INTERNSHIP PROJECT REPORT

ON

UNDERSTANDING AND STREAMLINING CRS

(CONTINOUS REPLENISHMENT SYSTEM)

BY

VIKRAM JAIN

CHRIST UNIVERSITY

DONE AT

Sudha Centre, 3rd floor, 31/19, Dr. Radhakrishnan Salai

Mylapore, Chennai

SUBMITTED TO

R. Srinath Reddy

INTRODUCTION:

India's food and beverage industry currently stands at US$ 40.3 billion and is expected to

touch US$ 66.3 billion by 2018, registering a growth of 18 per cent.

With a huge agriculture sector, abundant livestock, and cost competitiveness, India is fast

emerging as a sourcing hub for processed food. Estimated to be worth US$ 121 billion in

2012, the Indian food processing sector is poised for excellent growth in the coming years. It

is ranked fifth in terms of production, consumption and exports.

Anticipating the future growth, many big international players are entering the Indian market

by partnering with the domestic players. There are tremendous opportunities for large

investments in food and food processing. The Ministry of Food Processing Industries is

making all efforts to encourage investments in the sector, incentives for cold chain

development and also grant-in-aid for setting up laboratories that are equipped for testing

food products.

FOOD PROCESSING INDUSTRY:

Beverages

Consumption of non-alcoholic beverages in India is expected to increase by 16.5–19 per cent

over the next three years as more people are trading up to packaged drinks, according to a

report by the Indian Council for Research on International Economic Relations (ICRIER) and

the Indian Beverage Association (IBA).

Within the beverages market, the fruit-based beverages category is one of the fastest growing

categories. At present, the Indian packaged juices market is valued at Rs 1100 crore (US$

177.78 million) and is projected to grow at a compound annual growth rate (CAGR) of 15 per

cent over the next three years. Dabur India Ltd is the established leader, accounting for 54 per

cent market share through its Real fruit juice brand, followed by PepsiCo India with a 25–30

per cent market share through its Tropicana juice brand.

Expecting fast growth in value-added dairy products such as milk, foreign entities have

started looking at India as a dairy product market. Packaged milk segment in India is

projected to grow from US$ 7.76 billion to US$ 32.9 billion by 2030, registering an annual

growth of 8 per cent. The hot beverages market in India is also surprisingly concentrated with

the top 10 companies accounting for 65 per cent of the market.

KEY PLAYERS:

PepsiCo India plans to set up a new beverage plant, poised to be the company's largest

plant in India, at Sri City industrial park, close to the Andhra Pradesh–Tamil Nadu

(TN) border. The plant would produce the full range of beverages – carbonated

drinks, fruit-based drinks and sports drinks.

GOVERNMENT INITIATIVES:

The Government of India has allowed 100 per cent FDI under the automatic route in the food

processing sector, in agri-products, milk and milk products, and marine and meat products. A

100 per cent tax exemption is also allowed for five years, followed by 25 per cent tax

exemption for the next five years for new agro-processing industries.

The Ministry has launched a Centrally Sponsored Scheme namely, National Mission on Food

Processing (NMFP) during the 12th Plan to be implemented through State/ UT Governments.

During the period, the government has also made a plan allocation of Rs 5,990 crore (US$

968.36 million) to implement various schemes for promotion and development of the food

processing sector.

The Ministry of Food Processing Industries and ‘Invest India' have entered into an agreement

for the setting up of an Investors' “Help Desk” for offering online support to investors, both

domestic and international, with regard to their queries, and guide them particularly at the

initial stage of setting up their units.

With the objective of providing incentive to create integrated cold chain and preservation

infrastructure facilities in the country, the Ministry is implementing the Scheme of Integrated

Cold Chain, Value Addition & Preservation Infrastructure.

The government plans to set up three mega food parks in the country during the next six

months with each project attracting an investment of Rs 400–500 crore (US$ 64.65-80.81

million).

Road Ahead

India is the world's second largest producer of food next to China, and has the potential of

being the biggest backed by its food and agricultural sector. The total food production in

India is likely to double in the next 10 years.

