OPerations Pepsi Multan

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OPerations Pepsi Multan

Transcript of OPerations Pepsi Multan

Relation with Pepsi Company International:

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Relation with Pepsi Company

(International)

Pepsi Company is listed in New York Stock Exchange. In Pakistan, there are 10 units of Pepsi Company. Shamim & Company is franchised by Pepsi Company on these terms & conditions:

Shamim & co., has got a quality standard and has been provided parameters to maintain and improve quality by Pepsi Company.

Territory is fixed by Pepsi Company:

Pepsi Company is responsible for advertisement of its products.

Profile of Shamim & Company

History:

Shamim & Company was established in 1967, as private limited company. It started production in 1968. At first it was known as 7-up factory as 7-up was its initial product.

Shamim & Company was named after the nephew of Allah Nawaz Khan Tareen, the real owner of Company. Currently Alamgir Khan Tareen is its Managing Director & Chairman who is the son of Allah Nawaz Tareen.

Territory:

Shamim & Company covers the widest territory in Pakistan. It does not only cover Multan Division but the areas of, Rahim Yar Khan, Sahiwal and even Quetta are also included in its territory.

Products: The first product of Shamim & Company was 7-up. But now the Company is producing 4-products:

1. Pepsi Cola

2. Mirinda

3. 7-up

4. Teem

Mirinda Green was also its product but it failed to get adequate response from customers as it was not according to their taste and there was no proper publicity or advertisement for it.

Product Designing: All products have been designed by parent company i.e. Pepsi International. So Shamim & Company is not involved in product designing.

Main Operation: Operation is a process that transforms inputs into finished goods and services. Shamim and Company has its main operation as:

To convert empty-returned bottles into filled bottles and to distribute them to retailers.

Main objectives:

The two main objectives of Shamim & Company are:

1. To provide the customers, quality-products, along with maximization of profits.

2. The continuous improvement in quality.

Unique features of Shamim & Company:The Company has following distinguishing features:

Shamim & Company is the biggest soft-drink manufacturer in Pakistan.

Shamim & Company covers the largest area/territory among all Pepsi Companys franchisees in Pakistan.

Shamim & Company has won quality awards at international, asia & national level.

Departments:

The main departments of Shamim & Company are:

Production Department Marketing Department

Finance Department Personnel

Sales Department Accounts Department

Shipping Administration

Project Management

Main ActivityDescriptionImmediate Predecessors

APrepare feasibility of project-

BFulfill legal requirements for being franchised by Pepsi Co.A

C Select administration. A

DSelect site, capacity and do site surveyB

ESelect equipment/plants.D

FPrepare final construction plans and layouts.D

GBring utilities to siteD

HPurchase and take delivery of equipment.E

IInterview applicants to fill position.C

JConstruction of buildingF

KInstallation of equipment G, H, J

Operations Strategy

Pepsi Company international and its franchisees basically follow consumer driven operation strategy i.e. the strategy which focuses at consumers needs & wants.

This strategy begins which Market analysis:

Market Analysis:

The main consumers of Shamim & Company are:

Youngsters

Middle Social Class

So marketing compaign of Pepsi products focuses on these two mentioned segments. The direct customers of Company are retailers and after it consumers are indirect customers.

Coca Cola Company is the major competitor of Pepsi at world-level, producing the products of Coca-Cola, Fanta & Sprite. Similar is the case with Shamim & Company.

Corporate Strategy: Goals:

As earlier discussed, the main objective or goal of Company is to satisfy the customers needs along with maximization of profits.

Core Competencies: The core competencies of Shamim & Company are:

Well-trained & experienced workforce.

Systems & Technology.

Financial & market know-how of its managers.

Well supportive facilities.

Competitive Priorities:

Shamim & Company is producing standardized products. So competitive priorities of Shamim & Company are as following:

Cost:

Due to standardized products, Company gives priority to minimize the per unit cost & total cost as well.

