Coca Cola Supply Chain Strategy

COCA COLA’s SUPPLY CHAIN STRATEGY AND DESIGN Company Overview Coca-Cola is the world's top soft drink manufacturer which operates in over 200 countries and distributes 400 non-alcoholic beverage varieties. Coca-Cola is a well-known and popular brand across the world. Dr. John Pemberton served the world's first Coca-Cola on May 8, 1886, at Jacobs' Pharmacy in Atlanta, Georgia. Coca Cola have grown into a full-service beverage corporation after that one iconic drink. The trademark "Coca-Cola" was filed in 1893, after seven years of when pharmacist Dr. John Styth Pemberton produced a scented caramel-coloured liquid which was sold as a soda fountain drink in Atlanta, Georgia. Massive bottling of Coca Cola began in 1894, when the company had rights to bottle and distribute and were sold for 1$ throughout the United States. Vision The Coca Cola’s vision is to create the brands and drink selections that people like, to revitalise them and perform in a way that contribute to a more sustainable organization and a better common vision that improves people's lives, society, and the environment. Scope The Coca-Cola Company produces, distributes, and sells soft drink beverages. Coca-Cola owns licenses of 400 brands, which include diet and light beverages, waters, juice and juice drinks, teas, coffees, sports and energy drinks, and many more. Scale Coca-Cola owns stakes in a number of bottling and canning enterprises. In over 200 countries, CocaCola offers various beverages carrying the Coca-Cola copyrights. According to the Coca Cola Company in December 2006, Coca-Cola operates in eight regions which were restructured and renamed later in six geographical operating systems in 2001: Africa Asia Pacific Europe Latin America North America Eurasia Coca Cola Canada: Coca-Cola Canada is still producing high-quality drinks. The famous brand was introduced to Canadians 100 years ago. Coca-Cola Canada has grown from horse and cart delivery to having the largest fleet of trucks and vehicles in the country. The Coca-Cola Bottling Company employs around 5500 Canadians throughout all 10 provinces. Coca-Cola Ltd serves The Coca-Cola Company in Canada, providing research leadership, marketing and advertising, and also quality assurance assistance to bottling operations. In 1905 Coca Cola started its operations with a single 3,800 square foot bottling facility in Toronto. Coca-Cola Bottling Company have expanded over the years and invested $150 million on a 630,000 square foot manufacturing and distribution facility in Brampton, Ontario. The goal of Coca Cola Canada is to serve thirsty Canadians with refreshments. PESTLE Analysis: Coca-Cola PESTLE Analysis examines the company's business strategies. Coca-Cola’s PESTLE Analysis investigates the different external aspects affecting its company, such as political, economic, social, technological, legal and environmental consideration. Fig. 1 The PESTLE Analysis identifies the various external factors that have an influence on the company's operations. Political Coca-Cola may have a strong influence on food goods due to government rules and regulations. Laws might differ from one country to another. Previously, the sale of Coca Cola in Burma was prohibited owing to trade restrictions imposed by the United States and Burma. When the restriction was lifted in 2012, the selling resumed after six decades. There are two countries Cuba and North Korea in which Coca Cola cannot be purchased or sold due to political situation in these nations. Tariffs on steel and aluminium including Canada, Mexico, and the European Union led to economic sanctions which resulted in price increase of raw materials by which company was facing cost pressure (Jr., 2018). Coca-Cola is sensitive to sugar tariffs levied by government agencies including FDA (Food and Drug Administration). Economic: Coca-Cola is dominant in carbonated beverage industry with 50 percent of market share. The company recorded 8% rise in revenue in 2019 even price increase caused by tariffs. Coca Cola supports the new trade deal between the United States, Mexico, and Canada in order to promote free and fair trading between the countries. Consumers' preferences have evolved away toward low-calorie beverages. Coca-Cola claimed an 8% growth in the retail value Diet Coke and Zero Sugar products. As people are becoming more concerned of the lifestyle, demand for low calorie drinks are likely to grow in future. Social: Coca-Cola has traditionally used social promotions to communicate with its customers. They started the #shareacoke campaign in 2014, which was a huge success. People were asked to look for bottles with names they are familiar with, gift them to relatives or friends, and then post the experience on the internet using the hash tag #shareacoke. Buyers may also personalise their bottles by visiting the Coca-Cola online store. Technological: Coca-Cola is indeed innovating with its product portfolio. Coca Cola Japan had launched first readyto-drink (RTD) frozen beverage. They offer a freestyle dispenser that enables consumers to construct their own beverage in a variety of patterns using a computer-like interface. It can also store information of market analysis which is utilised to understand the interests and preferences of its customers. Legal Recently, Canadian beverage market has seen considerable transformation. The adoption of the Canada-United States Free Trade Agreement (FTA), the transition to Polyethylene Terephthalate (PET) bottles and