Frito-Lay goes against the trend to simplify the supply chain

When lockdowns caused by a pandemic sent consumers home, Frito-Lay adjusted its inventory to meet growing demand for its products.

The snack brand has temporarily cut around 21% of its SKU portfolio to keep its supply chain as efficient as possible and deliver its most demanded products, said Laura Maxwell, senior vice president of supply chain for PepsiCo Foods North America. Last summer, the number of SKUs had returned to close to pre-pandemic levels.

“I’ll be the first to admit that last year when we simplified the portfolio, from a supply chain perspective, we love it,” Maxwell said in an interview. “It has given us a lot of efficiency and speed throughout the supply chain”

Today, Frito-Lay takes an approach that departs from the love of simplifying the supply chain. Maxwell called it “always everywhere”. This means the brand and supply chain team embraces the complexity of meeting consumers where they are.

“It was a change of mind for us,” she said. And it’s a change that means the entire value chain must be prepared to be effective, from inventory portfolio to data-driven planning, and every link in the chain in between.

CPGs are changing the way they think

Mindset changes were not uncommon for supply chains during the pandemic.

Streamlining product mixes and reducing the long tail have always been a consideration for consumer brands, but attention has increased during the pandemic, said Tom Madrecki, chain vice president of supply and logistics for the Consumer Brands Association.

“COVID has sparked another conversation about what is really needed,” Madrecki said.

Several CPG brands have rolled out SKU discounts as they faced high consumer demand. Mondelēza reduced its SKUs by 25%, and Utz eliminated 85 of what he called the “Foundation SKUs”.

After the initial peak in demand started to ease, some retailers and CPGs started bringing back SKUs.

“When we simplified the portfolio, from a supply chain perspective, we love it.”

Laura Maxwell

Senior Vice President of Supply Chain for PepsiCo Foods North America

“We are now using all of the SKUs that we simplified a year ago,” Campbell Soup Company CEO Mark Clouse said in June. The company had streamlined a number of SKUs during the pandemic “to maximize our production,” with the intention of bringing back most varieties, a spokesperson said.

The supply chain became a natural part of CPG C-suite’s conversations about company goals and targets during the pandemic, and executives felt empowered to advocate for investments that improved the product flow, Madrecki said.

“Consumer products companies are always doing their best to streamline the number of SKUs,” said Mike Griswold, vice president of research in the Consumer Value Chain team at Gartner.

Griswold cited new products as an example and said that around 50-75% of new products do not meet pre-launch targets.

“That would get you down the road, maybe we’d be better off providing configuration flexibility on existing products than necessarily banging our heads against the wall trying to come up with new products,” Griswold said.

Frito-Lay has temporarily cut around 21% of its SKU portfolio to keep its supply chain as efficient as possible and deliver its most demanded products. Last summer, 95% of suspended SKUs had returned.

The image by Mike Mozart is licensed CC BY 2.0

GPCs have also redesigned supply chains and workforce as companies facing staff shortages have had to adapt.

Frito-Lay has a mentoring program, set up before the pandemic, that pairs students receiving an associate’s degree with mentors for vocational training related to industrial maintenance.

“Things like this program have really helped us over the past year,” said Maxwell. Many students work for Frito-Lay after the program.

Yet Frito-Lay was not immune to labor issues. Staff shortages have resulted in forced overtime and “appalling working conditions” at a factory in Topeka, says local reports. Workers went on strike in early July to protest the conditions and demand wage increases. In a report, Frito-Lay called the allegations about working hours “grossly exaggerated.”

Data informs the channel

Frito-Lay owns several parts of its supply chain, which gives it flexibility to operate with complexity. Manufacturing, warehousing and distribution centers are internal to the CPG brand. The company also has a direct-to-store delivery system and recently launched a direct-to-consumer delivery channel. He operates a private fleet, in addition to using third-party carriers.