Quality: Shamim & Company wants to maintain a consistent quality of its products i.e. the product, which is produced here, must meet the designe specifications.

Time:

Shamim & Company meets its delivery-time promises i.e. The Company pays most attention to delivery -on- time, to satisfy customers & retailers needs on the time, which they want.

Flexibility:

Since Shamim & Company does not focus the unique demand of customers & products are standardized, So Company works for volume flexibility i.e. Company is able to accelerate or decelerate the rate of production quickly to handle large fluctuations in demand.

Flow strategy:

There are three possible flow strategies, which an organization can adopt.

1. Flexible flow strategy:

Under this strategy, employees & equipment are organized around process. This strategy is for low-volume or customized products.

2. Line flow strategy: Under this strategy equipment & employees are organized around the product or service. This strategy is for high volume or standardized products.

3. Intermediate flow strategy.

The strategy is mixture of above both strategies but with some dominant flows. Product or service volumes are relatively high and system is capable of handling several customer orders at a time.

Flow strategy in Shamim & Company: Shamim & Company work with Line flow strategy where people & equipment are organized around the product as product is standardized & high-volume production is there.

Strategies based on Flows: There are 3 strategies based on three flow- strategies.

Make-to-Stock Strategy: Its for line-flow strategy & high- volume production.

Assemble to- order Strategy: Its for intermediate flow strategy. The components exist in organization but they are assembled on order.

Make-to-order Strategy:

Its for flexible-flow strategy & customized product or services.

Application on Shamim & Company: Shamim & Company works under make-to-stock strategy as it holds items in stock for immediate delivery, thereby minimizing customer delivery times. This strategy causes the competitive priorities of low cost & consistent quality for the Company.

Decision-Making

In Shamim & Company major decisions e.g. about product development or product design or advertisement etc. are made by its franchiser i.e. Pepsi Company, like decision for launching Mirinda Green, was made by Pepsi Company.

The managers of Shamim & Company while making decisions about the co., use different techniques like break-even analysis & other software.

Normally the departments make independent decisions, but for some main issue or major problem, all departments heads jointly make decisions.

Process

In Shamim & Company resources are organized around product as Company adopts line-flow strategy. Company can change production according to demand fluctuations.

Process is same for all products i.e. Pepsi Cola, 7-up, Mirinda & Teem. No plant is fixed for a certain product. Pepsi Cola has largest production as it has highest demand among all products.

Product Switch over:

On the same plant, while switching over to another product (e.g., from Pepsi Cola to 7-up) the plant is washed by washing detergent , called TSP.

Process Stages:

1st Stage (Getting Treated Water):

Lime, Farris Sulphate (for iron) & chlorine are added to raw/hard water & it goes in chemical tank where carbonates and bi-carbonates settle down, & they get treated/soft water.

2nd Stage (Preparation of Simple Syrup):

Simple Syrup is made by mixing up sugar into water after poisturization of water at 85C. After stay for a time period, this simple syrup is filtered & then cooled down at 19 C. Water is heated/boiled & cooled down at extreme temperature to avoid germs-growth at normal temperature like 32 C to 35 C

3rd Stage (Preparation of Finish Syrup):

Now this simple syrup goes into syrup storage tanks. Concentrate & flavor are added to simple syrup & it is called finish syrup.

4th Stage (Washing Empty Returned Bottles): Empty returned bottles pass through steam under 57 C to 77 C, then these are cooled down. This process-step takes 45 minutes. Now bottles are washed by Caustic-Soda, TSP and water. Now a light-test is conducted for these treated bottles, where the bottles pass in front of a light.

5th Stage (Filling Section):

Now syrup & treated water come to Carbo Cooler in which NH3 (Ammonia) chips, are used for cooling purpose. Co2 gas also comes in Carbo Cooler. After a flow-mix in Carbo Cooler, the resultant drink comes into filler, where empty washed bottles are filled.

6th Stage: Now bottles come to Crowner where these are crowned then bottles pass through a light test to have a check for overfilled, underfilled or any deficiency.

