Coca Cola Supply Chain Essay Example

involves various organizations, individuals, technology, activities, information, and resources to move a product or service from supplier to customer. The activities within a supply chain are responsible for transforming natural resources, raw materials, and components into a final product that is ultimately delivered to the end customer. Supply Chain Management (SCM) emerged in the 1980s as it involved integrating vital business processes from initial suppliers to end users.

The primary objective of Supply Chain Management (SCM) is to efficiently utilize resources, including distribution capacity, inventory, and labor, to meet customer demand while minimizing inventory requirements. SCM encompasses various facets such as supplier collaboration to eliminate supply bottlenecks, strategic sourcing for cost and transportation balance, optimization of production flow through Just In Time (JIT) manufacturing, selection of optimal factory and warehouse locations, vehicle routing analysis, employment of dynamic programming, and traditional logistics optimization.

The success of a supply chain relies heavily on product design just as the effectiveness of a product depends on its supply chain. Coca-Cola India exemplifies this concept with their "Coca-Cola system", which revolves around their production and distribution network.

Globally, the Coca-Cola system consists of the company and its 300 bottling partners who manufacture and sell concentrate and beverage bases. The bottlers then combine this concentrate or beverage base with sweetener, water or carbonated water to create finished beverages. These beverages are packaged in authorized containers such as cans, refillable glass bottles, non-refillable PET bottles, and tetra packs that display Coca-Cola trademarks.

The Coca-Cola Company sells finished goods to wholesalers or retailers and also offers powdered beverage mixes like Vitingo and Fanta Fun Taste. These beverages are distributed through various customers such as grocers, small retailers,

hypermarkets, restaurants, convenience stores, and other final points of distribution within the Coca-Cola System. What sets the Coca-Cola System apart is its ability to create value for customers and consumers. In India, the system includes a wholly owned subsidiary called Coca-Cola India Pvt Ltd which manufactures and sells concentrate, beverage bases, and powdered beverage mixes. Hindustan Coca-Cola Beverages Pvt Ltd is a company-owned bottling entity in India while there are also 13 authorized bottling partners who package, sell, and distribute beverages using specified trademarks of the company. This system has an extensive distribution network involving customers, distributors, and retailers. Authorized bottlers establish local markets independently and deliver beverages to businesses like grocers, small retailers,supermarkets,and restaurants among others. These customer relationships ensure wide accessibility of Coca-Cola Company's beverages throughout India.

Coca-Cola acknowledges the significance of its suppliers and business partners in ensuring its continued success. These partners supply crucial raw materials, such as ingredients, packaging, and machinery, along with valuable goods and services. Hence, Coca-Cola has a responsibility to enforce standards that meet or surpass its own operations. This entails expecting suppliers to practice ethical business methods and comply with all relevant laws and regulations. The Company's Supplier Guiding Principles (SGPs) act as a means of communication for bottling partners and business partners, outlining the values and expectations upheld by Coca-Cola. These principles serve as the basis for their commitment to promoting compliance with labor laws among their business partners.

The SGPs are mandatory for all suppliers who directly provide goods and services to the Coca-Cola India system and for suppliers authorized by the Coca-Cola Company to supply specific materials. These SGPs are included in all supplier contracts

and some suppliers receive training to help with implementation. An authorized external auditing agency conducts assessments of suppliers' compliance with global policy at least once every three years. If any non-compliance is discovered, the company establishes a timeline and provides expertise to help the facility take corrective action. Non-compliant facilities are then assessed as frequently as every six months for follow-up.

Suppliers have provided positive feedback on the SGPs program, which assists in transitioning their HR teams from an administrative role to a functional department. The company has received feedback on the importance of providing support and education regarding relevant laws and compliance, especially with the implementation of the new labor Contract Law.

Coca-Cola Company and Coca-Cola India's suppliers must adhere to specific standards. This includes following local and national laws, regulations, and requirements in manufacturing and distributing Coca-Cola Company's products and services. They must also comply with local and national child labor laws and prohibit forced, bonded, prison, military, or compulsory labor. Compliance with local & national laws on employee abuse, freedom of association, collective bargaining,discrimination,wages & benefits work hours & overtime health & safety as well as environmental laws is also required.

The company reserves the right to terminate an agreement with any supplier who fails to demonstrate compliance with the SGP requirements.Coca-Cola's supply chain's environmental impact was analyzed so that areas for reducing its overall environmental effect could be identified by the company.To successfully enter India's rural market,Coca-Cola plans to distribute its brand through bullock carts and cycle rickshaws within villages.

