1996 - irug 96

IRUG '96

Terence R Talbot

STRUCTURING A BOTTLER

SALES AND DISTRIBUTION

OPERATION

Terence R. Talbot / Pepsi-Cola Engarrafadora Ltda. / Rio Division 2 / 46

Presentation purpose

To understand the critical issues behind

structuring a bottler operation, based on the

experience of launching Pepsi-Cola’s Rio

Division

To review the steps utilized to build the Sales

and Distribution framework, with the aid of

Roadshow


Rio de Janeiro statistics

16,953 square miles

Population of 12,800,000 people

40% between 3-20 years old

US$ 60 billion Gross Internal

Product

Austria’s GNP = US$ 120 billion

Portugal’s GNP = US$ 70 billion

Rio de Janeiro

Brazil


Reasons for change

Previous bottler focus turned to beer war

No investment on Pepsi brand

Lack of interest in adding other flavors

Market share drop of 44%


PepsiCo / BAESA joint-venture

Start from scratch

US$ 400 million investment

Build new plants and warehouses

Hire 3,000+ employees

Buy/lease equipment

Initiate new operation by Dec.’94


Project area breakdown

Marketing

Operations

Warehouses

Production plant

Human Resources

Finance / M.I.S.

Sales / Distribution

Miscellaneous


Marketing massive attack

US$ 18.5 MM first year media expenditure (Brazil)

Reposition the brand in the market

New logo

New taste

New flavors

New packages

Innovative media (blimp)

Outdoors / Merchandising

Promotions / Sampling


Warehouses critical issues

São Cristóvão / Niterói / Queimados - build

Barra / Volta Redonda - adapt

Legal permits

Inventory control

Loading Logistics

Layout and flow

Vehicles - trucks / pick-ups / forklifts

Furniture / Lockers

Light and phone installations

M.I.S. installations


Warehouses critical issues (continued)

Security

Product ordering logistics / empties

Fuel / pumps

Warehouse signs

Operational by Nov.15th


Production plant critical issues

Implement startup schedule / by line

Production control planning

Efficiency forecasting

Outside building for raw material storage

Weekly forecast / package / flavor

Bulk logistics

Raw material ordering schedule

Water issue (river)

Paint water tanks with logo

In-plant feeding (cafeteria)


Production plant critical issues (continued)

Production waste treatment

Product UPC bar-coding

Security

M.I.S. installation (RISC machine)

Telephone

Final sales / office area

Fuel / Propane

Lockers

Glass / shell inventory issues


Human Resources critical issues

Personnel hiring /training

Training schedule

Personnel handbook

Third party management

Union relations

Uniforms

Time cards / ID badges

All security


Human Resources critical issues (continued)

Payroll

Compensation plan

Benefit package

Vacation / holiday schedule

Paper flow - hiring / turnover

Vehicle policy

TRAINING! TRAINING! TRAINING!


Finance / M.I.S. critical issues

1995 Budget with P&L by warehouse

Pricing policies

Credit policies / terms

Accounts receivable procedures

Accounts payable procedures

Cost control reporting

Managerial reports

Monthly / Quarterly review procedures

Establish Key Performance Indicators

Coop management


Finance / M.I.S. critical issues (continued)

Internal Audit procedures

Fixed asset recording

Signature guideline / limits

Computer systems / backup procedures

(BPCS, PS2000, LMP3, RISC, NORAND)

Forms - all (including manual operation)

Tax issues

Bank logistics - deposit system

M.I.S. / Communications Blitz team


Sales / Distribution critical issues

Glass introduction methodology

Cooler blitz / planogram / contracts / placement

Incentives - trade / internal

Point-of-sale issues

Account coverage

P.O.P. / Merchandising

Database register (Census) x real

Adherence of routing parameters

Pre-sell routes / number of pre-sellers

Delivery routes / number of trucks

Roadshow completion / calibration

Tools of trade


Sales / Distribution critical issues

Sampling logistics

Merchandising plan (325 accounts)

Key accounts

Media / promotional

Launch theme / party

Blitz team

Third party distribution contracts

O.T.R. plan (28 bay bluebird / 3rd party)

V.I.P. list from each warehouse

Local Area Distributors

Concessionaires


Miscellaneous critical issues

Previous bottler

Exclusive account protection

Glass breakage number

Post-mix pricing / ordering logistics

Glass transfer schedule

Continuing communication after launch / post-mix

Third party lockers / bathroom for helpers

Trade party - Oct.29

Equipment maintenance (trucks/forklifts)

Purchasing logistics


Rio Division Business Snapshot

Volta

Redonda

Queimados

Niterói

Barra

São

Cristóvão

PCEVolume: 16.9 MM cs/year

Total POS: 45,000( Distr/Concess not included )

( Actual POS coverage: 69% )


Rio Division Business Snapshot (continued)

20,3 Million Cases Year Volume

US$ 192 MM Year Gross Sales

SCR BAR QUE NIT VTR0

0.5

1

1.5

2

2.5

3

3.5

MM

Cases

/Year

SCR BAR QUE NIT VTR

Gen. Trade

SMKTs

A.Distrib.

Concess.



73 Thousand Points-of-sale

60%

1%

32% 7%

Gen. Trade

SMKTs

Concess.

A.Distrib.