Technology and data connect the links in the chain. If manufacturing speeds up, the models notify the warehouse that it will also need to speed up to get the product to the trucks. The brand’s geographic enterprise solution, in place at 12 U.S. sites, enables manufacturing plants to pick up store-level orders on-site.

Factories are connected to the cloud and can report that they require maintenance. In some cases, Frito-Lay 3D prints parts for manufacturing facilities. In addition, the technology helps predict and prevent machine breakdowns in manufacturing plants.

Frito-Lay introduces new equipment, expands its warehouses and adds manufacturing lines for products such as Cheetos and Funyuns.

“Anything that helps us become technologically smarter is really what we focused on,” Maxwell said.

“Consumer data … must flow upstream.”

Tom madrecki

Vice President of Supply Chain and Logistics for the Consumer Brands Association

Technology and data have been great enablers of efficiency for manufacturers during the pandemic. On the hardware side, automated systems and robotics have allowed production to continue, even as facilities cut staff due to COVID-19 protocols.

Meanwhile, software and data have provided a comprehensive view of the supply chain – something that has become increasingly important to CPGs during the pandemic, Madrecki said. This is the case whether it is internal manufacturing and warehousing, or between the CPG brands, their suppliers, their 3PLs and their retail customers.

Relying on historical information as a predictor of demand has become nearly obsolete, and CPGs have had to use real-time data for decision making.

“Consumer data (…) needs to flow upstream,” Madrecki said. “Then it can inform manufacturing operations to be that kind of rich interaction between retailers and manufacturers.”

Frito-Lay uses consumer information overlaid with predictive modeling. And PepsiCo as a whole has a granular understanding of data at the local consumer level, Griswold said. Gartner most recent supply chain rankings places PepsiCo at n ° 7.

“One of the things that, in my opinion, separates Pepsi from their peers is just the amount of visibility they have on the information,” Griswold said. PepsiCo not only extracts data throughout its supply chain, but it converts information into information and action, he said.

Griswold gave a hypothetical example of different flavors of Doritos. One zip code may prefer Cool Ranch, while another has an affinity for Nacho Cheese. Armed with this data, Frito-Lay can position inventory in a way that matches demand.

The tactic carries the potential to increase sales and reduce out-of-stock, but also the risk of increased costs of holding inventory.

Plan for what consumers want

Frito-Lay does not stop at “always everywhere”. It adds to the complexity of the inventory with the customization.

“Consumers looking for variety will want an assortment,” said Maxwell. “Ensuring throughout the supply chain that we can meet the needs of the assortment, having the capacity and availability of SKUs throughout the supply chain, is a core mission on which we are. . “

Maxwell said consumers are looking for different sizes, from individual snacks to large bags. Frito-Lay also offers a “make your own variety pack” on its direct sales site.

“As consumers look for products of different sizes… it is also an important role of our team to help provide the right variety that consumers are looking for,” she said.

Frito-Lay allows consumers to order personalized variety packs. “Ensuring throughout the supply chain that we can meet the needs of the assortment, having the capacity and availability of SKUs throughout the supply chain, is a core mission on which we are. Laura Maxwell said.

Recovered from July 20, 2021

It’s a strategy Griswold predicted CPGs would start to follow, one of adding more SKU configurations rather than actual SKUs. Instead of a new flavor of Pepsi, consumers may want to order a six-pack with three regular Pepsis and three Diet Pepsis.

Another advantage is at stake for Frito-Lay here: the scale.

“A company like Frito-Lay or PepsiCo has this ability to adapt and be different for different people at different times,” Madrecki said.

Food channels are starting to reopen, from restaurants to office and school cafeterias. And that could change demand again. Frito-Lay and other CPGs will need to tap into consumer knowledge.

“As much as we can predict that people are going to go out right away and go from big retail deals more to portable snacks, maybe they could also pick up some of these habits and make them permanent, like eat at home, “Maxwell said.” We have to be very flexible. “

This story first appeared in our weekly newsletter, Supply Chain Dive: Operations. Register here.

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