tin cans, centralization in industry's brand holding and bottling operations, and the use of corn syrup (HFCS) as a substitute of sugar in non diet sodas are among the variations. In Past Coca Cola faced problems because of caffeine amount in their drinks. The corporation was charged for paying low salaries and employees mistreat, which provoked a number of labour union rallies. The organization has been sensitive to issues like packaging, water consumption, and air pollution. Environmental: Coca Cola has been stated as the world’s largest user of water, they have faced criticism for draining groundwater resources in India. After which they took steps to eliminate the issues and achieve near zero carbon levels. It has adopted water-smart agricultural techniques like RAIN and CARE, which use as little water as possible. In 2018 report, Coca Cola said that they will aim forward into a waste-free future and set numerous objectives for 2020, such as increasing water efficiency by 25%, which is now at 18%. Porter Five Forces Michael Porter's Five Forces Model is a model used to assess industry economics and attractiveness (Porter, 1980). Threat of new entrants In beverage sector, new entrants are not a competitive threat. PepsiCo and Coca-Cola are the market leaders because of their brand names and efficient distribution models. New growth is minimal because the market is fully dominated, which makes it extremely difficult for new entrants to compete against renowned enterprises. New entrants can only compete on price with economies of scale, fixed costs for labour, transportation and warehousing and economies of scale constitute a barrier to entrance. These factors make it very difficult for new entrants to enter this industry, so they are not a strong competitive force. Threat of Substitutes Coca-Cola products have some substitutes like sports drink, coffee, bottled water and tea. Sports drink and bottled water are becoming very common as people are becoming health conscious. These drinks are marketed as healthier drinks and vide variety of these drinks are growing and now available to suit different tastes of customers. Coffee can be used in instead of soft drinks due to caffeine. Special blended coffee drinks are getting famous; Starbucks offers a variety of flavours to consumers. Alternative items cause a significant threat due to low switching costs (Datamonitor, 2006). Threat of Suppliers-Strong Bottling manufacturers and packaging providers are suppliers of Coca Cola. Coca Cola does not bottle but they control 36% of the enterprises and all others are publicly listed firms and the company is the largest bottler over the globe (The Coca Cola Company 2006). As, Coca Cola owns most of its bottling plants, suppliers do not have much bargaining powers Bargaining power of Buyers Supermarkets, retailers, and restaurants are primary purchasers of Coca-Cola or other soft drinks. Buyers negotiating powers are very high and powerful because the beverages are distributed to them to sell on consumers. Grocery stores and retailers purchase huge quantities of these drinks, which allow them to purchase at reduced costs. Restaurants have limited negotiating leverage since they place small orders. The bargaining power of buyers may increase owing the decrease in consumer demands. Competitive rivalry Coca-Cola's largest competitor in the beverage market is a strong competition from rivalries. Coca Cola, PepsiCo and Cadbury Schweppes are biggest rivals. In 2006, Coca-Cola had fewer sales than PepsiCo; despite of the top five soft drinks belongs to CocaCola (Diet Coke, Coca Cola, Sprite and Fanta). PepsiCo led North America with $22 billion in sales in 2006, while Coca-Cola had just approximately $7 billion, with most of its revenue coming from other countries. Brands Key Customer Loyalty Leaders Survey (Brand Loyalty, 2006) identifies the brands with highest levels of customer loyalty across all industries. Diet Coke was ranked 47th while Pepsi was ranked 18th in terms of brand loyalty. Strategic Fit: This figure below highlights Coca Cola's two primary strategies, Differentiated and cost based strategy. The X shows the company's current situation while + shows the future and the arrow shows the difference between them. Fig. 2 Product Strategy Coca Cola Uses high product customization and adaptability in all regions. Company's product strategy is characterised by speedy variations. Market analysis for one region differs from other markets, product test, improvement and developments are carried out particularly in every market. Coca-Cola increased new product development activities to expand non-fizzy beverages portfolio for static sales. Coca Cola has extended its product launch program with the rise in customer demands of healthy beverages like Sports drinks, energy drinks, Tea and coffee and fruit juice etc. Research and development expenses R & D activities include new product development, quality improvement of existing products, manufacturing process modernising and adopting technical advancements. Coca-Cola has a leading role in beverage R & D because it is the fundamental goal of the company. The primary factor of Coca Cola’s R & D strategy is to offer value to its customers. The strategy has been modified to give additional flexibility to their local business units. Research and development is not outsourced, even though it collaborates with development partners in numerous technical sectors. Coca-Cola thinks that cooperative innovations will enable them to