The Pepsi Bottling Group Makes the Connection'
November 1, 2006
The Pepsi Bottling Group Makes the Connection'
By SARAH THEODORE
New program boosts relationships and performance
The Pepsi Bottling Group boasts one of the top-performing beverage portfolios in the business, with products such as Pepsi-Cola, Mountain Dew, Aquafina, Lipton iced teas, Starbucks Frappuccino, and Tropicana and Dole juice drinks, and the company has enjoyed several years of consistent growth in an intensely competitive market. So it might seem surprising that the company has spent the past year making sweeping changes across its supply chain in an effort to improve operations. PBG says it started out looking for ways to improve customer service, and in the end, established better connections to both its retail customers and its employees.
The Somers, N.Y.-based company is Pepsi-Cola’s largest bottler, operating in 41 U.S. states, as well as Canada, Mexico, Spain, Greece, Russia and Turkey. It is responsible for distribution of more than half the Pepsi-Cola products sold in the United States and 40 percent of its worldwide volume. It is the increasingly broad array of products carried throughout its system that led PBG to decide to overhaul the processes, tools and technology it uses to get its products to market.
“The world for many direct-store-delivery companies is changing,” says Brent Franks, senior vice president and chief customer officer at the Pepsi Bottling Group. He says the growing number of SKUs, particularly smaller non-carbonated products, as well as changes in the types of retailers the company serves and new retailer demands had resulted in product availability issues, and led the company to re-evaluate how and when it services its customers.
“We had an out-of-stock issue,” Franks says. “It led us to say, ‘We are a good service company but we are not a great service company.’”
PBG went into the field and talked to customers to find out what they were happy with and what the company could do better. It came back with four essential elements that became the backbone of a new initiative it called Customer Connect:
Service customers as scheduled — don’t force them to rearrange their day to receive product.
Provide weekend service because weekends are the time out-of-stocks are most hurtful.
Resolve issues quickly.
One thing Franks says was never up for consideration was abandoning direct store delivery. “There have been questions about how committed we are to DSD,” he says. “We are absolutely committed to DSD. There is not a distribution system that can compete with DSD. The question was how to maximize DSD to satisfy customers and provide growth for the business.”
The results were changes that encompassed everything from sales and production forecasting to warehouse logistics and in-store execution. The company used its Orlando, Fla., market as the proving ground for Customer Connect, and went live with the new system in every U.S. market on Jan. 1 of this year.
More than technology
“Customer Connect is all about supply chain,” says Joan McCullagh, senior director of selling systems. “There are tools, but it’s not about tools. It’s about people and processes and the technology that supports them. We were also asking employees, ‘What can we do for you?’”
If retail customers were looking for better scheduling and fewer inventory issues, PBG sales personnel were looking for more time to service their customers and ways to leverage their in-store presence. The new program found ways to accomplish both goals.
PBG examined research that indicates the three most common reasons for out-of-stocks are: product availability in the warehouse, inefficient order writing and in-store merchandising. The company already had rolled out handheld computers to its sales representatives, and the devices became the key tools in revamping its forecasting and ordering procedures to combat those issues.
“With the SMART Selling handheld, we put all of the information into the hands of our sales representatives in one place,” McCullagh says. “It’s all about getting them the information they need to write the right order.”
Information that previously had been paper-based was all transferred to the handheld devices. PBG’s handheld computers contain sales information at both the customer and route level so sales representatives know what they are going to sell each day, whether or not there are prior issues to be resolved with a customer, which products already have been ordered for delivery, and even the trucks on which they can expect those deliveries to arrive. Sales representatives now have easy access to forecasting that accounts for factors such as pricing discounts and display activity, holidays and seasonal variables, and inventory that already has been delivered to the store’s backroom.
Another benefit to sales representatives is that the handhelds are wireless, allowing them to send orders to the warehouse as they are written, which saves the time they previously spent waiting to use a customer’s landline system, and allows the warehouse to start filling orders earlier in the day.
Fine-tuning sales predications has been a big part of the Customer Connect initiative. Many retailers have shared sales data to help the company create store-specific, product-specific regression models that can generate suggested orders with a higher degree of accuracy.
