Supply Chain Risk Management Analysis: Coca Cola Company

Supply Chain Risk Management Analysis: Coca Cola Company

Coca-Cola Company is a multi-billion beverage producing and bottling enterprise that has won the hearts of many over the years it has been in operation. The journey to its being a market leader has been influenced by a rich history which ranges from leadership to its management of procurement operations in both its internal and external environment. From a life story told of a former CEO at the company, it is no secret that the growth and development of Coke has not only been influenced by leadership from Robert W. Woodruff who is portrayed as a very influential retired CEO. The CEO has been applauded for starting the current supply chain that has served the company for many years. His predecessors have only refined the supply chain process by making it less risky thus increasing the company’s competitive advantage (Kerin & Roger, 2012). Understanding this history leads us into acknowledging how institutionalization of the company’s culture was incorporated into achieving efficiency and effective in its procurement division specifically the supply chain.

At Coca Cola Company, procurement has been integrated with total quality management (TQM) and these two factors have propelled the coke brand into not only attaining competitive advantage but also a becoming a market leader in the soft drink industry. Coca Cola Company presents a good case scenario where an organization can go beyond managing its own supply chain and strive to undertake proactive strategies in order to curb possible supply chain risks for both its suppliers and customers. By so doing the Coca Cola Company has improved its procurement management processes thus increasing efficiency which adds up to creating a competitive advantage. Looking at the background information regarding the company’s operations and information systems identifies Coca Cola as a well leveraged company with inert potential to deal with uncertainties arising from its supply chain (James, 2007).

Literature review on supply chain risk management

Supply chain is a complex and dynamic process that involves an extensive interaction between people, organization, resources and information (Sandhusen, 2008). Activities undertaken along a supply chain facilitates the movement of products from the company which manufacturers the goods into the suppliers premises after which it is distributed to the final consumer. In the case of Coca Cola which is a beverage manufacturing company, its supply chain activities range from transformation of natural resources and raw materials into a finished soft drink. A council of professional supply chain managers described a supply chain as a sophisticated process encompassing managing and planning activities involving sourcing and procurement, managing inbound and outbound logistics as well as converting raw materials into finished goods (Sucky 2009). As a result, a supply chain is a conglomerate of partners such as suppliers, intermediaries and customers which essentially narrows down the definition of supply chain management into an activity that entails management of the demand and supply channel.

The supply chain management process is facilitated by sound information systems, sales and marketing, product differentiation and financial endowment of a company (Clow & Donald, 2007). The main goal of managing supply chain is derived from the need to achieve economies of large scale production which in return increases profitability and fosters competitive advantage. The supply chain management activities undertaken by multinational companies such as Coca Cola are more complex in nature. Managing global supply chains requires institutionalization of ethical practices into the organizational culture of a company in order to assure customers of reliability in supplies which further boosts their brand loyalty (Cleland & Gareis, 2006). As for Coca Cola their international supply chain has been facilitated through construction of affiliate companies which operate in major towns all over the world. This means that their supply chain is rather decentralized from the headquarters.

Along the supply chain, there arises a wide array of risks. As a result the need to manage risks along the supply chain is necessitated because risks could hamper the timely delivery of goods and services to the customers. The Royal Society, (2012) defines supply chain risk management as a process conducted by procurement managers aimed at implementing strategies to hedge the company against exceptional risks that could be too expensive to be managed by insurance companies. Such strategies involve continuous assessment of risks in order to reduce vulnerability of the possible risks along the supply chain.  Norrman and Lindroth, (2012) further defined supply chain risk management as a deliberate process set by a company in order to facilitate interaction between stakeholders and facilitate achievement of organizational objectives. From this definition, it becomes apparent that managing possible risks along a supply chain is a continuous process that requires constant assessment and review of the risks in order to cater for emerging risks (Dobkin, 2009).