Because rural roads cannot handle large motorized vehicles such as vans and trucks, bullock carts and cycle rickshaws have become the favored means of transportation.

Rural India is a crucial market that all marketers strive to enter since three-fourths of the nation's population and 41% of the middle class live in these regions. This demographic consumes 70% of soaps and accounts for 38% of all new 2-wheeler purchases.

In rural areas, the penetration of soft drinks is significantly lower at just 10% compared to 37% in urban areas. Similarly, per capita consumption is also much lower with only 2 bottles consumed per year in rural areas, whereas cities have an average of 23 bottles.

Inventory management involves efficiently overseeing the continuous flow of units in and out of an existing inventory. This includes transferring units to prevent inventory levels from becoming too high or too low. Furthermore, it aims to control costs by considering the overall value of goods and applicable taxes on the inventory's value.

Effective inventory management involves three key aspects. Firstly, it involves considering the time it takes for a supplier to process an order and deliver materials for inclusion in the total inventory. Secondly, it requires calculating and maintaining buffer stock – additional units beyond the minimum required for production levels to minimize the risk of interruptions in production.

The process of tracking materials used for creating finished goods is important for identifying the need to adjust ordering amounts before the raw materials inventory becomes too low or too high. Additionally, maintaining accurate records of finished goods that are ready for shipment is crucial. When newly completed goods are produced, they are added to the inventory totals, while shipments of finished goods to buyers are subtracted. In case of returned goods, a sub-category is created within the finished goods inventory.

Having precise figures regarding the finished goods inventory enables sales personnel to easily determine what is available for shipment at any given time.

Inventory management ensures accurate calculation of taxes for each inventory type, preventing severe penalties during independent audits. Effective inventory management entails understanding available inventory, its usage, and the resulting finished product. Common components of an inventory management system include a barcode scanner, wireless barcode scanner, and inventory software. The software aids in generating invoices, purchase orders, receiving lists, payment receipts, and printing barcode labels. Whether configured for a warehouse, retail store, or product line, this system contributes to the company's revenue.

Coca-Cola aims to maintain quality, increase market shares, and ensure profitability through efficient inventory management. The company's inventory levels are determined by these objectives. Storage space is not a concern as the bottling plants have ample storage capacity. Materials are ordered either through request or direct allocation from the company's headquarters. Three stores operate within the company: raw materials store, finished goods store, and spare parts machinery store. The production manager and store manager collaborate closely as most products are utilized by the production and bottling departments. Additionally, the store manager oversees the raw material store.

The store manager is accountable to both the plant manager and the bottling manager. The sales manager oversees the finished goods store and is supported by the bottling manager, who verifies the overall quantity of bottles produced. The sales manager becomes involved once production is finished.

The plant engineer is in charge of the spare parts store, where various raw materials are stored. These materials include:

• Sugar: The Company acquires over 250,000 tonnes of sugar
  

from designated mills. It is kept in bags and arranged on pallets for better inventory management. Insect repellers are installed in the store to prevent bees and other insects from entering.

The company stores bottles of syrup at temperatures between 40 and 100 degrees Celsius. The supplier provides corks for the bottles, which are kept in polythene bags and stored in cases to prevent rusting from dust and moisture. Additionally, the company buys more than 50,000 tonnes of Totapuri and Alphonso mango pulp.

• Coffee: Coca-Cola India is the biggest purchaser of green coffee beans in India, acquiring 13,000 million tonnes. The correlation between sales and inventory usage is positive. The usage of inventory depends on sales, meaning that as sales increase, so should the usage of inventory.

Inventory management is essential for the survival and continuity of profit-oriented manufacturing organizations. Recommendations include implementing a well-designed policy for handling idle stock without extra costs, adopting a dynamic inventory policy, prioritizing the Economic Order Quantity model to maintain optimal material levels and minimize expenses, and having the sales and marketing department monitor inventory usage for sales forecasting. The level of inventory can indicate expected sales levels, establishing a positive relationship between inventory and sales.

Quality management ensures consistency within an organization or product. It consists of four components: quality planning, quality control, quality assurance, and quality improvement. Quality management focuses on both the service/product's quality itself and the methods used to achieve it. Customers recognize the importance of product/service quality while suppliers understand that quality differentiates their products from competitors'.

Over the past twenty years,

there has been a significant decrease in the quality gap among competitors. This decline can be partially attributed to the outsourcing of manufacturing to countries such as China and India. These countries have raised their own quality standards to align with international benchmarks like the ISO 9000 series.

