Category : Coca Cola Case Studies, Softdrink Industry
STRATEGIC SUPPLY CHAIN MANAGEMENT AT COCA COLA BOTTLING COMPANY CONSOLIDATED IN CHARLOTTE, NORTH CAROLINA
A business organization basically exists for two reasons: to deliver a service or to sell products or goods. Either of these reasons become the organization’s purpose for existence and is given paramount importance and planning. The success of the organization’s operation rests firmly on the ability of the management and staff to recognize what the market wants or needs and adopt its strategies to suffice these needs. In the process, the organization has to ensure that its supply of products or the delivery of its service is efficient enough to cover the specified need of the market. Customer satisfaction is tantamount in importance to inventory management and delivery mechanism. These factors are what constitute supply chain management.
Supply chain management is the recognition of the direct link between planning and control of supply or value adding process and corporate competitiveness. It is an effort to integrate the processes involved in the business operation from the determination of the customer wants and needs to the creation of a new product or service to meet that demand. The decisions that affect the design of purchased materials or services into and through a corporate entity to finished products are also taken into consideration. Generally, supply chain management involves expert deployment of supply chain resources aimed at economic advantage (2006).
THE COCA COLA STORY OF STRATEGIC SUPPLY CHAIN MANAGEMENT
Humble beginnings for Coca Cola Bottling Company Consolidated (CCBCC) in Charlotte, North Carolina, USA were marked by a single softdrink brand packed in little green bottles. The single product was a response to the simple business environment that the company was facing then. Operation was easy and replenishment of supplies in distribution centers was a simple job for the drivers who would load their trucks, determine the business route and drop the supplies to the centers. As the company grew and more products were developed, the business environment changed into one of complexity and competition. The company’s established reputation of being Coca-Cola’s second largest bottler in the United States and one of the highest per-capita softdrink bottlers in the world is a great challenge in itself.
Problems Faced by the Company
Presently, CCBCC bottles, packages and distributes 13,000 products to 200,000 customers throughout the Southeastern states and over 125 million cases of products each year. It covers five bottling plants and sixty distribution centers. Forecasting and production are completely decentralized with each manufacturing plant creating its own forecasts for a span of four weeks to be updated weekly by the plant’s sale and marketing personnel, and scheduling production and delivery to its associated distribution centers based on the forecast. There is no coordination and visibility between plants which resulted to difficulty in shifting inventory surplus in one plant to cover for a shortage in another.(1997) argued that the classic objective of supply chain management is to be able to have the right products in the right quantities at the right place at the right moment at minimal cost. The result of the nonexistent collaboration between the company’s plants is sporadic stockouts despite much inventory in general. wrote that inventory costs fall into three categories: (1) carrying costs of regular inventory and safety stock; (2) ordering or setup costs; and (3) stockout costs. The relationship between stockout costs and inventory depends upon the accuracy of the demand forecast and the ability of the firm to recognize and react to a change in demand. Stockout costs for CCBCC came out of the wrong inventory brought about by changing promotions in the retail chain level. This is made possible by the unsupervised freedom given by the decentralized system to the company’s retail chains in involving customers in promotions and discounts. Most of these promotions which affect the volume of productions are not made aware to the bottler. Any changes in the promotions or advertisements of the company’s products among the retail chains affect the company’s inventory. The company is presently in a critical position of efficient production wherein deciding what products to produce and how much volume of these products should reach the distributions centers in various locations are corporate issues. Moreover, as the company continues to grow and new products are introduced to the market, CCBCC is facing the expense of adding ten to fifteen new warehouses with an average cost of $5 million each, a huge investment indeed. Basically, management of a supply chain involves the integration of all decisions that affect the design and flow of purchased items, materials and services into and through a corporate entity to finished products. In the application of supply chain management, internal and external materials decisions become part of a focused sourcing strategy aimed at winning customers and increasing competitiveness (2006). CCBCC was in the midst of trying to incorporate all these factors into its supply chain management efforts.