In the case of Coca Cola, the risk management process has been extended to cover suppliers and customers who are their core stakeholders. Furthermore an analysis of the sources of risks associated with the supply chain for Coca Cola identified that the company supply chain risks could emanate from three sources. As emphasized by Stevenson, (2005) the risks range from those internal to the supply chain, external risks and network related supply chain risks. These classifications can be narrowed down into organizational, environmental and supply chain related risks. Supply chain risks are so demanding in the sense that they are uncertain and their impact could be detrimental to the organization. According to Juttner, (2012) External sources of risks comprise of external factors that a firm can hardly influence among them being political risks, social risks, natural risks, market or industrial risks which are caused by volatile demand and supply determinants.

The second classification entails internal or organizational supply chain risks which range from labor unrests, failure of machinery and information systems while the third source of supply chain risks is the network related or supply chain related risks such as relationship between partners in the supply chain (Rainer 2009). This factor is dependent on the degree of cooperation and interaction between the company and its intermediaries. In the event that these risks occur, then the supply chain will be hampered in terms of increased costs for the company, reduced quality, and compromised health and safety standards for the customers and employees.

On the other hand, Johnson and Zsidisin (2007) came up with a different classification that classifies supply chain risks into supply related risks which lie in the bracket of capacity limitations, supply disruptions and currency fluctuations. Their second classification is based on the demand related risks caused by volatility or seasonality of demand, seasonal imbalances and desire for new products motivated by innovation. The demand related risks are more so related to competitors because in the event that competitors for Coca Cola. For instance there is an ongoing market war between Coca Cola and Pepsi hence in the event that the latter designs a much superior energy drink then definitely the demand for the formers energy drink will be jeopardized leading to a reduction in demand which then becomes a supply chain risk (Juttner, 2012).

Additionally Johnson and Zsidisin, (2012) emphasized that supply risks can be promoted further by production derivatives such as design of the goods, packaging materials, cost, availability and quality, manufacturing technology, supplier, environment, safety and health factors. In the case scenario, Coca Cola has employed the use of specially designed plastic and glass bottles. The bottles are designed with a wide base to increase stability of the bottles thus reduce risks associated with packaging (Andreas & Marcus, 2011). The quality of their soft drinks has been standardized across all of the affiliate companies. This is because certain inventory characteristics have been exhibited by Coca Cola including stocking of raw materials. It includes the cola chemical formulae, water and other additives.

The raw materials are processed in a state called work in progress which includes mixing of the chemicals, additives and water which then moves onto the finished goods stage where the soft drinks are bottled, packaged and transported to wholesalers, warehouses, stores and final consumers. The stringent observation of manufacturing and packaging rules has ensured that the beverages attain a desirable quality while the decentralized operations ensure that production and procurement costs are minimized which translates into low cost beverages. This by itself is a competitive advantage for Coca Cola because decentralization reduces their supply chain thus reducing supply chain risks. From the integration of the literature review with the definition and illustration of supply chain risk management processes, it emerges that other authors seem to support the ideas postulated by Juttner supporting that there are three major sources of supply chain risks (Juttner, 2012).

Generally there is a widespread notion among author that supply chain risks are mostly related to outbound and inbound logistics and this is true. Research conducted by Andreas and Marcus (2011) identified that most procurement risks are incurred during the flow of information and materials in terms of goods and services. They emphasize that such risks not only affect the company but also the suppliers, customers and sub-suppliers which means that companies have to be vigilant when designing and reviewing their supply chains. Apparently, Andreas and Marcus (2011) noted that the procurement departments have become more enlightened on undertaking measures to curb supply chain risks because supply chains are the main determinant towards attainment of competitive advantages.

Importance of supply chain risk management strategies on Coca Cola Company

Wieland and Wallenburg, (2012) supports that the field of supply chain risk management has made organizations realize risks associated with unmanaged risks along the supply chain.  He quotes instances of Erickson Electronic Company which was faced out of the market as a result of its negligence of its suppliers and possible risks of fire (Wieland & Wallenburg, 2012). Erickson Company became vulnerable and succumbed to lose arising from fire which caused major loses and inconveniences which later led to financial crisis and adverse competition. This instance supports the need for managing risks along the supply chain. Therefore this report purposes to illustrate how sound procurement strategies and supply chain risk management strategies have been important to the attainment of competitive advantage at Coca Cola Company.