7th Stage:

After passing through printer, the casing of bottles is made, & at last shipping hand over is there.

Location

Shamim & Company is situated near MDA (Multan Development Authority), on the road leading to Nishtar Hospital i.e. District Gaol road.

Selection of Location

The major factor was proximity to markets ,in selection of location.

Location Analysis:The location described above is favorable for Shamim & Company due to following factors:

1. Market related factors:

Shamim & Company has proximity to its major market i.e. Multan City which has been declared by Pepsi Company; The Pepsi City.

This location is very much helpful for Shamim & Company, in competition also to maintain proper distribution, to reduce transportation cost & time etc.

2. Tangible factors:

Labour is easily available from villages & city at normal wages.

No problem is there for supply of electricity.

Most essential raw material i.e. sweet water is easily available to them.

Transportation cost is low.

3. Intangible factors:

Community attitude is positive towards Shamim & Company.

Living conditions are quite good for employees i.e. No harm is there for their health, safety & psychology.

Capacity

Capacity is the maximum rate of output for a facility. The facility can be a workstation or an entire organization.

How Shamim & Company plans its capacity:

In Shamim & Company, capacity planning is based upon demand analysis & demand forecasts.

Normally Sales department, analyses demand & forecasts the demand. Then facts and figures about demand are delivered to General Manager Technical, who plans capacity.

Plants:

There are 4- manufacturing plants, which are imported from Germany, and these plants are used according to season.

So their usage very from 4- plants to 1-palnt.

Capacity Information:

Avg. output rate =15000, cases per day per plant.

Here 1- day =24 hours and 1-case = 24 bottles.

Maximum or peak capacity =20,000, cases per day per plant.

Effective capacity = 15,000 cases per day per plant.

Utilization rate= (peak) per plant.

Utilization rate= (effective)per plant.

Capacity cushion =100% - 75% = 25% per plant.

Capacity cashion is large one, which costs money, but Company is able to meet any future demand.

Expansion in Capacity: In start, there was only 1-manual plant having capacity of 2000-cases per day. But now due to:

Increase in market size (population)

Increase in demand,

There are 4-plants in Shamim & Company in just 33-years.

These 4-plants are automatic with effective capacity of 15000-cases per plant per day.

Strategy:

Shamim & Company follows Expansionist strategy as it uses frequent and large jumps in capacity.

Economies of large capacity:

Shamim & Company with large capacity is enjoying following economies of scale:

Reduced costs of purchased material by having discounts on heavy/large purchases.

When output rate increases utilization rate also increase and per unit cost decreases in large capacities because fixed costs are spread over more units.

In large capacity, Company gets more experienced workforce so productivity is increased & so cost is reduced.

Diseconomies of large capacity:

Shamim & Company also faces following diseconomies of scale (large capacity).

Its difficult to manage large capacity.

It requires more capital.

Forecast for demand is less accurate.

Simulation Analysis

In the process of Simulation, we use a model to reproduce the behavior of system & to find solution of a complex problem. This model consists of different variables or alternatives.

Shamim & Company has a Research dept. which works with Simulation Analysis. There are MIS-people to handle simulation system.

Layouts

Layout is physical arrangement of economic activity centers within a facility. An economic activity center can be anything that consumes space.

In other words Layout is physical arrangement of people, equipment or activities.

Application in Shamim & Company: Shamim & Company works with Product Layout type, as resources are arranged around the products route. Computer application is also there in making layouts.

Some Layouts, In Shamim & Company:

Some main layouts in Shamim & Company are following:

Layout of plants.

Layouts of Equipment.

Manufacturing layout.

Office layout.

Retail layout.

Distribution & warehouse layouts.

Forecasting

Patterns of Demand:

Demand for products of Shamim & Company follows Seasonal Pattern i.e. repeatable pattern of increases or decreases in demand, depending on the time of season.

