Article(Value Chain Model)

8/6/2019 Article(Value Chain Model)

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ARTICLE

(Coca Cola 2006)

Coca Cola markets nearly 2,400 beverages products in over 200 geographic locations. As a resultdevelopment of a superior value system is imperative to their operations. In an attempt to paint acurrent picture of the non-alcoholic beverage industry, Some of Coca Colas most notable

suppliers include Spherion, Jones Lang LaSalle, IBM, Ogilvy and Mather, IMI Cornelius, andPrudential. These companies provide Coca Cola with materials such as ingredients, packagingand machinery. In order to ensure that these materials are in satisfactory condition, Coca-cola hasput certain standards in place which these suppliers must adhere to (The Supplier GuidingPrinciples). These include: compliance with laws and standards, laws and regulations, freedom ofassociation and collective bargaining, forced and child labor, abuse of labor, discrimination,wages and benefits, work hours and overtime, health and safety, environment, and demonstrationof compliance (Coca Cola 2006).From time to time, Coca-Cola uses third parties to assess their suppliers by having interviewswith employers and contract workers. If a supplier has issues about the supplier guidingprinciples, they are usually given a certain amount of time to take corrective measures; if not,Coca-Cola has the right to terminate their contract with these suppliers.

Coca ColaS core operations consist of Company-owned concentrate and syrup production (CocaCola 2006). According to their website, some of the main environmental impacts of their businessoccur further along the value chain through system's bottling operations, distribution networks,and sales and marketing activities (Coca Cola 2006). Management of these operations across thebusiness value chain tends to be more challenging outside of the core operations. According toCoca Cola, they continue to address this by working with their partners to reduce the effects atevery level of the manufacturing process by enlarging their comprehension of the completeenvironmental impact of their business through the entire lifecycle of their products fromingredient procurement to production, delivery, sales and marketing, and post-consumer recycling(Coca Cola 2006)The activities required to get finished products to customers include warehousing, orderfulfillment, transportation, and distribution management. Coca Cola has the worlds largest

distribution system. They own, lease, and operate in over 800 plants around the world (Coca Cola2006). The 2,400 beverage products which they market reach consumers in more than 200different geographic locations (Coca Cola 2006). Grocery stores such as Sobeys, fast foodrestaurants such as McDonalds (fountain sodas), and vending machines are just a few of thedistribution units used to ultimately reach consumers.Coca Cola has over 300 bottling partners which range from publicly traded businesses to smallfamily owned operations (Coca Cola 2006). They have implemented the Coca Cola System inwhich they work cohesively with their partners in order to develop strategies aimed to meet theneeds of all their customers. Examples of their commitment to these strategies are seen in theirplant in Indonesia, where boats are used to transport the products between hundreds of islandsthroughout the Amazon. This is often because waterways are often the main way to access theseremote islands. In some of the higher elevations of in the Andes, Coca Cola products are

sometimes transported by four-legged power. Across much of Africa, bottlers deliver tothousands of family-run kiosks and home-based stores.Out of approximately 2,400 products, Coca Cola markets four of the worlds top sales drinkbrands. Although the industry is relatively small and they only directly compete with twocompanies, creativity is a vital marketing strategy to Coca Cola.Coca Colas ultimate goal is to deepen their brands connection with consumers. As a result, theyhave to constantly reinvent their product (Coca Cola 2006). The marketing strategy they use isdirectly linked to the consumer; from advertising, to point of sale, to ultimately opening andconsuming a Coca Cola beverage. Techniques which they have used to achieve this include


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developing new products and brands, changing the design of their packaging, and designingvarious new advertising campaigns (Coca Cola 2006).