“This is where the customer really engages — with predictive or suggested ordering,” Franks says. “The customers want to do this so we have a more accurate order, down to the store level.”
The company stresses that predictive modeling not only allows it to reduce out-of-stocks, but it reduces customers’ backroom inventory and allows sales representatives to forecast demand rather than simply replenish supply.
More accurate forecasting makes customers happy, and it also has helped improve efficiency all the way back to production scheduling. Sales forecasts are sent to production two weeks in advance, which allows the plant to schedule bottling, and ensures products bottled at other plants will be available at the warehouse when needed. While production is matched to sales demand, the plant also ensures it has a certain amount of safety stock in the warehouse for unexpected events.
The company deployed new voice-pick technology in the warehouse to improve the accuracy of the picking process, and it has incorporated In-Line Load Adjustment (ILA) handhelds and Advanced Shipping Notification (ASN) technology that pre-certifies orders, ensures their accuracy and saves time when they are being checked in at the retail location. The ASN system electronically notifies a customer that an order has been shipped and includes all of the details on what the customer can expect to receive in that shipment. When the shipment arrives, the retailer scans the pallet barcode into its receiving system to verify delivery.
PBG estimates that ASN reduces delivery time by as much as 60 percent. “A lot of time was spent in the backroom prior to ASN,” Franks says. “They would count everything we delivered. With ASN, the customer will periodically test by counting, but we certify every order … they know what’s coming.”
PBG has implemented ILA throughout its entire system, regardless of whether all of its customers take advantage of the ASN technology. It has almost 1,600 stores using ASN and says 100 percent of its U.S. volume is certified each night. The company says this will allow it to easily incorporate new ASN customers and adapt the system for non-ASN customers who want a modified version. Combined with electronic ordering and invoicing with the handhelds, the technology has enabled express check-in, check-out and account settlement, and is moving PBG toward a totally paperless environment.
Customer Connect has been in place 11 months and the company says it already has received positive feedback from both customers and employees.
“The way I can tell if we did our job is the feedback from the frontline,” McCullagh says, reporting that this year’s National Employee Insights Survey contained the highest employee satisfaction scores in the company’s history.
PBG’s new Chief Executive Officer Eric Foss recently commented to employees in a company memo that, “We believe Customer Connect has had a positive impact on our strong volume growth year-to-date,” and “Customer Connect will be one of our biggest competitive advantages going forward.”
Citigroup’s Wall Street analyst Bonnie Herzog seemed to agree in a recent report. “We believe the company’s continued growth is a direct result of PBG’s Customer Connect initiative, which was rolled out in the U.S. to its 30,000 employees,” she wrote. “The implementation of this new technology is allowing PBG’s sales force to focus more on merchandising, customer satisfaction, and importantly, decreasing out-of-stocks. As a result, PBG’s top line should continue to improve given declining out-of-stocks and more efficient distribution.”
Since implementing the program in the United States, the company has rolled out the initiative to its business in Canada, and says it is examining how it will incorporate the system in Mexico and Europe. But it emphasizes that the program is a work in progress, and while it will not give many hints, it says there is more to come.
“We’re placing a big bet on services,” Franks says. “This is more than just a rollout, it’s a total mindset change. We think that what we’re onto is pretty special.”
Efficient and accurate order-building
Beverage Industry recently visited the Pepsi Bottling Group’s Denver market to see firsthand how Customer Connect has changed its business. Part of PBG’s Great West business unit, the Denver facility sits on 35 acres and measures 650,000 square feet. It is responsible for 430 SKUs and will produce 64 million cases of product this year. Its warehouse holds 1.2 million cases, or roughly five days of inventory.
The changes created by the Customer Connect program reach all the way back to production scheduling, but the most noticeable differences occur in the warehouse. In the past, product pickers walked up and down the aisles and pulled product based on a paper system. Today, the facility uses a voice-pick system in which pickers listen for a computerized voice prompt that tells them which products to pull, and then scan pallet barcodes to verify the UPC code on the selected product. The information is transferred to a barcode printer that confirms everything that was picked for that order.
The product is shrinkwrapped and placed on the truck, which is pulled inside the warehouse for loading. A certifier uses the ILA handheld to scan the pallet to verify what is on the truck and places a seal on the truck, which will again be scanned as the truck leaves the facility.
