What Is This in the Works
Case Study: Transforming Production Sourcing at PBG
December 2009
IBM
Case Study: Transforming Production Sourcing at Pepsi Bottling Group
David Simchi-Levi, ILOG Chief Scientist,
Application and Integration Middleware Software, IBM Software Group
Tim Russell, Sr. Operations Manager , Pepsi Bottling Group Brad Charles, Dir. Supply Chain Strategy, Pepsi Bottling Group Tom McLoughlin, VP WW Planning, Pepsi Bottling Group Paul Hamilton, Sr. VP of Supply Chain, Pepsi Bottling Group
Transforming Production Sourcing at PBG
Page 2
Contents Executive Summary Introduction Overview Framework Project Details Results Conclusion References 2 3 4 6 9 13 15 16
Executive Summary This case study details a two-year implementation starting in 2005 during which the Pepsi Bottling Group (PBG) Supply Chain Strategy team transformed the company’s production sourcing process. Before the transformation, PBG’s sourcing strategy was updated annually and distributed to autonomous business unit directors. The directors decided if and how the sourcing strategy should be implemented. To address increased complexity driven by market factors, PBG investigated a network-based approach to product sourcing. At the end of the implementation, PBG moved from a static sourcing strategy to a dynamic one by implementing an optimized production sourcing strategy aligning disparate business functions and demonstrating positive results. These results included:
• • • • Reduction in raw material and supplies inventory from US$201 to US$195 million Two percentage decline in the growth of transport miles Increase in the return on invested capital from 7.6 percent to 7.8 percent Reduction in warehouse out-of-stock levels providing an additional 12.3 million cases available to be sold
To put the last result into perspective, the reduction in warehouse outof-stock levels effectively added one and a half production lines worth of capacity to PBG’s supply chain without any
December 2009
IBM
Case Study: Transforming Production Sourcing at Pepsi Bottling Group
David Simchi-Levi, ILOG Chief Scientist,
Application and Integration Middleware Software, IBM Software Group
Tim Russell, Sr. Operations Manager , Pepsi Bottling Group Brad Charles, Dir. Supply Chain Strategy, Pepsi Bottling Group Tom McLoughlin, VP WW Planning, Pepsi Bottling Group Paul Hamilton, Sr. VP of Supply Chain, Pepsi Bottling Group
Transforming Production Sourcing at PBG
Page 2
Contents Executive Summary Introduction Overview Framework Project Details Results Conclusion References 2 3 4 6 9 13 15 16
Executive Summary This case study details a two-year implementation starting in 2005 during which the Pepsi Bottling Group (PBG) Supply Chain Strategy team transformed the company’s production sourcing process. Before the transformation, PBG’s sourcing strategy was updated annually and distributed to autonomous business unit directors. The directors decided if and how the sourcing strategy should be implemented. To address increased complexity driven by market factors, PBG investigated a network-based approach to product sourcing. At the end of the implementation, PBG moved from a static sourcing strategy to a dynamic one by implementing an optimized production sourcing strategy aligning disparate business functions and demonstrating positive results. These results included:
• • • • Reduction in raw material and supplies inventory from US$201 to US$195 million Two percentage decline in the growth of transport miles Increase in the return on invested capital from 7.6 percent to 7.8 percent Reduction in warehouse out-of-stock levels providing an additional 12.3 million cases available to be sold
To put the last result into perspective, the reduction in warehouse outof-stock levels effectively added one and a half production lines worth of capacity to PBG’s supply chain without any
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