On October 19th, Coca Cola reported their earnings for the third quarter. Earnings per share areup which results in higher benefits for shareholders. According to Neville Isdell, CEO of CocaCola, they have experienced a growth in sales of five percent compared to the same quarter last

year. This is as a result of balancing performance across their global markets and their productportfolio (Coca Cola 2006).Activities that maintain and enhance a products value includecustomer support, repair services, installation and training. Coca Colas customers range fromlarge international retailers and restaurants to smaller independent businesses and vendors. As aresult, they provide services tailored to meet their customers needs. Coca Cola also supportstheir customers by providing them with the training necessary to help their businesses becomemore effective and profitable. They have established Customer Development and TrainingCenters which are available to more then 21,000 independent retailers, which provide training atno cost in areas such as general management, marketing, finance, inventory management andcustomer services.In order to grow profitably, minimize their costs, and to become the global market leader, Coca-Cola has business partners all around the world. These business partners play a key role in

helping Coca Cola to achieve their strategic goals. Some examples of Coca Cola merging withother companies include: Coca-Cola merged with Apple Computer to promote its iTunes digitalmusic service. With this approach, Coca-Colas aim was to create a new form of communicationamong their younger customers (India Daily 2006). On September 26, 2006, Coca Colaannounced changes in the terms of their merge with Efes Sinai Yatirim Holding. In this merge,Coca Cola has a shareholding investment interest of 87. 63%. The Company announced thataccording to these changes, the merger and exchange ratios will be 97.7514% and 1.73839,respectively. Coca-Cola Icecap A.S. will also increase its capital from TRY 249,589,770 to TRY255,331,140 (Reuters 2006).On September 26, 2006, Pepsi Co., a major competitor of Coca Cola, announced that they hadacquired IZZE Beverage Company, the maker of all-natural, sparkling fruit juices. Unfortunatelythe announcement did not outline further details of the agreement (Reuters 2006). On September

25th Coca Cola announced its intent to take control of CCBPI from San Miguel Corp. Accordingto Reuters, Coca Cola Co. is set to take over management and control of the soft drinks arm of thePhilippines' San Miguel Corp., though a formal deal has yet be agreed on. San Miguel wants tooffload its 65% stake in Coca Cola Bottlers Philippines Inc. (CCBPI), the local unit of SanMiguel soft drinks firm, which has been suffering from weak sales and demand in recent years.Coca Cola currently owns 35% of CCBPI. San Miguel also wants Coca Cola to remove a non-competition clause; allowing San Miguel to sell beverage products that compete with CCBPI(Reuters 2006)Initial Public Offering (IPO) is the first sale of corporations common shares to public investors.New IPO means that the industry is continuing to expand (Yahoo Finance (2006).Although the most recent IPO in the nonalcoholic beverage industry occurred in 2002 theindustry is relatively stable. It is difficult for new competitors to enter the industry; if they are

successful, they will be faced with high competition because the industry is relatively full (YahooFinance 2006).Coca Cola has expended its operations over the past 120 years. They now operate in over twohundred countries with nearly 2400 product offerings. Their global operation is divided into sixgeographic locations- the Africa Group, East and South Asia and the Pacific Rim Group, theEuropean Union Group, the Latin American Group, the North Asia Eurasia and Middle EastGroup, and the North American Group (Coca Cola 2006).Coca Colas guiding principle is to ailed by example and learn form every experience (Coca Cola2006). Coca Cola has established high standards at all levels which they strive to meet in order to


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ensure that they achieve international best practices in terms of transparency and accountability(Coca Cola 2006). They have developed control systems which are outlined inTheir Corporate Governance Guidelines, Codes for Business Conducts, and bylaws. In addition,they have established seven committees which monitor and regulate performance at all levels ofoperations. These include Audit, Compensation, Finance, Management Development, PublicIssue and Diversity Review, Executive and Directors and Corporate Governance committees

(Coca Cola 2006)Coca Cola has a global citizenship which is dedicated to ensuring that their business operationsare conducted in a responsible manner. According to their website, the strength of their culturederives from a the passion, leadership and integrity demonstrated by all employees world- wide(Coca Cola 2006). Coca Cola is committed to ensuring that all company citizens are treatedfairly. They have adopted the practices of the United Nations Global Compact which is aninitiative guided by ten principles to encourage unity between UN agencies, labor and civilsociety, and to support universal environmental and social principles (UN Global Conduct 2006).