use its beverage knowledge in association to critical business technology sectors like bottling and vending systems. Structure Coca Cola has a strong rivalry with PepsiCo in the North America market, In March 2007; Coca-Cola restructured its North American company and established three new manufacturing business units sparkling beverages, still beverages, and developing brands to show strong focus in the market. Decision Making Except the issues limited to owners, a Board is appointed by the share holders for the decisionmaking. The Board is responsible to appoint and supervise the top management who are responsible for running the company’s operations. Corporate Governance Guidelines, Charters of each Board Committee, and the Board's main activities constitutes for corporate governance at Coca-Cola. Production The core operations of Coca Cola include syrup production and the concentration. Primarily the syrups and concentrates are manufactured and sell that to its approved bottling and canning plants who then distribute the finished products. Bottlers have individual contracts named as bottler's agreements for the production and selling of Coca Cola products. This Agreement allows them to produce specific Coca-Cola beverages, package them in licensed containers, and sell the finished product in a specified region. Bottlers are responsible to buy syrups and concentrates from the company authorized suppliers. Coca Cola invests in specific operations to improve manufacturing, distribution and marketing to guarantee smooth operations. Majority of Coca-Cola products are manufactured and marketed by bottling companies that are not completely controlled by Coca-Cola. Coca Cola bottles and sells a limited number of Coca-Cola products through corporate-controlled and centralised bottling facilities, it accounts for 8% of the company's global output in 2003. Company is successful in obtaining the appropriate production and distribution of its products through bottler's agreements. These agreements enable the firm to retain control and influence over bottling companies. Labour Coca-Cola adopts an approach of rewarding and recognising employees to provide a complete, comprehensive suite of compensation, incentives, and training and development initiatives. They believe that their employees are their major assets. Coca-Cola actively hires, creates a diversified staff, and builds a culture that encourages training, progression, and creating value. Coca-Cola supports the diversity of all of its workers. Marketing Coca-Cola's marketing goals are to increase production, raise the global share of non-alcoholic readyto-drink product sales, increase long-term cash flow, and enhance profitability. Major approach used to achieve these goals is an investment programme in high-margin drinks combined with marketing initiatives such as advertising, point-of-sale merchandising, and promote sales. The Company launched a plan in 2001 to reposition itself as "the world's premier branding and marketing organisation." Their strategy is based upon four core concepts rejuvenation, refreshment, health and nutrition, and replenishment to meet the demands of consumers. Coca Cola is moving its advertising and marketing emphasis from regional and global initiatives to community scale, particularly retail chain incentives. Risk Profile There are seven risk components for Coca Cola, 1. Scarcity and bad quality of water 2. Non-alcoholic beverage industry changes 3. Higher competition 4. Expansion in emerging markets 5. Relationships with bottling companies 6. Changing governing Laws and regulations 7. Labelling Capital Structure Coca-Cola keeps a level of debt based on cash flows, leverage ratio and debt to capital ratio. Company’s global footprint and stable financial position provide entrance to important capital markets worldwide, allowing the company to obtain cash at the lowest cost. Coca Cola’s Supply Chain Coca Cola’s supply chain network and logistics operation plays an important role in the success of the company. Coca-Cola's supply chain management system is among the most extensive and efficient in the world. Local Sourcing Coca-Cola works on a local scale, with 225 bottling partners across the world. The liquid comes in concentrate form to partner facilities. The bottling plants then produce the soft drink by converting the concentrate in to syrup by adding ingredients like water carbon dioxide and sugar etc and then supplied locally. A sole option to local partners is the sugar type used in production, maize syrup sugar is utilised in United States, Beet sugar in Europe and cane sugar in Asia. The final product is then packed and shipped to retail outlets. Coca-Cola supplies domestically to enhance the supply chain, which necessitates firm establishing production units near where the sugar is harvested. The faster sugar is supplied to processing companies; the minimum is the risk of supply chain. Coca-Cola supplier system is highly robust because the corporation places a high value on developing ties with suppliers. This enables Coca-Cola to supply items to local retailers more quickly. Real-Time Visibility Coca Cola products are transported from various plants to store shelves within 48 hours. Coca Cola collaborated with real-time visibility solutions providers to embed GPS equipped recording devices in trucks. Coca Cola use this technology to provide real time information to its production, planning departments as well as warehouses. Coca Cola can improve communication with