The Ministry of Food Processing Industries (MOFPI) has formulated a Vision 2015 Action

Plan that includes trebling the size of the food processing industry, raising the level of

processing of perishables from 6 per cent to 20 per cent, increasing value addition from 20

per cent to 35 per cent, and enhancing India's share in global food trade from 1.5 per cent to 3

per cent.

There is a need to proactively market India as an attractive destination. In terms of market

size, India has a domestic market of over a billion people, with 300 million middle class

consumers. India's domestic food market is estimated to reach US$ 258 billion by 2015.

CONTRIBUTION TO GDP:

India's food processing industry is expected to touch Rs 4 lakh crore next fiscal from Rs 3.3

lakh crore in FY 12, says a FICCI-KPMG report. The report, released at the inaugural session

of FICCI's Food 360 here on 7th November 2013. It said that the opportunities in the food

processing industry are significant and expected to reach a size of Rs 400,000 crore by FY15

contributing around 6.5 per cent to the GDP.The sector attracted USD 1.97 billion

worth FDI from April 2000 to July 2013.

According to the report, ‘Enhancing Competitiveness of Indian Food Chain’, the Indian food

value chain is on the verge of a great transformation - from one characterised by high

wastage, low processing and low global contribution to one that is more streamlined, more

integrated and more significant in the global trade.Opportunities in the food processing

industry are significant. While there is very low level of food processing, domestic and export

demand exist and are growing. Increasing urbanisation and rise in disposable incomes are

expected to push demand for processed food further.

“Continuous financial and regulatory support from government, increasing participation of

private and public corporates, and increasing exposure of foreign players are likely to spur

investments in developing the infrastructure across the value chain right from farm inputs to

the consumers,” KPMG India partner and retail head, Rajat Wahi, said.

BACKGROUND AND HISTORY:

PepsiCo was established through the merger of Pepsi-cola and Frito-Lay. Pepsi-Cola was

created in the late 1880s by Caleb Bradham, a New Bern, N.C. pharmacist. Frito-Lay, Inc.

was formed by the 1961 merger of the Frito Company, founded by Elmer Doolin in 1932, and

the H.W.Lay Company, founded by Herman W.Lay, also in 1932. Herman Lay, former

chairman and CEO of Frito-Lay, was chairman of the board of directors of the new company;

Donald M. Kendall, former president and CEO of Pepsi-Cola, was president and chief

executive officer. Indra Krishnamurthy Nooyi is the current CEO of PepsiCo which is

headquartered in Purchase, Harrison, New York, with interests in the manufacturing,

marketing and distribution of grain-based snack foods, beverages, and other products.

In 1893 Caleb Badham was just playing around with the ingredients and he came up with a

new kind of drink which he named as Brad’s Drink. It basically contained a blend of

carbonated water, sugar, pepsin, kola nut extract, vanilla and ‘rare oils’ at his location. On

August 28, 1898 he renamed his drink as Pepsi-Cola as he added two new ingredients that is

‘pepsin and ‘cola’. His drink aided in digestion much like pepsin enzyme does and was

believed to be healthy. Frito Lay traces its origin in 1930s. In the midst of the Great

Depression many people were losing their jobs and hence had to turn to entrepreneurship.

Among these were the two men, Elmer Doolin and Herman W.Lay who merged in

September, 1961 to form Frito-Lay, Inc. In 1965 the two companies merged and PespsiCo

was the formed.

The pepsi logo has changed many times over the years. From being all red to a combination

of three colours that is red, blue and white. This was mainly done to give a sign of support for

America during World War II. That is why the colours on the logo are red, white, and blue

and have been the same ever since.

MISSION, VISION AND VALUES OF PEPSICO.

Mission:

"Our mission is to be the world's premier consumer Products Company focused on convenient

foods and beverages. We seek to produce financial rewards to investors as we provide

opportunities for growth and enrichment to our employees, our business partners and the

communities in which we operate. And in everything we do, we strive for honesty, fairness and

integrity."

