Discuss about the Principals of Logistics Management for Coca-Cola Company.
Organizations apply different business improvement methods to improve their performance. Logistics is one of this methods and is regarded as one of the crucial factor adopted by companies to gain competitive advantage. Logistics management refers to integrating all the core functions in an organization such as warehousing, transportation, material handling, stock management, order fulfilment and supply and demand planning. The aim of logistic management is to improve efficiency and effective business operations. This paper focuses on understanding the logistic management as adopted by the Coca-Cola Company. The specific issues being considered are; a) interface of key factors; b) Order cycle; and c) Inventory management.
Coca-Cola Company Profile
The Coca-Cola is a multinational beverage corporation with its headquarters in Atlanta, Georgia in the United States of America. Coca-Cola is a manufacturer, marketer, and retailer of syrups and non-alcoholic beverages. Coca-Cola is famous because of its popular Coca-Cola brand which was invented by John Stith in 1886. In 1889, Stith sold the Coca-Cola brand and formula to Asa Candler who established the Coca-Cola Company in 1892. The Corporation operates using a franchise distribution system where it produces the syrup concentration and sells it to its bottlers distributed in the world. Currently, Coca-Cola owns over 500 brands in more than 200 countries (Coca-Cola Company, 2016).
The Company has employed over 150,000 direct employees globally. Likewise, Coca-Cola makes 1.7 serving in a single day globally. The Company contributes 1% of its total income to charities and contributions annually. It is also a key sponsor of FIFA, Olympic, and EURO. Ion 1984, the Company launched the Coca-Cola Foundation to improve the livelihood in the society. Among the biggest beneficiaries of Coca-Cola’s charity, Contributions and financial foundation are African and Asian countries as well as the United Nations. When it comes to competitive strategy, Coca-Cola has adopted an aggressive marketing approach to acquiring competitive advantage from competitors like PepsiCo (Hays, 2015, p. 15).
The Logistic Concept is used to link all the key functions in an organization. The concept of logistics management is a subset of the supply chain management. The concepts focus on planning, implementing, and controlling the flow of products from the suppliers to the end consumers. Logistic is referred as a crucial success factor for an organization (Bowman, 2015, p. 23). It encompasses both the efficiency and effectiveness of the operations. As discussed in the case of Coca-Cola, logistic management has a direct impact on a company’s bottom line. The Coca-Cola Company uses the logistics concept to link together its core operational functions like production, marketing, and accounting and finance with the aim of achieving its overall objectives. Interfacing the functions is only achievable through good communication and cooperation between the involved departments (Williams, 2008, pp. 212-8).
Production, Marketing, Finance & Accounting Functions and Logistics
Currently, the Coca-Cola Company has 742 production facilities and is applying logistics process to streamline the number further. The company is guided by the principle of integrating the demand and supply functions. The Company uses Demand, Operations & Inventory Planning (DOIP) concept to manage its production. The amount of the application is achieved by interacting with the sales and marketing departments. By engaging the sales and marketing personnel, the production department understands the current trend for demand making it easier to approximate the amount to production (Walter, et al., 2009, p. 93).
The Operational element of the DOIP concept deals with the financial implication that affects the attempt to optimize the production at Coca-Cola. After establishing the real demand for its products in the market, the production department should then liaise with the Finance and Accounting department to establish whether or not the proposed production level is financeable (Bowersox, et al., 2012, p. 101). In the past years, conflicts arose between the departments, where the Finance and Accounting department rejected the push by the production department to increase the number of production as a way of taking advantage of market demand. However, the former rejected the proposal because it was viewed as a short-term opportunity and was not deemed as feasible for the company’s long-term objectives (Bowman, 2015, p. 23).
Lastly, the Inventory planning focuses on how maintaining the right level of stock directly affected the operations altogether. To synchronize the roles of the three departments, Coca-Cola developed a Sales and Operations Planning (S&OP) Logistics Concept which that there is an effective way of sharing information and decisions. The Company indicated that the Concept had proved an 85% success rate (Bowman, 2015, p. 31).
The logistic concept has enabled the Company to focus on up and downstream management. For example, the suppliers depend on the production schedule provided by the Company before making their orders. Likewise, the transportation department also relies on the Sales and Marketing department in planning its schedule. To ensure an effective demand planning and forecasting, the Company combines its performance in the marketplace and the “perfect order” notion (Frazelle, 2001, p. 123).
In short, The Coca-Cola Company used a simplified and streamlined Logistic management method to enhance its production, sales and marketing, transportation and the amount spent by the Finance & Accounting departments. However, the Company has created a committee made up of representatives from all the three departments to “plan and replan” its logistic operations considering that the market is dynamic and practices change every day.
Order Cycle and Management
Any organization must effectively manage its ordering process to satisfy its customers. Order management is defined as the management of all the activities in the order cycle. Likewise, order cycle refers to the process that takes place from the time a customer places an order to the time he/ she receives the products ordered. The four processes involved in order cycle/ management are; order transmittal, order processing, order picking and assembling, and order delivery. The Coca-Cola Company adheres to all the ordering processes (Williams, 2008, p. 229).