While the verification process includes multiple steps, Denver executives say the new process not only ensures accuracy but actually saves time. Nearly 40 percent of the previous process has been eliminated by the voice-pick system, and the certification procedures have eliminated gate delays as trucks leave the facility, according to David Wood, senior director of manufacturing and logistics for PBG’s Great West business unit.
“The truck had to stop at the gate and they had to roll up the side of the truck and look at what was in there,” Wood says. “That could lead to gate delays as long as 30 minutes. Now trucks are brought inside, they are filled and sealed at the point of loading. Checks at the SKU and case-level have been measured to 99.8 percent accuracy.”
Another benefit of the new system, Wood says, is that wireless transmission of orders from the field helps the warehouse operate more efficiently. Sales representatives transmit purchase orders to the warehouse as they are written rather than waiting until they have access to a landline system, allowing the facility to begin working on orders earlier in the day
“We can start building that pallet while that truck is still out there making its deliveries,” Wood says. “We’ve opened up what we can do during the day shift as we get more and more of this wirelessly.”
The in-store connection
One of the most important elements of the Customer Connect initiative was to provide the Pepsi Bottling Group’s sales representatives with more time and resources for in-store execution. The company invited Beverage Industryto join sales representatives Tracy Merritt and Melissa Janes in its Denver market to get their take on how the new technology has affected their business.
The company’s Denver operations cover a territory from about an hour south of the Colorado capital, up to Boulder, and west to Grand Junction. It includes approximately 80 direct store delivery routes and 25 bulk delivery routes.
Sales representatives use wireless handheld devices that provide key information about each account as well as the representative’s sales goals and delivery manifests, which indicate product to be delivered as well as any unresolved issues from the previous day. The handhelds also feature a SMART Selling application that calculates order suggestions based on prior sales, display activity, discounting, holidays and seasonal variables, and net inventory.
“We had all of this information before, but it was paper-based,” says Joan McCullagh, senior director of selling systems at PBG. “This is a tool that eliminates all of that.”
Sales representatives plug in the handheld units at night and the devices “wake themselves up” around 3:00 a.m. to download orders for the day. In addition, each representative has two years worth of information about their customers available in the handheld.
“The more I use it, the smarter it gets,” Merritt says, explaining that his input is added to the two-year sales history to provide an increasingly detailed profile of his customers.
The handhelds include a display-building feature that manages the mix between higher-priced items and higher-volume items, and calculates the amount of product that needs to be ordered based on whether the display will remain intact throughout the entire sales period or gradually step down to less product.
Sales representatives can access information on customer contracts to ensurethey are receiving the correct signage and number of displays, and the handhelds will not consider new products for orders until they have been approved by the retailer.
“What’s great about this is we used to have to get in contact with our key accounts manager to find out what was authorized and what was not,” Janes says. “It was a big hassle. We’d have to come to the back door, the driver would pull it off the truck and have to put it back on [if it wasn’t authorized].”
While the handheld provides a suggested order, sales representatives always have the ability to override a suggestion based on knowledge of the customer or the local community. “His local knowledge can never be replaced,” McCullagh says. “If there is a special event going on in town or something like that, he can adjust for any reason he needs to.”
Merritt says the new technology has proved useful as a training tool, and both he and Janes say it allows new people to cover new accounts with minimal confusion. “Anyone can step into this route at any time,” Janes says.
In addition, the reduction in backroom inventory can be a boon to a sales representative’s business, as there are rewards for making a retailer’s life easier. “If you don’t have a lot in their backroom, you can get more displays,” Merritt says. “It benefits their business as well as yours.”
According to the company, the new system has had the biggest impact on smaller, non-carbonated products, where it had the most out-of-stock problems in the past. The category’s rapid growth and ever-increasing number of SKUs made it more susceptible to errors.
“In the past there were a lot of little things you might miss,” Merritt says. “This helps you focus on the whole picture.”
PBG says the new system has resulted in the highest employee satisfaction scores it has ever received, and Janes echoes those results, saying, “Pepsi couldn’t have invested in anything better for its employees.”