The adoption of management principles has played a crucial role in enhancing organizational performance. These principles include:

• Customer focus: Organizations must understand, meet, and exceed customer expectations.
• Leadership: Management should create an internal environment that encourages employees to actively contribute towards achieving the organization's quality objectives.
• Involvement of employees: Employees at all levels should utilize their skills for the betterment of the organization.

The principles for quality management standards ISO 9001:2008 are as follows, each with its own approach and requirements:

- Process approach: The organization needs to manage its activities and resources as a process.
- System approach: All interrelated processes must be identified, understood, and managed as a system to achieve quality objectives efficiently.
- Continual improvement: Constantly improving quality should be a permanent objective for the organization.
- Factual approach to decision making: Decisions should always be based on data analysis and information for maximum effectiveness.
- Mutually beneficial supplier relationships: Organizations and their suppliers are interdependent, and developing a mutually beneficial relationship adds more value.

These principles form the foundation of ISO 9001:2008 quality management standards.The text below describes various methods and techniques used for quality management and improvement. These methods encompass product, process, and people-based improvement.

These methods include:

- ISO 9004:2008, which provides guidelines for performance improvement.
- ISO 15504-4:2005, also known as SPICE or software process improvement and capability determination, encompasses technical standards for computer software development and related business management functions.
- QFD,

or quality function deployment, which is also referred to as the house of quality approach.
- Kaizen, a Japanese term meaning "change for the better," that emphasizes continuous improvement.
- The zero defect program, which is a component of the six sigma methodology and was created by NEC Corporation of Japan based on statistical process control principles.
- The six sigma methodology, which integrates various techniques such as statistical process control, design of experiments, and failure mode and effect analysis (FMEA) within an overall framework.
- The PDCA (plan do check act) cycle, a cycle used for quality control purposes.

The DMAIC model, which stands for Define, Measure, Analyze, Improve, and Control, is a specific implementation of the PDCA cycle. Quality circles are a group-based approach to improvement. Taguchi methods involve statistical techniques such as quality robustness, quality loss function, and target specifications. The Toyota production system represents lean manufacturing. Kansei engineering focuses on gathering emotional feedback from customers. Total Quality Management (TQM) aims to incorporate a sense of quality awareness into all organizational processes. TRIZ refers to the theory of problem solving. Business process reengineering (BPR) seeks to make improvements from scratch, disregarding existing practices. Object-oriented quality management (OQM) is another method used.

These various approaches and methods have had both successes and failures. Factors that differentiate success from failure include commitment, knowledge, and expertise in guiding improvement efforts, scale of change (big bang or incremental), and adaptability to enterprise cultures. Enterprises must carefully select which quality improvement methods they choose to adopt; implementing all of them is not advisable.

The Quality Management of Coca-Cola focuses on various aspects such as the quality of ingredients and materials, as well as the

regulation of manufacturing, bottling, and distribution. These measures are taken to ensure that Coca-Cola products meet both the Company's standards and consumer expectations in the marketplace. As Coca-Cola expands its beverage portfolio and supplier base to meet the demands of developing markets, there is an increase in customer expectations and regulatory scrutiny. Given the global nature of the Company's business, it is essential to maintain consistent quality throughout the production, bottling, and delivery process. To achieve this consistency and reliability, the Coca-Cola System operates under the guidelines outlined in the Coca-Cola Operating Requirements.

KORE, a new management system, was introduced in January 2010 to replace The Coca-Cola Management System (TCCMS). KORE allows Coca-Cola System to adapt to the changing business environment and support the Company’s growth objectives by establishing a comprehensive quality management system. This system sets uniform standards for production and distribution of beverages across all operations of Coca-Cola. Through KORE, the highest standards are ensured in product safety and quality, occupational safety and health, as well as environmental standards. KORE provides clear guidelines for policies, specifications, and programs that govern the Company’s operations. It has received endorsement from leadership across the entire Coca-Cola system.

KORE integrates business and quality objectives and aligns them with consistent metrics to monitor performance. It also integrates preventive action as a management tool with more rigorous demands when introducing new products and services. It incorporates HACCP or Hazard Analysis and Critical Control Points into the Company's system standards. It manages risk in the company, bottling operations, and across its supply chain. It defines problem-solving methods and tools to drive consistent quality improvements. Ensuring the safety and quality of its products

has always been at the core of its business and is directly linked to the success of the Coca-Cola Company.

The company has consistently achieved high ratings for its Global Product Quality Index, with averages near 94 since 2007 and 94.3 in 2010. Additionally, the Global Package Quality Index has improved over the years, rising from its 2007 rating to reach 92 in 2010.