CCBCC had three goals in its pursuit of solutions to the corporate problems at hand. The company wanted to ensure fresher products in the shelf by cutting finished-goods inventory in half, from twelve to fourteen days to six to four days at the plant and two days at the distribution center, or in store for the small number of instances where CCBCC ships direct. According to (2006) supply chain management leads to cost savings, largely through reductions in inventory.(1997) added that binding capital in inventories prevents the company from investing this capital in projects of higher return. Secondly, it wanted to improve customer service levels and reduce stockouts by having the right product in the right place. This is primarily the essence of supply chain management as (1997) cited that satisfied customers are the desired end result of any supply chain management strategy. Typical measures of customer service are a company's ability to fill orders within due date (fill rate), or its ability to deliver products to customers within the time quoted (on-time deliveries). Lastly, it wanted to reduce large-scale capital investments in warehousing. The three goals of CCBCC were all focused on inventory, customer satisfaction and warehouse management – three important areas of an efficient and strategic supply chain management.
The company aimed for a better visibility to actual demand and more flexibility in production. To address the concern about the current centralized system of forecasting and production as well as realize the goals, CCBCC allied with Manugistics for a well-rounded solution to the corporate issues at hand. The company decided to implement Networks Demand, Networks Fulfillment, Networks Collaborate, Production Scheduling and Demand Planning Extended Edition. The first phase of implementation involved demand planning and scheduling then the collaboration process came next. According to (2001) a company can effectively use customer data to synchronize its supply chain operations with consumer needs. This can be done through customer supplied forecasts, which many people deem a necessary part of managing a supply chain (p.1). In CCBCC’s case, everything began with information fed by the customers. The process started with the marketing and customer-development group inputting price plans from the company’s largest customers, estimated demands from other customers, known promotions and price points as well as new information about new product introductions or other system-wide events. The base forecast presented a seventeen-week forward view with a focus on the next four weeks. Updates were done every Thursday and sent to the area sales managers who were assigned with specific distribution centers. These managers reviewed the forecast; made notes and specified modifications as far as four weeks out based on changing promotions among the customer base and specific local knowledge. This process ensures flexibility. Flexibility is the ability to respond to changes in the environment. In the case of a manufacturer, flexibility is the ability to change the output in response to changes in the demand (1997).
The Manugistics system was equipped with an automatic alert mechanism that double checks any changes in initial forecasts more than a set amount. If supply chain management uses an erroneous forecast as demonstrated by (2001), the results will be felt throughout the entire system (). The alert automatically connected to the demand analyst who then communicated with the particular sales managers who caused the change in forecast. (1997) reported that information technology provides enormous opportunities for coordination and integration in supply chain management. The modern computer networks have the ability to rapidly distribute information to all concerned entities of an enterprise. The networks also present an infrastructure for coordination of planning and operational processes, not only within organizations, but also among them. The succeeding days after the Thursday update gave sales managers a chance to send messages to demand analysts in order to make changes to the forecast based on more current information. These changes reflected the inventory shipped from the distribution centers on those days as well as what was received from the plants. In a supply chain the flexibility of one entity is highly dependent on the flexibility of upstream entities. The overall flexibility of a supply chain will therefore depend on the flexibility of all the entities in a supply chain, and their interrelations (1997). The demand plan drove production and scheduling, which was locked in three days out. Distribution was planned everyday with shipments going out in the evening for next day delivery. The Manugistics’ Transportation Module which would be installed in the next two months would render efficiency to load building by taking all orders for a particular day, combining them in an optimal way into truckload shipments and prioritizing them. It would also help the company to electronically collaborate with its common carriers which are used in addition to a private fleet as well as better schedule drivers and take advantage of backhaul opportunities.