- Order Transmittal is defined as the time it takes a company to receive a formal order from a customer. The Common methods used to transmit an order are physical visiting the site, through the e-mail, through the telephone, using fax and lastly using the online platforms (Hays, 2015, p. 16). Orders are transmitted and processed at the Coca-Cola’s bottler Companies. The formal methods that can be used by customers to transmit their order to the Coca-Cola Company are making a telephone call, through Fax or sending an email to the Company’s sales department. The information on the official telephone number, email address and fax line to be used are provided on the company’s official page.
- Order processing refers to the recipient of the order transmitted by the customer and the authorisation of the order by the relevant department at the organization (Hays, 2015, p. 17). At the Coca-Cola Company, Enterprise Resource Planning (ERP) technique is used in processing orders. When the sales department receives the order, it is checked for accuracy and completeness. Second, the department then checks the status of the customer’s credit (in the case of an existing customer). Third, the order is entered into the computer system before assigning a sales personnel to execute the order if accepted. Fourth, the accounting department then records the order transaction in its system. The order is then taken to the inventory department where the nearest warehouse to the customer is identified.
- Order picking and assembly refers to the activities carried by the warehouse or store to prepare the order for shipment (Rushton & Croucher, 2010, p. 71). The Coca-Cola Company order is loaded on the company’s outbound carriers ready for the shipment. Order are packed in the carrier by the customers’ location. The Pick-to-light technology is used to effectively arrange the order in the racks or shelves to minimize the time wasted in picking and lighting orders and eliminating errors.
- Order delivery refers to the formal delivery of the order to the customer or an agreed location (Rushton & Croucher, 2010, p. 82). The Coca-Cola company gives its customers the power to determine where the point of delivery. Customers are also allowed to pick their delivery at the nearest warehouse. The success of the whole process is measured regarding customers’ satisfaction with the order.
However, it can be noted that there is a long procedure that is involved in order cycle. A lot of time is wasted in the process. I would recommend the integration of the order management under one department to shorten the time. Second, all the processes involved should be automated such that when the sales department has filled an order, it can reflect directly in the Company’s database. This would save other departments from entering the information fresh. The order should go directly to the nearby warehouse after being processed by the sales department.
Diagram 1: Order Cycle and Management for Coca-Cola
Diagram 2: Order Cycle and Management for Coca-Cola
Inventory Management Analysis
Inventory refers to the raw materials (used in production), finished goods (ready to be delivered to the customer upon placing an order) and the packaging materials. The main inventories at the Coca-Cola Company are the syrups, finished coke products and brands, Packaging bottles and crates. Inventory management is important because it helps in efficient and effective business operations. Failure to manage the inventory can lead to business failure. Poor management of stock would lead to incurring of extra cost regarding spoilage, dead stock, and hiring of storage space. Likewise, understocking can lead to losing of key customers and market share (Frazelle, 2001, p. 131).
Coca-Cola uses the Collaborative Planning, Forecasting and Replenishment (CPFR®) principle to manage its inventory. The CPFR is an entrepreneurial approach that used to improve the efficiency of the supply chain management and meeting customer demands. The approach is used by the company to integrate between its inventory level and supply chain. Through the stock and sales system, the company generates up-to-date information about its inventory (Bowman, 2015, p. 66). The Coca-Cola Company can easily know the amount of inventory in, the current inventory in its warehouses and the amount of inventory leaving its premises. Likewise, the system is computerized to show the track of stock usage by the production department, the change of prices in the market and indicate when reordering is necessary. The Coca-Cola’s inventory management system is based on the production schedule, and customer and market demand. The inventory management is done at the production site. And the amount of stock bought or transported to a given geographical area is determined by the real amount of sales, customer demands and market trend (Christopher, 2011, p. 33). In short inventory management is done through a collaborative approach from all the involved departments.
Using the CPFR method, the Coca-Cola Company knows when to place a new order for inventory, when to cancel an order placed early and when to send more inventory to its respective production centers. Using real-time information on Customer demand and projected production, the company can easily know the amount of inventory to order from the suppliers. Coca-Cola has put an effective inventory management system in place that ensures efficient operations. The computerized Sales and Stock forecast tracking system have ensured that Coca-Cola does not suffer from production crisis. The system allows the company to respond swiftly to its customer demands. It enables the company in optimizing, executing and managing its strategic, tactical and operational business processes (Hays, 2015).
The Coca-Cola Company has put effective logistic and inventory management processes in place. The company has taken advantage of the technological advancement to improve its operations and increase customers’ satisfaction. Logistics and inventory management are two crucial factors that directly impact a company’s success in the market. This can be seen in the competitive advantage enjoyed by Coca-Cola in the non-beverage product industry globally.
The Coca-Cola Company applies the logistics concept to link together its core operational functions like production, marketing, and accounting and finance with the aim of achieving its overall objectives. It has adopted simplified and streamlined Logistic management approach which enhances its production, sales and marketing, and transportation or inventories to the delivery points. Likewise, the Company has a structured method of managing orders received from its customers. For example, orders are transmitted through the use of email, fax, and phone calls while they are processed using the Enterprise Resource Planning (ERP). Last, the number of inventory held by the company is determined by customer/ market demand and previous sales trends. Coca-Cola’s success in the industry is reflected in its effective management of its operations.
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