Vision:

Vision is put into action through programs and a focus on environmental stewardship,

activities to benefit society, and a commitment to build shareholder value making PepsiCo a

truly sustainable company.

"PepsiCo's responsibility is to continually improve all aspects of the world in which we operate -

environment, social, economic - creating a better tomorrow than today.”

Also Performance with Purpose is what we strive for. At PepsiCo, the commitment is to

achieve business and financial success while leaving a positive imprint on society.

Our approach to superior financial performance is straightforward - drive shareholder value.

By addressing social and environmental issues, we also deliver on our purpose agenda, which

consists of human, environmental, and talent sustainability

Values and Philosophy:

The values and philosophy of PepsiCo reflect the socially and environmentally responsibility

that it aspires to possess. Being socially and environmentally responsible are the foundation

for every business decision.

They are committed to deliver sustained growth through empowered people acting

responsibly and building trust.

Sustained growth here means the fundamental to motivate and measure success. It

stimulates innovation, places a value on results, and helps us understand whether

today's actions will contribute to our future. It is about the growth of people and

company performance. It prioritizes both making a difference and getting things

done.

Empowered people means having the freedom to act and think in ways that will get

the job done, while adhering to processes that ensure proper governance and being

mindful of company needs beyond own.

Responsibility and trust form the foundation for healthy growth. The company

holds both personally and corporately accountable for everything they do. By acting

as good stewards of the resources entrusted to them, they strengthen that trust by

walking the talk and following through the commitment of succeeding together.

PRODUCT LINE:

Good-For-You: PepsiCo’s growing Good-for-You portfolio is comprised of nutritious foods

and beverages that include fruits, vegetables, whole grains, low-fat dairy, nuts, seeds and key

nutrients, with levels of sodium, sugar and saturated fat that are in line with global dietary

recommendations. Also included are offerings that provide a functional benefit, such as

addressing the performance needs of athletes

Better-For-You: PepsiCo have improved the nutritional profile of many of its social snacks

and beverages. In snacks, they have reduced saturated fat levels and sodium content, and are

dialing up baked offerings and whole grains. In beverages, they are increasing the number of

low- and zero-calorie choices and reducing added sugar.

Fun-For-You: The Fun-For-You portfolio includes treats that are enjoyed all over the world as well as

regional favourites.

PepsiCo India’s expansive portfolio includes iconic refreshment beverages Pepsi, 7UP,

Nimbooz, Mirinda, Slice and Mountain Dew, in addition to low-calorie options such as Diet

Pepsi, hydrating and nutritional beverages such as Aquafina drinking water, isotonic sports

drink Gatorade and fruit juices such as Tropicana and Tropicana 100%.

COMPETETION:

Pepsico operates in highly competitive markets. Beverage, snack and food brands compete

against global, regional, local and private label manufacturers and other value competitors. In

many countries in which Pepsico does business, The Coca-Cola Company is our primary

beverage competitor. Other food and beverage competitors include Nestle, ITC, Haldirams in

India. In markets, we also compete against numerous regional and local companies.

Pepsico’s beverage, snack and food brands compete on the basis of price, quality, product

variety and distribution. Success in this competitive environment is dependent on effective

promotion of existing products, the introduction of new products and the effectiveness of our

advertising campaigns, marketing programs, product packaging, pricing, increased efficiency

in production techniques and brand and trademark development, protection and distribution.

PRODUCT INTEGRATION AND INNOVATION:

The first core competency is their product integration and innovation. Pepsico is able to

enhance their product line by carrying fruit drinks like Gatorade. PepsiCo India has been

on the cutting edge of product innovation, or “indovation” as they call it, developing new

and exciting beverages, foods and snacks that appeal to all the consumers. This allows

them to promote their products and services more efficiently while being able to reach a

much broader group of individuals. Through integration, they are able to eliminate

potential competitors while creating a more diverse product line.

BRANDING AND MARKETING:

Secondly, Pepsi’s strength lies on its branding and marketing. Pepsi had always come up

with the unique and the campaign’s focusing towards its target market. This uniqueness

in advertising and branding has given it a competitive advantage over its competitors.