Factors affecting demand:

1- External factors:

Now-a-days, the biggest facotr affecting demand of products (of Shamim & Company) is the Competitors actions & frankly speaking the actions/policies of Coca Cola Company e.g. there effective advertising compaigns etc.

Govt.s rule & regulations about taxes & prices also influence the demand by affecting the price of products.1. Internal factors:

3-main internal factors affecting demand are:

Price.

Advertisement.

Distribution.

Design of Forecasting System:

1. Deciding what to forecast: Level of aggregation:

In Shamim & Company forecast is made about all four products separately.

Unit of Measurement:

Forecasting is made in terms of Cases where 1 case = 24 bottles.

2-Type of Forecasting Technique:

In Shamim & Company forecasting is made for short-term period i.e. for a quarter (3-monts).

In Shamim & Company, the base for forecasting is previous data about sales, which is provided by sales department. After analyzing the data, the forecast is made. Executive Opinion is also used in forecasting i.e. Opinions, experience & technical knowledge of related managers. So forecasting in Shamim & Company is a blend of analysis of data & executive opinion.

Supply Chain Management

Supply-chain management aims at synchronization of a firms activities/ functions and those of its suppliers to match the flow of materials, service and information with customer demand.

Application on Shamim & Company:

Structure:

The structure of Shamim & Company is more inclined towards segmented structure as most of the decisions are made independently by all the departments & only in case of targeting (demand etc.) there are joint decisions.

Supply Chain:

(Supplies of raw material)

Shamim & Company has independent supply-Chain entities i.e.

All depts. normally make independent decisions.

Customers & suppliers are not involved in decision-making.

Mode of placing Order:

Telephone is used about in all cases, to place order for acquisition of raw material.

Supplier Selection: The first priority is given to Quality while selecting suppliers, by Shamim & Company. Price is considered after quality & delivery time at last. Selection is on the basis of samples sent by the suppliers to production managers.

Supplier relations:

Shamim & Company and its suppliers have cooperative orientation b/w them. Its main reason may be that Shamim & Company does not focus on price mainly but quality & Shamim & Company in one of the biggest customers of its suppliers, normally.

Sole Sourcing:

Sole sourcing is not there in Shamim & Company, as Company does not place orders to only one supplier for a particular item.

Raw Material & suppliers

Raw Material:

Water, sugar, CO2, Ammonia, Concentrate, Caustic Soda, Empty Bottles, Flavor,etc.

Acquisition of Raw Material:

Water:

Water is obtained from local resources. As co. has its own plant of water acquisition & treatment.

Sugar:

A Grade sugar is bought from Ittefaq Sugar Mills, Layyah Sugar Mills and also imported from Dubai.

Concentrate and flavor:

Concentrate and flavor come from Pepsi Co. from U.S.A.

CO2 :Company has its local plant for CO2, which does not fulfill requirement of company. So it is bought from other gas companies like Pak Gases, and Multan Gases.

Caustic Soda:

Caustic soda for washing empty bottles is bought from Sitara Chemicals, etc.

Empty bottles : Empty bottles are returned by the people.

New bottles:

New bottles are acquired from glass factories like Toyo Nasic, DGL (Balochistan).

Distribution:

1. Placement of finishing goods inventory:Shamim & Company is involved in forward placement of finished goods inventory, i.e. its locates the stocks closer to customers.

Advantages from forward placement are following:

Reduction in transportation cost

Fast delivery times

2. Transportation mode :

Roads are the biggest/ main transportation mode in distribution of shamim & co.

Trucks are normally used for distribution. So distribution is very flexible due to use of high way-transportation.

3. Scheduling, routing & carrier- selection.

The area / territory of Shamim & co is divided into many sectors/regions. For every region, there is RSM i.e. regional sale manager, who is involved in scheduling/ routing & carrier selection decision making by survey of outlets.

Inventory measures:

Shamim & co normally measures inventory in terms of weeks of supply.

