Innovation is a key to customer engagement and customer experience at Pepsi. Another key ingredient in the global company’s success is productivity.
“We are focused on productivity, which is critical to succeed in today’s challenging environment,” PepsiCo CEO Indra Nooyi said during Tuesday’s second-quarter earnings conference call, according to Seeking Alpha. “With volatile macros globally, and increasingly competitive landscape with digital technologies disrupting many aspects of our business, productivity has never been more important. And as all of you know about, productivity enables current financial performance and provides investment funding to sustain growth into the future. As we think of productivity, we think both in terms of efficiency, which is getting the same result using fewer resources and effectiveness getting greater results using the same resources. All productivity initiatives to-date have been largely focused on efficiency and we have had pretty good results. We delivered $3 billion in productivity between 2012 and 2014 and we’re on track to deliver the first year of our current five-year, $5 billion program that we started in 2015. And this productivity has been supported, in large part, by investments we made in technology, starting with our implementation of SAP in the early 2000s, and this allowed us to establish a common operating language and to standardize operating metrics across the globe.”
Nooyi explained that Pepsi adopted an operating model that has reduced plans and layers in the organization and has promoted the sharing of best practices around the world.
“We also established truly global functions in operations, procurement, IT, HR, and finance as well as very lean category horizontals that are driving greater capability building, harmonization, and efficiency in new product development and global brand management,” Nooyi said. “Together, our technology investments and operating model are allowing us to leverage our global scale to a much greater extent. With these foundational elements in place, we have made progress in multiple areas.”
First, increased automation, Nooyi noted.
“We have installed packaging automation across approximately a third of our snacks plant worldwide enabling us to reduce packaging label costs in these facilities by at least 50%,” Nooyi said. “In Frito-Lay North America, for example, approximately 65% of all production utilizes fully automated packaging. In Mexico, we updated the majority of our packaging tubes with high speed equipment over the last few years, enabling us to increase throughput by approximately 40%. Across the Middle East, we installed automated palletizing and warehousing technologies in many key markets, resulting in improvement in labor productivities since 2013. Second, we are restructuring our go-to-market systems. Third, we are optimizing our global manufacturing footprint. Since 2010, we have reduced the number of company-owned beverage plants in North America by 23%. At the same time, we’ve increased our capacity utilization by 20%. In Europe, in the past three years, we closed six plants across our beverage and dairy businesses, decreasing our footprint by 7% and generating more than $20 million of annual savings and further increasing our capacity utilization.”
The challenge remains because it’s a “very complex, very big industry,” Nooyi said. “How do you play this whole game intelligently? I will tell you one thing: The fact that we own the bulk of our bottling systems and the fact that most of our bottlers are very aligned, we have very good set of bottling partners, actually allows us to be a lot more nimble and effect in the market, the right pricing strategies, revenue management strategies, and get the right innovation into the market place.”