Harvard Case - Suppliers Selection at Pepsico Europe
"Suppliers Selection at Pepsico Europe" Harvard business case study is written by Alejandro Serrano, Nadjia Gassner, Humberto Pardi, Albert Girbal Puig. It deals with the challenges in the field of Operations Management. The case study is 11 page(s) long and it was first published on : Feb 25, 2021
At Fern Fort University, we recommend PepsiCo Europe implement a comprehensive supplier selection and management strategy based on a multi-criteria evaluation framework. This framework should prioritize long-term partnerships, sustainable practices, and digital integration to enhance supply chain resilience, cost optimization, and innovation.
2. Background
PepsiCo Europe faces a complex challenge in managing its vast supplier network, balancing cost pressures, quality requirements, and sustainability goals. The case study highlights the company's need for a more strategic approach to supplier selection, particularly considering the increasing complexity of its supply chain and the growing importance of sustainability.
The main protagonists in the case study are the PepsiCo Europe procurement team, who are responsible for sourcing raw materials, packaging, and other inputs for the company's extensive product portfolio. They face the challenge of selecting suppliers that meet stringent quality and cost requirements while also aligning with PepsiCo's sustainability initiatives.
3. Analysis of the Case Study
This case study can be analyzed through the lens of operations strategy and supply chain management. PepsiCo Europe's current approach to supplier selection is largely based on cost minimization, which has led to a fragmented and reactive supply chain. This approach lacks a strategic vision and fails to consider the long-term implications of supplier relationships.
Key issues identified:
- Lack of a standardized supplier selection process: The current process is ad-hoc, leading to inconsistencies and potential risks.
- Limited focus on sustainability: While PepsiCo has sustainability goals, these are not effectively integrated into the supplier selection process.
- Insufficient data and analytics: The company lacks a robust system for tracking supplier performance and identifying potential risks.
- Limited collaboration and communication: Silos exist between procurement, operations, and other departments, hindering effective supplier management.
Framework for Analysis:
We can apply the Porter's Five Forces framework to understand the competitive landscape and identify key factors influencing supplier selection. This framework considers:
- Threat of new entrants: The beverage industry has a high barrier to entry, but new entrants can emerge with disruptive technologies or innovative products.
- Bargaining power of suppliers: Suppliers have a significant bargaining power due to the concentration of raw materials and packaging providers.
- Bargaining power of buyers: PepsiCo has significant bargaining power due to its large scale and brand recognition.
- Threat of substitute products: The beverage industry faces competition from other beverage categories and non-alcoholic alternatives.
- Rivalry among existing competitors: The beverage industry is highly competitive, with intense rivalry among major players.
4. Recommendations
To address the challenges and capitalize on opportunities, PepsiCo Europe should implement the following recommendations:
1. Develop a Robust Supplier Selection Framework:
- Establish clear criteria: Define key selection criteria based on quality, cost, sustainability, innovation, and risk management.
- Implement a multi-criteria evaluation system: Use a weighted scoring system to evaluate potential suppliers based on the defined criteria.
- Develop a supplier qualification process: Establish a rigorous process for evaluating and qualifying potential suppliers, including site visits and due diligence.
- Leverage technology and analytics: Utilize data analytics tools to identify potential suppliers, track performance, and monitor risks.
2. Foster Long-Term Supplier Partnerships:
- Build strong relationships: Develop collaborative relationships with key suppliers based on mutual trust and shared goals.
- Implement supplier development programs: Provide support and resources to help suppliers improve their capabilities and meet PepsiCo's evolving needs.
- Encourage innovation: Collaborate with suppliers to develop new products, processes, and technologies.
3. Integrate Sustainability into Supplier Selection:
- Establish clear sustainability standards: Define specific sustainability criteria and expectations for suppliers.
- Conduct sustainability audits: Regularly assess supplier performance against sustainability standards.
- Reward sustainable practices: Incentivize suppliers who demonstrate strong sustainability performance.
4. Enhance Supply Chain Collaboration and Communication:
- Break down silos: Promote cross-functional collaboration between procurement, operations, and other departments.
- Implement a centralized supplier management system: Use an enterprise resource planning (ERP) system to track supplier data, performance, and communication.
- Foster open communication: Encourage open dialogue and knowledge sharing between PepsiCo and its suppliers.
5. Leverage Digital Transformation:
- Implement digital procurement solutions: Utilize e-procurement platforms to streamline supplier selection, contract management, and order fulfillment.
- Integrate data and analytics: Leverage data analytics to optimize supplier performance, identify cost savings, and mitigate risks.
- Embrace digital collaboration tools: Utilize video conferencing, online collaboration platforms, and other digital tools to enhance communication and collaboration with suppliers.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of PepsiCo Europe's current situation and the competitive landscape. They align with the company's mission and core competencies, address the needs of external customers and internal clients, and consider the competitive landscape.
Quantitative Measures:
- Cost reduction: Implementing a strategic supplier selection process can lead to significant cost savings through optimized sourcing and reduced procurement costs.
- Improved quality: Partnering with high-quality suppliers can enhance product quality and reduce product defects, leading to improved customer satisfaction and brand reputation.
- Enhanced sustainability: Integrating sustainability into supplier selection can improve PepsiCo's environmental and social performance, attracting environmentally conscious consumers and investors.
Assumptions:
- PepsiCo Europe is committed to implementing a strategic supplier selection and management strategy.
- The company has the resources and commitment to invest in the necessary technology and infrastructure.
- Suppliers are willing to collaborate and embrace PepsiCo's sustainability goals.
6. Conclusion
By implementing these recommendations, PepsiCo Europe can transform its supplier selection and management process, creating a more resilient, cost-effective, and sustainable supply chain. This will enhance the company's competitive advantage, improve operational efficiency, and contribute to its long-term success.
7. Discussion
Alternative Options:
- Continuing with the current approach: This would maintain the status quo but expose PepsiCo to risks associated with fragmented sourcing, increased costs, and potential supply chain disruptions.
- Outsourcing supplier selection to a third-party: This could provide expertise but may compromise control and potentially increase costs.
Risks and Key Assumptions:
- Implementation challenges: Implementing a new supplier selection framework requires significant change management and organizational commitment.
- Supplier resistance: Some suppliers may resist PepsiCo's sustainability requirements or the need for increased transparency and collaboration.
- Technology adoption: Implementing digital solutions requires investment and expertise in technology and data analytics.
8. Next Steps
- Form a cross-functional team: Assemble a team representing procurement, operations, sustainability, and IT to develop and implement the new supplier selection framework.
- Pilot test the framework: Implement the framework on a pilot basis with a select group of suppliers to evaluate its effectiveness and identify any necessary adjustments.
- Develop a communication plan: Communicate the new supplier selection strategy to all stakeholders, including suppliers, internal teams, and external partners.
- Monitor and evaluate performance: Regularly track and evaluate supplier performance against the defined criteria and make adjustments as needed.
By taking these steps, PepsiCo Europe can successfully implement a strategic supplier selection and management process that will drive long-term value creation and enhance the company's competitive position in the global beverage market.
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Case Description
In 2018, Pepsico is considering adding a new supplier of CO2 to its manufacturing process in Eastern European plants. The new supplier offers a very competitive price, but other key aspects, such as reliability, service level, etc. should be carefully pondered before making a decision. Also, adding a new supplier implies removing one of the extant ones. Which one should be removed? The proposal made by Migdalski, head of purchasing in Eastern Europa, has to be analyzed before a firm decision is made.
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