its key partners like shipping agencies by using accurate data. In result the company has better visibility of its operations. Route Optimization Technology Coca-Cola is the biggest producer and distributor of soft drinks. It supplies Coca-Cola concentrate to a number of bottling operations. It also transports bottled and canned beverages from bottling factories to distribution centres and to retail locations. Coca Cola developed a route optimization model that linked all outlets to trips and allocated them to available drivers and trucks, this allowed Coke to reduce total cost while fulfilling all restrictions. This resulted in a flexible planning process with customer demand variability responsiveness, few travelling miles, low fuel consumption and less emission. Direct to Store Delivery (DSD) Direct to Store Delivery (DSD) enables Coca-Cola and its partners to distribute immediately to retail outlets from their manufacturing plants, bypassing a distributor. DSD assures that Coca-Cola products are available and appropriately presented in order to increase sales. Retail shop operators benefit from specialists to meet the needs of small outlet owners. Warehouse Automation Coca-Cola operates an Automated Storage and Retrieval System in its business units. The units can contain and circulate over 30,000 pallets in their warehouses allowing finished products for supply. Additionally ASRS eliminates the shortcomings of warehousing management by equipping business units to manage and track the inventory process until its delivery. Coca Cola has also adopted robots and automation to its supply chain. Supplier Relationships Supplier relation development is an important part of diversified management approach. Coca-Cola is dedicated to supplier diversity through enhancing procurement possibilities and forming alliances with various suppliers. Coca Cola incorporates its customers in their strategic procurement which helps them to create better communities along with long term competitive edge for the company. Coca Cola successfully promotes its suppliers to secure their long term relationship in their global supply chain for its products. Fig. 3 The behaviour of coca cola suppliers is a vital component of value chain and has a direct influence on company's sustainability performance and promises. 17800 suppliers are divided in direct and indirect suppliers using a single procurement method. Ingredient and packaging providers are direct suppliers. Indirect suppliers are those who provide equipment, IT, fleet and logistics, utilities and other services etc. Group critical are suppliers which spend high in critical components like Sweeteners, Juices, Resin, Cans etc) or those who support the business strategies. Country strategic suppliers are on local or regional scale Tactical suppliers are limited suppliers. Coca Cola corporate social responsibility Fig. 4 Waste reduction The most apparent environmental issues confronting the globe today is water reduction. Coca-Cola has modified its bottle production throughout time; all of their models is manufactured from recyclable materials. Coca Cola had set a target to make its packaging recyclable till 2025. According to Coca Cola CSR report 2019, 88% of company’s packaging is recyclable. The company is also working on material reduction which is also an effective strategy to lower product's ecological impact. Replenishment of water Coca Cola have faced criticism for the use of fresh water. They launched various attempts to solve this issue. According to sustainability report 2019, they replaced about 160 percent of water used in their beverages. Moreover, coca cola is working to lower water use in manufacturing. Usually, 1.85 litres are used to prepare the drinks. Reduction of carbon footprint Coca-Cola launched an endeavour in 2013 to reduce ghg emissions. According to company, they would reduce greenhouse gas emissions by about a quarter till 2020. Minimizing packaging The bottles have been the source of the most criticism aimed towards Coca-Cola. One solution to avoid this is to use refillable bottles and water distributing machines. Public awareness WWF and Coca-Cola are working together to conserve the polar bear's habitat. Through a project dubbed 'Arctic Home,' they are spreading awareness and raising funds to construct a safe habitat for polar bears. Distribution Coca Cola's manufacturing and distribution network stretches back to 1899, when Coca-Cola bottling franchise operation was established in Chattanooga, Tennessee. Coca-Cola Company have more than 250 bottling associates globally, the company establish a global reach with a local emphasis due to its structure. Coca Cola's partners collaborate with suppliers, including grocery shops, restaurants, and superstores to implement core strategy established in collaboration with the company. It’s a local business, and items are often delivered in few miles; to cater demands of local customer tastes. Coca-Cola distributes its goods to business units, distributors, fountain wholesalers, and public shops. They subsequently distribute them to retail stores, corner shops, restaurants, gas stations, and a variety of other locations. Points of sale into which Coca-Cola goods can be generally classified are: - Distributors/wholesalers Retail/convenience stores/supermarkets Nightclubs/restaurants/cafés Gas stations ATMs (automated teller machines) Innovation Coca-Cola's innovative approach is to give its investors with exceptionally attractive return for their