Where,

weeks of supply =

Inventory Management in Shamim & Company:

Shamim & Company has pressures for low-inventory because:

Shamim & Company wants to provide fresh products to its customers.

Holding cost of inventory is high.

High inventory causes high tax also.

Types of inventories in Shamim & Company:

1. Cycle- inventory.

2. Anticipation inventory but at very minimal level as products are not stored for a long-time period.

3. Safety stock at minimal level.

4. Pipe-line inventory is also there which is dependant upon suppliers reliability & lead-time

Pipe line inventory/Buffer Stock = dL

Where d = demand during unit of lead-time.

L = length of lead-time.

Supplies are distant normally, so Company has to maintain a considerable amount of Buffer-Stock.

Inventory reduction tactics:

Cycle inventory is going to be reduced by increasing repeatability.

Shamim & Company always tries to make good forecasts about demand & suppliers-delays to reduce safety stock.

Suppliers of Shamim & Company are not habitual of delaying in case of Shamim & Company, as Company cant afford any delay.

Inventory control system:

Shamim & Company uses Periodic Inventory System i.e. P-system for inventory management. So inventory is reviewed normally on weekly basis. Some times daily reviews are also made. Each month the store prepares Monthly consumption reports.

Reorder point:

For two main items reorder pts., are as following:

Sugar is reordered when it is left for only 100-batches.

Concentrate is ordered for 2 a 3 times a year.

Inventory Record Accuracy:

Store manager is responsible for inventory record accuracy. He personally reviews inventory on daily basis & some times, production manager also reviews inventory even on daily basis.

Replenishment:

For some items e.g. concentrate, flavor etc., Shamim & Company experiences instantaneous replenishment & for some items, e.g. sugar etc., co. experiences non-instantaneous replenishment i.e. Company receives orders in installments.

Quantity discounts:

Company buys bulk-quantities, so it enjoys quantity discounts also, by which cost is reduced, profit margin increased and price becomes creative.

Aggregate Planning

Aggregate plan is a statement of production rates, work-force levels and inventory holdings based on estimates of customer requirements & capacity limitations.

Since Shamim & Company is a manufacturing co., so its aggregate plan is also called production plan.

Unit of plan:

Aggregate plan is expressed in terms of no. of cases. Which are also called SKU (stock keeping units). 1 case = 24 bottles.

Planning horizon:

Aggregate plan is mostly prepared for a period of one year, but sometimes, it is also prepared for 3-4 years.

Strategy for aggregate planning:

Shamim & co. follows chase-strategy as it follows demand-pattern-Demand for Shamim & co.s products is seasonal.

So due to seasonality of demand & chasing of demand, the co; adopts following alternatives:

Reactive Alternatives: The reactive alternatives are the actions that are taken to cope with demand requirement.

1. Work force adjustment:

Company has 2-types of employees:

Employees at permanent basis.

Employees at contract basis

The employees at contract basis are hired & fired in peak & slack seasons respectively.

2. Work-force utilization:

(i). Overtime:

Normally there is not the tendency of over-time in Shamim & Co. as management thinks that productivity of workers is reduced during over-time.

(ii) Under Time:

The permanent workers are also paid; the under time, but the workers on contract-basis are paid on the basis of working hours so under time is not paid to them.

3. Vacation schedule:

Shamim & Company gives incentives for vacations in slack-season. Vacations are given on the basis of labor-laws in Pakistan.

Company does not adopt aggressive alternatives, as co. has not complementary products & creative pricing.

Linear Programming

Linear programming is not normally applied in Shamim & co. or if it is applied, then at a very minimal level.

Objective Function:

Maximize

pi = price per case

xi = No. of cases

i = 4-products; Pepsi, Mirinda, 7-up, Team

Constraints are in terms of budgeted resources & capacities.

Material Requirement Planning (MRP)

Material requirement planning system enables businesses to reduce inventory levels, to utilize labour and facilities in a batter way and improved customer-service.

