the market and gets them quickly into the consumers’ hands, thus customer satisfaction. By keeping inventory at the lowest, Kraft Foods Company operates efficiently as low level of inventory helps in freeing up the cash. In turn, this results in operational efficiency. Similarities and differences of 4 different types of layouts and the importance of the layouts For an organization to have a successful manufacturing unit, it is pertinent that special care and attention is given to the layout of the facility (Radhakrishnan, 2001). Facility layout refers to the arrangement of diverse components of manufacturing in a suitable way in order to produce preferred production outcomes. Both Pepsi Company and Kraft foods operate four different kinds of layouts. Among the four, three kinds of layout operate in a similar manner. These layouts are: the fixed position layout, hybrid layout and the cell layout (Olson, 2011). The cell layout seeks to lessen the complexity of process and product layouts. A cell layout divides resources transformation into small clusters that may be used to work upon different products and product groups. A fixed position layout remains in one location due to the weight or size of product. The equipment required for every step has to be moved to the site. Hybrid layouts are embraced by both companies to combine the merits of process and product layouts by categorizing unlike machines into work centers or cells to work on products with analogous shapes and processing necessities. The main area where the two companies differ in layouts is that Pepsi employs a product layout, where equipments and workers are assigned to particular products in a linear route. When volumes of a particular product are high, resources can be focused and designed for a definite product. Kraft foods operate a process layout where equipments, machines and people are categorized together with similar functions and goals. Product layout is advantageous to Pepsi operations as they allow faster rates of processing and lower inventories that translate into father throughput. Product layout also has lesser changeover and less material handling (Boyer & Verma, 2010). Process layout is advantageous to Kraft foods due to flexibility as it can adapt easily to changes in product mix or volume. In addition, process layout helps in capacity utilization due to the ability to perform various jobs on every piece of equipment. Two metrics to evaluate supply chain performance of the companies The main supply chain metrics employed by Pepsi Company and Kraft foods to measure performance are the balance score card and the SCOR model that was advanced by the supply chain council. The balance score card recommends the use of executive information systems that track a number of balanced metrics, which are closely allied to strategic objectives of each company. The balanced score card describes what the management of the two companies means by performance and it measures whether the management is attaining the set goals (Mayolo, 2012). The balance score card translates the mission and vision statements into wide-ranging set of goals and performance measures that can be appraised. The balanced score card approach recommends that a small number of balance supply chain measures be tracked on the four main categories. These are finance, customer, internal business and innovation and learning. The financial performance looks at revenues, earnings, cash flow and return on capital. The customer perspective looks at how the supply chain derives customer value performance in terms of market share, customer satisfaction and customer loyalty (Boyer & Verma, 2010). Internal business process component evaluates the impact of supply chain on productivity rate, timeliness and quality measures as well as employee performance. The final facet of the balanced scorecard focuses on innovativeness of the supply chain performance in terms of revenue from new products and rates of improvement. The supply chain council SCOR model advocates various measures comprising cost metrics, cycle time metrics, service metrics and asset metrics (Mayolo, 2012). Improvements to the design and operations of Pepsi and Kraft Foods based on the above metrics Although the balanced scorecard was not specifically designed to measure the performance of supply chain, it gives an excellent guidance on the strategic measures. However, Pepsi Company and Kraft foods can use the balanced scorecard to specifically measure the success of supply chain functional area. Supply chain functional areas are: demand planning, customer management and warehouse management. This can be done by establishing the right metrics which will make the supply chain more effective. The companies should design the balanced scorecard and SCOR metrics to meet reliability, accessibility, relevance and validity measures. Reliability implies that there should be consistency in the use of the balanced scorecard or the SCOR employed to measure a given supply chain activity. Reliability will help in accurately determining a consistent value, which will help the management in decision making. Validity metric will help to measure the variables of the balanced scorecard and SCOR in the specific context of Pepsi Company and Kraft foods businesses. Additionally, the balanced scorecard and the SCOR must be such that they are easily accessible in terms of cost and reasonableness. Finally, the balanced scorecard and SCOR must be relevant to Pepsi Company and Kraft foods business functions and to people concerned in order to make wise and proactive decisions. Ways of improving Pepsi inventory management without affecting operations Pepsi can use the just in time system approach of inventory order system without disrupting operations. Maintaining a just in time inventor system helps to reduce storage costs, deterioration and break ups costs. The rationale to support this suggestion is for the Pepsi management to carry out a pilot test on just in time inventory system. The pilot project will help the firm to explore and handle eventualities of overstocking and risks of inventory stock-out. The management should also manage its stakeholders well, particularly the suppliers in a bid to keep lean inventory levels. Ways of improving Kraft Foods inventory management without affecting operations As a maker of perishable products, it is essentially important for Kraft Foods Company to reinforce its quality control as a means of improving inventory management. Quality control entails adding another layer of responsibility as it requires double scrutiny of orders. Reinforced inventory quality control helps to ensure the quality of the lately procured goods as well as those already in stock. Businesses may hold wrong lines of inventories due to insufficient inventory quality control. Buildup of unsalable inventory and the lack of inventory that Kraft foods customers want may point to prospective sales loss. The rationale to reinforce quality control is for the Kraft foods management to appoint an expert to carry out this responsibility, which will save the company a lot of money. References: Boyer, K.K. & Verma, R. (2010). Operations and Supply Chain Management for the 21st Century. Connecticut: Cengage Learning press. Mayolo A.C. (2012). Agent Based Simulation Approach to Assess Supply Chain Complexity and Its Impact on Performance. San Francisco: BoD – Books on Demand press. Olson, D.L. (2011). Supply Chain Risk Management: Tools for Analysis. California: Business Expert Press. Radhakrishnan, P. (2001). Logistics and Supply Chain Management. New Delhi: Allied Publishers press. Hieber, R. (2002). Supply Chain Management: A Collaborative Performance Measurement Approach. Zurich: vdf Hochschulverlag AG press. Read More