Pepsi’s target audience is mainly teens and young adults and their advertising reflects

this in every possible manner. Back in 1940s Pepsi-Cola Company made advertising

history with "Nickel, Nickel," the first advertising jingle ever broadcast nationwide on

radio. The song referred to the price and the quantity of the drink and became very

popular. The song was a hit record and was ultimately translated into 55 languages. Also

other successful Ad campaigns like ‘yeh dil maange more’, ‘Youngistan’ created a huge

impact on its target group. Apart from these, several factors mentioned below have been the reason to strengthen

PepsiCo over the years and still have been backing up its core competencies in different

ways. It is the number one maker of snacks (Frito-Lay), such as corn chips, potato chips

with the spice of innovation which makes it different. Secondly, merger of two strong

companies, PepsiCo and Quaker Oats. Company offers more than just soft drinks and in

the beverage section they have variety.

PORTER’s FIVE FORCE MODEL:

The five forces model of Porter is and outside-in business unit strategy tool that is used

to make an analysis of the attractiveness (value) of an industry structure. Allows the

development of a competitive strategy.

Traditional competition:

Prices of Coca Cola, local brands

Market share

Promotional actions of competition

New entrants:

New “look-alike” manufacturers

Substitute products:

Fashionable new drinks, milk drinks, coffee, beer, water, smoothies, food products

also.

Suppliers:

Price and availability of ingredients on world market.

Quality, speed, safety, traceability, flexibility of supply chain.

Buyers/consumers:

High as a result of intense competition both among branded and unbranded products.

Combined purchase power of shops, bars, supermarket.

SUPPLY CHAIN:

A supply chain is a system of organizations, people, activities, information, and resources

involved in moving a product or service from supplier to customer. Supply chain activities

transform natural resources, raw materials, and components into a finished product that is

delivered to the end customer.

Due to high competition and advancement in the technology the companies are adapting

different ways to defeat one another and supply chain being an important component in a

business (especially which provide products) it is necessary for the organizations to develop

the supply chain.

Distribution is the most difficult part of the supply chain, as India being one of the largest

countries in the world it becomes difficult for the organizations to distribute their range of

products in every store. To make it simple different organizations use different ways. But

PEPSICO designed a system named CRS which is a part of SAP which is user friendly.

CRS (Continuous Replenishment System):

CRS refers to continuous replenishment system. It is a system which has been divided by the

Pepsico inside SAP. This system helps in the auto creation of distributor sales orders based

on the NORMS and the previous day’s closing stock. This order makes an online order for

the distributor based on the closing stock of the previous day and the agreement.

CRS changes the traditional replenishment process of retailer generated orders to one of

partnership amongst trading partners where the supplier determines the replenishment

quantities based on the information of stock and sales received from the customer.

GOALS OF CRS:

Increase inventory turns

Reduce inventory levels

Decrease stock out

Improve customer service levels

Boost warehouse efficiency

IMPORTANCE OF CRS:

To improve the speed and the certainty of the supply

To increase range availability

Only the required stock is supplied to the distributor on demand

Reduce the stock out situation

Increases the revenue of the distributor as it reduces the loss of opportunity to sell

ISSUES RELATED TO CRS:

1. Fill rate issue: when the supplier gives less no of stock than agreed in the norm then

the distributor might be facing an out of stock situation of market.

For example, let us consider the agreed norm is of 100 boxes but the supplier can only

provide 80 cases then the 80% of the stock is the fill rate issue. Even though if the

supplier has the required the stock available the computer doesn’t show that.so the

remaining order is manually ordered which involves a lot of time and labour.

2. Out of stock situation: this situation occurs when there is a shortage of stock with the

retailer or the distributor. This can be due to many reasons like logistics, problem in

the manufacturing plant and etc.