Within Coca Colas human resource department, strategies are developed and implemented whichwill ensure that the organization builds the capability to deliver desired business results (CocaCola 2006). With this being said, the human resource department is currently undergoing a

number of changes. Coretha Rushing, head of the department for the past four years is resigningas a result of a discrimination case (New York Times 2006). Along with this, the department isalso in the midst of planning to downsize. Coca Cola has approximately 37,000 employees whichfall under their human resource department. Employees receive the best value and are providedwith diverse benefits and options. Some of these include health and life, retirement, tuition andprogram, and additional benefits. As previously mentioned training programs made available toindependent retailers in general management, marketing, finance, inventory management, andcustomer service to independent retailers also fall within this department.Coca Cola recognizes that they must keep up with technology in order to maximize productivity.In 2003 they formed a contract with Symbol Technologies, Inc. They provided more than $3million in technological support. They built a system which combines the PDT 8100, data-communication cradles and printers for pre-sales operations. According to Coca Cola, a future

growth will include wireless wide area network communications for anywhere, anytimeinformation and laser bar code scanning (Symbol Technologies 2006). As a result, Coca-Colassales representatives are now able to visit 30-40 outlets daily which are 25 percent higher thanbefore. Technology investment brings different benefits to Coca Cola. These include increasedproductivity for sales representatives and increased number of sales visits by 25 percent. In thefuture, technology will continue to provide the highest level of service to the Coca Cola Companyby improving efficiency, leveraging existing knowledge, and proactively mitigating legal issuesby educating clients on key issues affecting the company (Coca-Cola 2006).Coca-Cola has plants, production sites and bottling facilities all around the world. This plays animportant role in their business since they are one of the global leaders of the non-alcoholicbeverage industry. According to the CIO of Coca-Cola, an outsourcing comes at the expense ofimproving in-house skills, which will eventually lead to reduced costs. As a result, Coca-Cola

uses outsourcing to be a world leader by implementing control mechanisms to its contractors, asis mentioned in appendix 1. In the mean time, they invest in and train their employees in order toachieve their long-term strategic goals. They take corporate responsibility very seriously, andmake sure that all of their business partners comply with their Supplier Guiding Principles (Zdnet2006).


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SUMMARY

Supplier Guiding Principles play a key role in maintaining Coca-Colas quality of standards.

Coca-Cola makes sure that their suppliers comply with these standards by using third parties toassess them. However, there are still many issues with regards to water resources, and healthproblems. For example, Coca-Cola drained so much water in India that at least five Indiancommunities are now faced with water shortages in addition to other health problems. Anotherexample includes, Coca-Cola using expired materials for the production of soft drinks inVietnam. An inspection was made in July 2006 and inspectors discovered 7.5 tons of expiredmaterial had been used to produce soft drinks. They also found that there was a large amount ofexpired soft drinks which had already been sold into the market.

It is important to gain the support of the local community as it will effect the growth, and theimage of the company. As a result, Coca Cola has certain rules in place which they must alsocomply with in order match their organizational responsibility guidelines. On the contrary,

examples previously mentioned display hypocrisy and damages their image.

Through the examination of the market activity of the nonalcoholic beverage industry they havenot found any significant changes within the industry. There were only two mergers and twoacquisitions with the most recent activity being in September of 2006. All of these transactionswere between unrelated parties which indicated a minimum growth in the industry. There mostrecent activity pertaining to IPOs was in 2002. Again, this is an indicator of the marginal growthof the industry. However, because Coca-cola is constantly expanding their operations all over theworld we can probably foresee that this may change in the near future. .

Coca Cola is doing an increasing amount of outsourcing in order to minimize their costs,maximize their profit, gain more market share, and to protect their competitive advantage. They

have mechanisms in place that control and assess their business partners in order to ensure thequality of their products and their image; however, their practices in some parts of the world donot act in accordance with their corporate responsibility guidelines. This results in bad publicityand negative brand image. The company is trying to circumvent these negative effects byinstituting training programs which promotes equilibrium of the companys value system.


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VALUE CHAIN MODEL

The value chain, is a concept from business management that was first described and popularizedby Michael Porterin his 1985 best-seller, Competitive Advantage: Creating and Sustaining

Superior Performance

USAGE:

The goal of these activities is to offer the customer a level of value that exceeds the cost of theactivities, thereby resulting in a profit margin. The value chain model is a useful analysis tool fordefining a firms core competencies and the activities in which it can pursue a competitiveadvantage.