Inputs to MRP:

1. Bill of material (BOM):BOM is a record of all the components of an item, the parent component relationship and usage quantities derived from engineering & process designs.

The simple BOM for Shamim & Companys product is as following.

End item

= 1-case of bottle

Purchased items = raw material & cases

Intermediate items = Bottles, Syrup

Sub-assemblies = Bottles, Syrup

2. Inventory Records:

In inventory records, Shamim & Company uses to order after variable periods of time and of variable quantities, depending upon season.

Item with highs lead time is Sugar

Item with lowest lead time is Co23. Master product Schedule (MPS):

MPS gives details about production of end items within specified periods of time.

In Shamim & Company, MPSs are prepared normally on weekly basis.

Total Quality Management (TQM)

There are basically three principles of TQM:

Customer satisfaction

Employee involvement

Continuous improvement

TQM in Shamim & Co., is also concerned with above three basic principles.

Customer Satisfaction:

The management of Shamim & co., evaluates its customers satisfaction in following terms:

Whether products meet customers needs.

How much utility they get out of these products.

How effective advertisement is?

The degree to which products can express lifestyle of customers.

Employee Involvement:

Training:

There are no specific training centers/ programs for employees. Employees are usually trained by:

Seniors

Seminars

Incentives:

Special allowances are given at Eid & Festivals.

Incentives are also given for regular work during peak season.

Promotions are also given to employees on the basis of their performance.

Continuous Improvement:

Continuous improvement is in terms of continuous modification in quality. For such modification the co., uses statistical process control , training of employees and different problem-solving tools.

Other considerations:

Problem Solving tools:

In order to monitor the quality system, the management & responsible personnel use checklists, graphs and some other control charts.

Quality-Tests for raw material:

Sugar quality test is called Brix.

Concentrate test.

Water treatment tests.

Upper tap test.

San filter and carbon purifier test.

Water softness test.

Finished bottle test i.e. light test.

Microbiological test by chemist after a week

Quality Awards:

Shamim & co., has won valuable quality awards. Some of them are:

1st prize for quality in 1994 at international level by Pepsi International company.

Asian Champion in 1999.

Statistical Process Control:Co. uses different control charts to match the output of process with product design. Most of the charts/tests are applied at work-in-process. These charts include Mean-chart, Range-chart & c-chart (to check # of defects per unit.)

Sampling Plan: Co., uses single-sampling plan to accept or reject the lot. Normally sample size is very small as co., is confident upon its suppliers.

Work Design And Measurement

Work must be done in selective, repetitive, reasonably uniform manner (division of labor & specialists).

Work must be homogeneous.

There must be sufficient volume of work.

Production manager checks the productivity of employees and machines.

Future Plans

Co., has two significant future plans:

Shift of facility/plant to out-side area of Multan City. The reason is the restrictions imposed by Govt., on trucks & other heavy transport vehicles, to enter into the city boundaries in day time. So it becomes hurdle in the way of distribution.

Shamim & Co., is trying to get ISO-9000 Quality standards. ISO-9002 is their target standard as co. is mainly involved in production & distribution.

Current Affairs

Now a day, the co. is facing two main issues:

Increased Competition:

Co. is facing very tough competition with its traditional competitor i.e. Coca-Cola, people because of their effective advertisement & modified strategies. So advertisement cost at local level has been increased.

Sugar Prices:

Sugar is one of the major raw materials of Shamim & co. Continuous increase in sugar prices is enforcing the company to increase the price but it is very difficult to do it due to increased competition.

So reduction in cost of operations along with quality improvement is really a big challenge for management of Shamim & co., particularly in recent days.

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Consumers

Retailers

Distributors

Shamim & Company

Sugar

Gases

Concentrate + flavor

Detergents & Washing Powders

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1- Case of bottles

Case (1)

Bottles (24)

Crowns (24)

Print

Empty Bottles(24)

Syrup

Returned

Purchased

Sugar

Water

Concentrate

Others

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