Key Reasons for Success of the Strategies
The program changed the decentralized system of forecasting and production at CCBBC and a proactive visibility throughout the company’s facilities was gained. A centralized planning group based at the Charlotte headquarters oversaw the new forecasting, production and replenishment system. (1997) wrote that the key to improved supply chain management lies in integration and coordination. He further stated that there are two kinds of coordination: general and multi-plant. General coordination is the integration of different functions, e.g. inventory and production planning, sales, and distribution while multi-plant coordination is integration of the production plans of several plants in a vertically integrated manufacturing company so that the overall performance of the company is improved. CCBCC was able to achieve general and multi-plant coordination when the centralized system allowed an interactive atmosphere and cross-functional activity with people working in all areas and the collaborative application that comes with the new centralized system enabled sales managers to provide local intelligence to the system through accurate forecasts. Forecast accuracy has improved from 10 percent to above 90 percent since the system made it possible for updates as new information and demands came in. An accurate sales forecast can have numerous advantageous results in the process of Supply Chain Management. Effective forecasts provide vendors with more accurate data, improve efficiencies in product distribution, reduce supply chain inventories, and enhance customer service. In general, forecasting helps businesses serve their customers more efficiently, without the constant fear of excess inventory ( 2001). Forecast accuracy enabled CCBCC to know the needs for replenishment, scheduling from a production standpoint and raw materials that needs to be ordered. The company was also spared from spending approximately $50 million on new warehouses with the cut in inventory. There is more efficient use of warehouse space while closing a dozen existing facilities. All these things were successfully achieved while 150 new products like Vanilla Coke, Fanta drinks and Dasani water were introduced to the market and overall inventory reduced by half.
As previously mentioned, information technology paves the way for better coordination and integration as information transfer becomes speedy and convenient. A specific form of information technology named Electronic Commerce (E-Commerce) is extending value within the Supply Chain Management process as stated by (2001). Businesses use E-Commerce to integrate their internal functions with the applications of shippers, suppliers, and customers. E-Commerce is another helpful strategy for CCBCC. It will allow shipment status messages to be received instantly and provides vendor-managed and continuous replenishment inventory programs. This new technology decreases inventory risks and maximizes the sale of products with short life cycles by reducing the time it takes to reach the broadest possible market. E-Commerce also promotes competitive advantages by having a more accessible order-entry process, decreased paper handling, and less re-keying of information.
A Look at the Future
CCBCC’s future outlook aims for more collaboration with suppliers. The company recognizes that any changes in their plans on a regular basis would affect the suppliers’ plans. CCBCC aspires to allow suppliers to have access to its system on an ad-hoc basis so that they can retrieve their needed information in the manner and format they prefer. The company aims for a vendor-managed inventory where suppliers could manage its inventory and create all moves of raw materials. Vendor Managed Inventory (VMI) is a proven technology for improving the efficiency of supply chain operations. It is done through the implementation of an electronic means of exchanging inventory information between the buyers and sellers of products. Successful VMI programs eliminate many of the built-in delays associated with traditional ordering systems and enable the establishment of collaborative inventory management systems. VMI would bring CCBCC the following benefits if properly planned and implemented: lower costs since much of the inventory planning will be done by the supplier; less inventory because better planning leads to lower safety stock levels; and better fill rate since the program would allow fewer stockouts, resulting in better sales and higher customer satisfaction (2006).
Another possible fruitful venture for the company is outsourcing. According to (2001) manufacturing and service industries today are grappling with the decision of whether to make or buy the parts used to manufacture their products. To answer this question, a company must weigh the cost factors and should consider outsourcing for the materials needed to make their product. Outsourcing should not only include the procurement of materials and components but also of services that traditionally have been provided by internal workforce. The company should consistently focus on those activities in the value chain where it has characteristic advantage and everything else it will outsource. This trend is particularly evident in logistics where the provision of transport, warehousing and inventory control is sub-contracted to specialists or logistics partner. Outsourcing in CCBCC would reduce costs, shorten cycle time, improve shareholder value, decrease inventory, give the company focus on core competencies, gain information technology, and increase expertise (2004).
CCBCC’s strategic supply chain management is a success story. The company was able to identify the real problems in production, and their causes. The company knew what they wanted to improve and what goals to accomplish. CCBCC was also able to select the most effective solution through a consultative collaboration with another organization. The endeavor helped the company realize the three goals specified at the beginning which are cut in inventory, increased customer satisfaction and lessened costs. The implementation of the forecasting program elicited strategic efforts from the field sales managers and demand analysts by giving them the responsibility to collect customer needs data and feed them to the system. These data became the basis for forecasting the needed production volume and shipment strategies. It also paved the way for a remarkable additional line of products while cutting inventory. CCBCC is a growing company and its future strategic supply chain management endeavors can be supplemented by vendor-managed inventory and outsourcing. It is a stable company and embarking on more collaboration with suppliers, vendors and logistics consultants would be a helpful move for a more efficient response to market demand and continuous existence in today’s aggressive business environment.