To ensure that the Coca-Cola Company stays updated with new regulations, industry best practices, and marketplace conditions, it is recommended that they consistently reassess the relevance of their requirements and guidelines in manufacturing and throughout the supply chain. Additionally, it is important for the company to refine their requirements in order to adhere to the most recent and strict manufacturing processes through KORE. Each business within the Coca-Cola system should implement, document, and maintain a safety and quality system in accordance with KORE requirements in order to establish a governance process. Furthermore, monitoring compliance to KORE requirements and guidelines systemwide will further support the integrity of Coca-Cola's products.

Vendor Management encompasses the process of establishing effective communication channels and information flows between a company and its suppliers, which can include vendors, consultants, consulting companies, and staffing companies. This process aims to enhance efficiency, reduce costs, improve customer service, maintain consistent standards for suppliers and sub-contractors, and adopt best practices. Selecting the right vendor involves five steps: analyzing business requirements, conducting a comprehensive vendor search, requesting quotations from vendors, evaluating proposals to make a unified selection decision, and negotiating a contract that benefits both parties. Building strong relationships with vendors using best practices is vital to a company's success in the market.Some important best practices

for managing vendors involve selecting the right vendor that meets the company's business requirements. This includes analyzing the needs of the business, searching for potential vendors, leading the team in choosing the best vendor, and effectively negotiating a contract.

• It is important for a company to carefully evaluate potential vendors and not be swayed by flashy presentations. The material or service being offered should align with the vendor's expertise. It is also wise to maintain flexibility by avoiding agreements that restrict relationships with other vendors or impose harsh penalties for minor incidents. Having a short-term contract with the option for renewal can be beneficial. If the issue at hand is not significant to the company, it may be wise to agree to the vendor's conditions as a gesture of good faith.

• Monitoring the performance of the vendor is crucial. It is unwise to assume that everything will go according to plan and be executed exactly as outlined in the contract.

Constant monitoring of the vendor's performance is essential, including factors such as shipping times, quality of service, order completion, and call answer time. It is important to maintain consistent communication to avoid misunderstandings and address issues proactively. By pursuing vendor management, a company can establish a strong relationship with its suppliers and service providers, benefiting both parties. Sharing information with vendors is a crucial aspect of successful vendor management.

This may involve providing limited forecast information, introducing new products, making design changes, and expanding or relocating. It is important to strike a balance between competition and commitment. The Company should strive to obtain competitive bids and also secure the commitment of vendors to assist and support the

company. It is advantageous to allow vendors to contribute to strategy formulation, as they possess expertise in their respective areas.

Utilizing their expertise can provide the company with a competitive edge. It is important to maintain a long-term relationship with vendors, as constantly changing them can be costly and impact quality. Trust, preferential treatment, and access to expert knowledge should be established. Understanding the vendor's business is crucial; pressuring them to cut costs may result in their closure or compromised quality. Thus, the company should contribute knowledge and resources to enhance the vendor's ability to serve it effectively.

Negotiating a mutually beneficial agreement is crucial. The negotiation process should be carried out in good faith, ensuring that the final agreement benefits both parties. It is important to avoid using coercive tactics, as these methods have a limited effectiveness and may cause one party to abandon the deal. Additionally, vendor management should focus not only on obtaining the lowest price but also on ensuring quality in exchange for the money spent. Constantly evaluating and monitoring the performance of vendors is essential. The specific standards that vendors should meet must be clearly outlined in the contract, enabling appropriate action to be taken if their performance falls short of expectations.

The company should clearly communicate its measurable and quantifiable expectations. Supplier relationship management (SRM) involves managing the company's interactions and affairs with suppliers, including best practices, communication, negotiations, methodologies, and software. The goal is to establish and maintain a strong relationship with suppliers, resulting in lower costs, higher quality, better forecasting, and reduced tension. Simplifying SRM can be achieved through dedicated software. A company with extensive procurement experience will likely have

a vendor database with both accurate and outdated information.

The accuracy level greatly increases when a company has multiple purchasing departments located in different geographical locations. It is essential to update and consolidate the vendor data to remove any duplicate, incorrect, or outdated information. This ensures the availability of precise data for making informed decisions. Many companies tend to delay vendor payments as much as they can.

Vendors provide rebates, discounts, and other incentives to motivate timely bill payment by companies. It is advisable for companies to take advantage of these incentives. Tracking vendor delivery, quality, and performance is crucial for companies. Hiring purchasing professionals with expertise in the relevant business, analytical skills, negotiation skills, and interpersonal skills is vital. Additionally, reducing the number of vendors leads to lower processing costs, making it an important principle of vendor management.