invested assets by growing revenue. Coca Cola has spent in innovation market strategy; FEMSA by Coca Cola has continually tailored consumption, the method to market, to better satisfy the specific demands of its clients. This has helped the organization progress from its conventional mom-and-pop retail business to contemporary supermarkets and hyper stores (Barney, 2007). Coca Cola is investing in modern technology and reforming and automating supply chain operations to guarantee that the company is future-ready. As the company is operates in 28 different markets, their goal is to create a global efficient and effective supply chain to allow technology implementations. Coca Cola invests in new technologies to improve infrastructure make facilities efficient to serve a country. Coca-Cola is constantly eager to embrace new technology. Combines cutting-edge new technology into its supply chain in a proper manner for example, it makes bottles and cans for its drinks using 3D printing. Challenges Declining volume in Carbonated Soft Drink Sector In Canada, normal cola carbonates volumes fell by 2% in 2005. Carbonated soft drink industry is in decline. This is a very big industry and facing a lack in good health attributes in market of health conscious customers (Euromonitor International, 2005). Health and Wellness Trend Health and wellness remain a prominent trend in the global beverage business. Non-alcoholic beverage Customers are gradually moving their purchasing habits toward healthy items with low side effects. A research published in the medical journal The Lancet in 2001 found that adding a daily dose of sugary carbonated beverages to a child's diet doubles his chance of becoming fat. Furthermore, women who consume soft drink daily helps in weight gain but also quadruple their chance of developing diabetes. Diet sodas are the most apparent alternative, yet they also have no nutritional benefit (Smith and Melissa 2005). Increased competition from PepsiCo Coca-Cola and PepsiCo have competed for a "throat share" of the global beverage industry for even more than a decade. The most heated skirmishes in the so-called cola war took place in the $66 billion CSD business in the United States. (Yoffie and Slind 2006) Beverage manufacturing, sales, and distribution in a changing climate The basic component in Coca-Cola beverage products is water. In result, the effects of climate change on water supply are a major commercial risk for the corporation internationally. Changes in rainfall volume and probability, rising temperatures, shifts in snow, ice, and melting glaciers, rising dry spells, and prolonged dry periods can have impact on fresh water availability in future, whereas climate changes can harm infrastructure system of water and pollute water resources. In some locations, climate change is expected to increase demand for agriculture and drinkable water that can result in increased competitiveness and water shortages, particularly in parts of the world where water is already scarce. Coca-Cola products need variety of basic agricultural ingredients, including sugar, maize, and citrus. Coca Cola's beverage production is subject to agricultural output fluctuations since agriculture is particularly sensitive to climatic factors. Changes in all the climate factors will have an impact on crop quality, availability, and price. Supply chain is sensitive to transit interruptions or delays since it is dependent on reliable transportation and logistics infrastructure that might be more problematic in a changing environment. Consumer preferences and sales are also majorly affected by weather. Focus on water stewardship: Coca-Cola has pledged to become "water neutral" in all of its worldwide operations by 2020. The goal is to return a water quantity comparable toward what people consume in drinks and manufacturing to societies and environment. Water is a fundamental element to firm's activities and is related to changing climate and emissions, Coca Cola have implemented a worldwide and comprehensive Water Stewardship Strategy. This approach establishes worldwide goals in three aspects. Increase water efficiency. Increase the volume of recycled water and percentage of fresh water delivered back to ecosystem. Watershed preservation can help to save freshwater. Coca-Cola has adopted an organizational water sources protection guideline to support sustainable water resource management. This guideline mandates all Coca-Cola production units to complete the following by 2012. Build a team for water resource management. Collaborate with experts to perform a Water Supply Vulnerability Assessment (SVA) to provide a list of watershed-level concerns. Plan and execute Source Water Protection Plan (SWPP) Maintain the SWPP regularly at least every 5 years. Recommendations Carbonated drinks industry lacks in competition of healthy traits and its growing market. Coca Cola will not be capable to maintain its leadership if company focused only on soft drinks. Coca Cola have to fight this battle strongly through the modern drinks industry to build its reputation in the growing domestic and international market of bottled water, tea, energy drinks, sports drinks and other drinks. Health and wellness remain a prominent phenomenon worldwide in beverage industry, particularly in Europe and North America. Coca-Cola should go with a strategy to deliver leading position with in this industry. Coca Cola have to be close with customers and buyers plus they should deliver value and be innovative