The value chain categorizes the generic value-adding activities of an organization. The "primaryactivities" include: inbound logistics, operations (production), outbound logistics, marketing andsales (demand), and services (maintenance). The "support activities" include: administrativeinfrastructure management, human resource management, technology and procurement.
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APPLYING

VALUE CHAIN MODEL

PRIMARY ACTIVITIES

INBOUND LOGISTICS:

Some of Coca Colas most notable suppliers include Spherion, Jones Lang LaSalle, IBM, Ogilvyand Mather, IMI Cornelius, and Prudential. These companies provide Coca Cola with materialssuch as ingredients, packaging and machinery.

OPERATION:

Their core operation is the production of company owned concentrate and syrup.

OUTBOUND LOGISTICS:

This activity includes buyers and consumers as they get the finished product by the company. Theactivities required to get finished products to customers include warehousing, order fulfillment,transportation, and distribution management. Coca Cola has the worlds largest distributionsystem. They own, lease, and operate in over 800 plants around the world (Coca Cola 2006). The2,400 beverage products which they market reach consumers in more than 200 differentgeographic locations (Coca Cola 2006). Grocery stores such as Sobeys, fast food restaurants suchas McDonalds (fountain sodas), and vending machines are just a few of the distribution units usedto ultimately reach consumers.

MARKETING & SALES:

Out of approximately 2,400 products, Coca Cola markets four of the worlds top sales drinkbrands. Although the industry is relatively small and they only directly compete with twocompanies, creativity is a vital marketing strategy to Coca Cola.Coca Colas ultimate goal is to deepen their brands connection with consumers. As a result, theyhave to constantly reinvent their product. The marketing strategy they use is directly linked to theconsumer; from advertising, to point of sale, to ultimately opening and consuming a Coca Colabeverage. Techniques which they have used to achieve this include developing new products andbrands, changing the design of their packaging, and designing various new advertisingcampaigns.

SERVICE:

Coca Colas customers range from large international retailers and restaurants to smallerindependent businesses and vendors. As a result, they provide services tailored to meet theircustomers needs.Coca Cola also supports their customers by providing them with the training at no cost, necessaryto help their businesses become more effective and profitable.


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SUPPORT ACTIVITIES

INFRASTRUCTURE:

The infrastructure includes coco colas organization structure, control systems and companyculture.Coca Cola has expended its operations over the past 120 years. They now operate in overtwo hundred countries with nearly 2400 product offerings. Their global operation is divided intosix geographic locations- the Africa Group, East and South Asia and the Pacific Rim Group, theEuropean Union Group, the Latin American Group, the North Asia Eurasia and Middle EastGroup, and the North American Group. Coca Colas guiding principle is to lead by example andlearn form every experience. They have developed control systems which are outlined in theirCorporate Governance Guidelines, Codes for Business Conducts, and bylaws. In addition, theyhave established seven committees which monitor and regulate performance at all levels ofoperations. Coca Cola has a global citizenship which is dedicated to ensuring that their business

operations are conducted in a responsible manner. According to their website, the strength oftheir culture derives from the passion, leadership and integrity demonstrated by all employeesworld- wide. Coca Cola is committed to ensuring that all company citizens are treated fairly.

HUMAN RESOURCE MANAGEMENT:

Coca Cola has approximately 37,000 employees which fall under their human resourcedepartment. Employees receive the best value and are provided with diverse benefits and options.Some of these include health and life, retirement, tuition and program, and additional benefits

TECHNOLOGY:

Coca Cola recognizes that they must keep up with technology in order to maximize productivity.They formed a contract with Symbol Technologies, Inc. They provided more than $3 million intechnological support. They built a system which combines the PDT 8100, data-communicationcradles and printers for pre-sales operations. According to Coca Cola, future growth will includewireless wide area network communications for anywhere, anytime information and laser barcode scanning.

PROCUREMENT:

Coca-Cola has plants, production sites and bottling facilities all around the world. This plays animportant role in their business since they are one of the global leaders of the non-alcoholicbeverage industry. Coca-Cola uses outsourcing to be a world leader by implementing control

mechanisms to its contractors. They invest in and train their employees in order to achieve theirlong-term strategic goals.

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