September 22, 2016

Companies are presented with many opportunities when they decide to enter a new market. Venturing into unfamiliar territory offers a unique chance to innovate and make changes that benefit the business as a whole. One of PepsiCo’s growth strategies is to proactively adapt to emerging market trends for natural, healthy, and nutritious beverages. The strategy makes the company’s supply chain more global and complex. It also presents new challenges and risks.

In order to manage these risks and maintain the service levels that its retail customers expect, PepsiCo needed to develop new risk management practices and redesign elements in its supply chain as it expanded its beverage lines. These efforts have enabled PepsiCo to reap improvements that benefit both the new product lines specifically as well as the established parts of the business as a whole.

One of the healthy beverages that make up the new growth strategy is coconut water. A natural alternative to hydrating drinks that replenish electrolytes, coconut water is not simply an extension of PepsiCo’s traditional line of beverages. Coconut water is a “good for you” product that is an alternative to “fun for you” products like Pepsi’s carbonated soft drinks.

PepsiCo’s healthy beverage brands — O.N.E. Coconut Water and the smoothie/juice brand Naked Juice — are manufactured in remote regions of the world, including Southeast Asia. But the majority of the customer demand is in the United States, along with other markets that include Canada and the United Kingdom. In this new line of business, lead times are longer and supply is more variable than in PepsiCo’s traditional beverage supply chain. The company has had to build enough inventory to minimize stock outs — without causing excessive losses through obsolescence. Other challenges include the need to develop a seasonal inventory strategy to address both U.S. demand fluctuations as well as the supply risk of the disruptive typhoon season in Southeast Asia.

Overall, the task has been to design a more risk-informed supply chain that mitigates the new risks while also being more resilient to supply disruptions and responsive to demand fluctuations. PepsiCo approached this task on five fronts:

Read more at MIT Sloan Management Review