3. Un-necessary stock: this situation depends on the season. For example, let’s consider

Cheetos it is very famous among the young ones but during the holidays (long term

holidays) the sales of the Cheetos decreases as it is mostly sold in the or near the

school areas so there is a decrease in the demand of Cheetos. Therefore the retailer

doesn’t buy the product and the product lies in the warehouse.

4. Distribution: Pepsi has to stress more on it distribution to overcome the competition

against ITC and Haldirams.

To overcome these issue we can use VMI (vendor management inventory).

VENDOR MANAGED INVENTORY:

VMI is means of optimizing Supply Chain performance in which the manufacturer is

responsible for maintaining the distributor’s inventory levels. The manufacturer has access to

the distributor’s inventory data and is responsible for generating purchase orders. Under VMI

manufacturer receives electronic data (usually via EDI or the internet) that tells him the

distributor’s sales and stock levels. The manufacturer can view every item that the distributor

carriers as well as true point of sale data. The manufacturer is responsible for creating and

maintaining the inventory plan. Under VMI, the manufacturer generates the order, not the

distributor.

Following are some of objectives of VMI

Increase in-stock inventory

Increase sales

Improve customer service

Increase gross margins

Reduce overall inventory in the supply chain

Stabilize vendor’s production

INFORMATION FLOW IN VMI:

There are 3 main levels of information flows in VMI -Inventory Levels, Order proposals and

Sales history. Informations flows back and forth between manufacturer and distributor

Inventory levels – From distributor to manufacturer

The current stock quantity

The quantity in order

The quantity reserved for some customer orders

The backorder quantity (stock out)

Order proposal – From manufacturer to distributor

The Ship To location

The order quantity

Sales history – From distributor to manufacturer

The quantity sold over the last period

The number of sold lines

Forecasts can also be provided by the distributor

TWO STAGE VMI SUPPLY CHAIN

VMI MODEL: From the supplier’s perspective, a VMI Model generally entails:

1. Receiving stock levels from the customer.

2. Receiving sales forecast from a customer.

3. Generating the replenishment orders.

4. Sending the dispatch advice to the customer.

5. Receiving the sales report from the customer.

6. Sending the invoices to the customer.

Supplier benefits:

Visibility to the customer’s point-of-sale data simplifies forecasting.

Promotions can be more easily incorporated into the inventory plan.

Customer ordering errors are reduced.

Stock level visibility helps identify priorities (replenish stock versus a stock out).

The supplier can see the potential need for an item before the item is ordered (demand

variation).

Customer benefits:

Fill rates from the supplier, and to the end consumer, improve.

Stock outs and inventory levels often decrease.

Planning and ordering costs decrease since the responsibility is on supplier.

Overall service level is improved by having the right product at the right time.

The supplier is more focused than ever on providing superior service.

Overall benefits:

Data entry errors are reduced due to computer-to-computer communications.

Overall processing speed is improved.

Both parties strive to offer better service to the end consumer.

A true collaborative partnership is formed between the supplier and the customer.

Example: This model is implemented in WAL-MART. As a product’s barcode is swiped at

the checkout aisle, the information is instantaneously is sent to Wal-Mart’s data warehouse.

The data warehouse projects when the item needs to be replenished and then places the order

directly to the vendor or to the distributor. This “just-in-time” inventory management reduces

overhead associated boxes of unneeded product sitting in the warehouse.

OTHERS USES OF VMI:

-Pepsi has to stress on its distribution process because of the competition from ITC and other

local groups. ITC’s main strength is its distribution process and to remain the largest food

company in India we have to improve our distribution. We are more preferred than any other

brand due to the taste and brand name, so to gain an additional advantage we have to stress

hard on the distribution.

-By using VMI we can maintain a balance in the market by providing all the flavours at the

same time.

-By using VMI in supermarkets we can decide the amount of the stock that the retailer should

keep. By this we can do a bulk display through which the customers will be attracted and lays

being an impulse products it will be sold to the customers easily.

IMPROVEMENTS TO CRS SOFTWARE:

1. Time phased future orders (dynamic reorder point)

2. Better methods to plan safety stock

3. Insure even run out for each SKU for each in a distributor’s warehouse