Centralized purchasing allows a company to assess all of its purchasing activities and choose suppliers who can offer a majority of items at affordable prices. Establishing a partnership with a vendor, rather than treating them as just another supplier, helps guarantee that the company's orders will be delivered promptly. This is especially facilitated by the implementation of ERP software, such as.

Enterprise Resource planning software allows companies to integrate their purchasing departments into their supply chain, thus leveraging real-time data. To save time, companies should implement workflow techniques within their ERP systems to automate approvals and payments. The International Organization for Standardization (ISO) has developed a range of standards, practices, terminologies, and requirements that ensure high-quality products and services. ISO offers three certification levels: 9001, 9002, and 9003. A vendor with ISO 9001 certification demonstrates a commitment to quality

and service. This certification means that a company constantly incorporates business objectives into its processes and work practices, enabling maximum asset utilization. Furthermore, it empowers a company to outperform competitors who do not use management systems.

Certification has multiple benefits. It aids in measuring performance and managing risk. Furthermore, it enhances the brand reputation of a company and serves as a promotional tool. By obtaining certification, a company conveys its dedication to maintaining high standards and striving for ongoing improvement. This, in turn, results in increased sales, higher return on assets, and improved profitability. Additionally, certification leads to the enhancement of product and service quality, as well as the reduction of waste and customer complaints.

ISO 9001 ensures that the needs of customers are being considered and met. It also helps in highlighting skill shortages, uncovering teamwork issues, and motivating employees through improved communication. In relation to vendor management, Coca-Cola utilizes the partnership model to structure relationships with vendors. Through this model, both parties work together to identify and develop improvement opportunities, while also gaining knowledge of each other's business drivers. Additionally, goal setting is a continuous process that takes place during quarterly business reviews.

This topic has already been covered extensively under the heading "The Supply Chain of Coca-Cola India" on page 3. Recommendations for Vendor management have the potential to impact various aspects of the firm's financial performance, such as economic value added or EVA. It can influence sales, cost of goods sold, total expenses, inventory investment, other current assets, and the investment in fixed assets. By enhancing the quality of materials and the service received from suppliers, vendor management can contribute to an increase in

sales volume.

Therefore, the following factors will contribute to increased sales:

• High quality products from vendors
• Improved service from vendors to enable the company to provide better service to customers
• Better planning and fewer last minute production changes to reduce cost of goods sold
• Less expediting of materials
• Lower costs for direct materials
• Improvement in vendor’s order fulfillment
• Improvement in on time delivery performance to lower safety stock needs for purchased materials inventory, in-process inventory and finished goods inventories
• Improved asset utilization and rationalization (warehousing and plant facilities)
• Improved investment planning and deployment

Analysis of Coca-Cola's Quality Management Problem in India

In India, there is widespread concern regarding the water used to produce coke, which is believed to contain high levels of pesticide and other harmful chemicals. Coca-Cola has also been accused of using excessive amounts of water, leading to the depletion of aquifers and forcing farmers to migrate. In 2003, the Centre for Science and Environment (CSE), an NGO based in Delhi, reported that aerated drinks from companies like PepsiCo and Coca-Cola contain toxins such as lindane, DDT, malathion, and chlorpyrifos, which can cause cancer and weaken the immune system. The CSE discovered that Coca-Cola's soft drink products exceeded the permitted level of pesticides under EU regulations by 30 times.

Coca-Cola has stated that it filters water in its plants to remove potential contaminants and ensures that its products are tested for pesticides and meet minimum health standards before distribution. However, Coca-Cola's operations in India have faced significant scrutiny, as many communities are suffering from water shortages and contaminated groundwater and soil, which is believed to be caused by the company's bottling operations. In 2004, local authorities in Kerala closed a coke bottling plant worth $16

million, holding it responsible for a significant decline in both the quality and quantity of water available to local farmers and villagers. Even after the bottling plant was shut down, the Kerala High Court observed in 2005 that the wells continued to dry up.

A court-commissioned study concluded that while the plant played a role in exacerbating water scarcity, the primary factor was insufficient rainfall. In Plachimada, Coca-Cola faced allegations of causing significant issues for local communities, including severe water shortages, groundwater and soil pollution, and complete destruction of plants through extraction. The plant consumed a total of 900,000 liters of water, with 300,000 liters for beverage production and 600,000 liters for bottle and machinery cleaning. Farmers claim that their challenges emerged following the establishment of the bottling plant in 1999.<