148 Pre-Sellers

110 Own Delivery trucks

All 10-bay Ford Cargo 1617

20 Third-party Delivery trucks

SCR BAR QUE NIT VTR

48

33

10

29 29

3

36

31

2

21

11

3

14

62

0

5

10

15

20

25

30

35

40

45

50

SCR BAR QUE NIT VTR

PS

Trucks

3rd Party



Service Area

1,666 square miles

10% of Rio State

Service Area Population

9,863,600 people

77% of Rio State

118

366

785

147 250

SCR

BAR

QUE

NIT

VTR

3.3

2.2

2.7

1.20.5

SCR

BAR

QUE

NIT

VTR


Special circumstances

Lane inversion on rush hours / holidays

Transit restricted to trucks area between:

7:00 am - 10:00 am

4:00 pm - 7:00 pm


Rio Division Production Plant statistics

Total land: 1,420,836 square feet

Total building: 107,640 square feet

3 bottling lines

1 glass (900 bpm) / 2 plastic (300 bpm)

Krones completely automated

Palletiser and depalletiser

Caser and decaser

Filler with 140 (glass) / 120 (plastic) valves

One plastic bottle blower

170 bpm (PET) / 85 bpm (PRB)


Sales / Distribution System

PS2000

Day

Schedule

Pre-Sell

Settlement

Delivery Routes

Returns


Roadshow project team

1 Supervisor

6 Computer Operators

2 Programmers

1 Administrative Clerk

7 days / week

3 shifts: (08:00 - 16:00 - 00:00)

Problems encountered:

Declining performance throughout shifts

Poor systems know-how

Information flow through shifts


Point-of-Sale Census

Total accounts registered: 28,342


Lots of customers left out

Many clients registered were fictitious

Poor handwriting

Absenteeism / turnover

Poor reference information to locate customers in

Roadshow


Database creation

Name / Contract name / Abbreviated name

Contact person’s name / Phone

Address / District / City / Zip code

Federal / State Registration Numbers

Type of client (Channel category, etc..)

Locating Reference (crossing roads)

Information from 3 main competitors:

Average weekly sales and visit frequency

Glass inventory by package

Equipment availability (backlight sign, display, freezer,

vis-a-cooler, vending machine, post-mix)


Sales Potential Assignment

Use database information with formula:

S ESTIMATED COMPETITORS SALES

X INCREMENTAL MARKET GROWTH

X TARGET MARKET SHARE %


Visit Frequency Assignment

P.O.S. divided into clusters

ABC table by volume:

Volume > 50 cases/week 3 days/week service

50 Volume > 5 cases/week 2 days/week service

Volume 5 cases/week 1 day/week service

• ( Volume = Sales Potential assigned )


Underlying Network creation


Poor / Inexistent maps

Lack of specific information

Changes on road direction

New areas

Missing links in future cluster merges


Customer Download

Divide clusters between shifts

Assign clusters to operators familiar with

location

Divide clusters to generate equal sizes

(critical path)


Locate / Connect to Network


Low productivity due to poor location

referencing (no Add-Match)

New roads

No location referencing

Location referencing different from map


Order Download

Orders and frequency assigned and

downloaded by clusters / shifts

Maintain operators in same clusters

through steps


Pre-Seller Territory definition

Parameters:

60 P.O.S./route average

190 cases/route/day

minimum

5 miles average walking

distance

8 - 9 hour day

Main target - to balance cases sold and number of

accounts serviced between Pre-Sellers, within a

reasonable perimeter


Service Day Assignment

Divide clusters in:

Monday / Thursday

Tuesday / Friday

Wednesday / Saturday

Equate 3 day visit customer to walking distance

Main target - to balance cases sold and number of

accounts serviced between days of the week,

within a reasonable perimeter


Pre-Seller Routing


Bad Network = Bad AutoRouting

Bad Connection = Bad AutoRouting

Poor operator judgment calls

Ignored obstacles ( train lines, rivers )

Lack of continuity / flow between shifts


Calibration / Route Correction

Perform “dry routes”

Identify new clients

Confirm Census information

Check route sequence

Location errors

Timing / walking length


Upload Pre-Sell Visit Sequence to PS2000

Develop interface to convert to

PS2000 format

Allow intervals of 10 for new clients

Problem encountered:

Loss of information in PS2000


Delivery zones definition

Large clusters

Delivery routes targets:

Maximize vehicle utilization

Reduce driving times

Allow multiple trips


Delivery routing

Fixed “snake” route

Ignore time windows

Special circumstances:

Lane inversion on rush hours / holidays

Transit restricted to trucks area between:

• 7:00 am - 10:00 am

• 4:00 pm - 7:00 pm


All ready ?

So let’s have fun !


Soft Drink Rio Market Share

Relative Evolution

DJ 95 FM 95 AM 95 JJ 95 AS 95 ON 95 DJ 96 FM 96

100

102

106 106.1

109.7110.6

108.1109.4

85

90

95

100

105

110

115

DJ 95 FM 95 AM 95 JJ 95 AS 95 ON 95 DJ 96 FM 96

Coca-Cola

Pepsi-Cola

Brahma

Antarctica

Other


Soft Drink Rio Market Share

Absolute Evolution

55%

7%

13%

9% 16%

Coke Pepsi Brahma Antarctica Other

December / January 1995

54%

16%

11%

8% 11%

Coke Pepsi Brahma Antarctica Other

February / May 1996

( Each % point in Brazil is worth US$ 60 MM / year )


Thank you for your interest, and...

…have a Pepsi day !

1996 - irug 96

Documents

terence r talbot

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bottler operation