The process of supply chain risk management starts with inventory management. Inventory management plays an essential role at Coca Cola Company since it deals with the allocation of resources, stock taking, store keeping, replenishing of goods, forecasting, valuation and pricing (Bierderman, 2004). At this company, inventory management has been known to be proportionate to the level of its financial success. Combining inventory management with supply chain is a complex task that requires adequate planning, experience and analytical skills because over stocking by both the company and its soft drink suppliers might hold up capital that might have been productively used by another department whereas under stock may lead to stock cuts or stock outs which reduces productivity of a firm. Thus the attainment of the right inventories at Coca Cola has been a priority in its endeavor to attain maximum competitive advantage.

At Coca Cola Company, risk management is a collective responsibility meant to create a cohesive unit between all its business partners who are essentially stakeholders. By so doing, the company has embraced a holistic approach to supply chain risk management and this has bolstered that attainment of procurement strategies (Dev & Don 2005). By involving suppliers, consumers and surrounding communities through extensive corporate social responsibilities especially in Africa, Coca Cola has managed to get new ways of managing its extensive supply chain activities. In addition the careful selection of its supply chains coupled with the employment of experienced employees has been a major factor in fostering efficiency and attainment of competitive advantage.  With such initiatives, the company has continuously transformed its operations to encompass mitigation plans aimed at managing risks related to logistics and finances thus the company has experienced very few interruptions in the past. Ultimately, Coca Cola Company is faced paced towards attaining supply chain optimization because measures have been put in place to manage diseconomies of scale that might arise from mechanical failures at one of its production units.

Prior planning is of essence in order to attain a balanced risk management program. Taking a deeper analysis of operations at the Coca Cola Company illustrates that the history of the company is another determinant in facilitating supply chain optimization. In bid to gain competitive advantage and becomes a market leader, Coca Cola Company had to go through processes involving acquisition of patent rights and taking complete ownership of the coke formula.  This strategy was aimed at giving the company total control over its supply of the Coke formula which is a vital ingredient in the manufacture of the coke soft drink. After possessing full ownership of this vital ingredient the company had to gain the trust of the surrounding community in Atlanta by actively participating in social corporate responsibilities. The move was motivated by the need to win customer loyalty from the surrounding communities back at its Headquarters after which it started building more production units in other states. This action came to be termed as decentralization of operations which was helpful not only in reducing costs of production but also in managing costs and more so spreading of risks. With the decentralized operations, the company was assured of more income because of the large customer base and in the event of failure along the supply chain; beverages could still be supplied from another affiliate company (Ireland 2010).

The supply chain manager at Coca Cola Company has promoted the company by his enthusiasm in promoting the enactment of environmental conservation pacts such as the Climate Change Task Force and Kyoto Protocol. According to a story narrated by a former CEO at Coca Cola, is worth noting that the history of Coke was made better by its implementation of a sustainability triangle between non-profit organizations, governments and other businesses. Among which are the company’s key partners in the supply chain process. This triangle was helpful in driving the management of Coca Cola Company into valuing everyone along its supply chain (Bierderman, 2004). Apparently everyone in Coca Cola’s distribution chain counts and this is one reason why the company ensures that all its down-lines make a profit from every bottle of soft drink sold. The profits derived by the suppliers work as a motivation towards being responsible hence delivering quality to its final customers again Coca Cola has managed its supply chain in such a way that the soft drinks are available to the customers at the right time and in the right quantities.

Coca-Cola Company has for a long time applied the Just in Time Inventory (JIT) theory of supply chain management. It is a Japanese concept of saving on supply chain costs where goods are ordered for at the instance when they are needed so as to avoid loss of quality, depreciation or wastages which might result into lose (Michael, Nicholas & Anita 2008). Additionally, its subsidiaries or affiliates use real time data system to collect and disseminate information regarding its sales proceeds. The end result has been the attainment of competitive advantage for all the partners involved in the supply chain of Coca Cola Company because their procurement process is devoid of volatilities that could jeopardize attainment of economies of scale.

 

List of References

Andreas, V & Marcus, E (2011), Rating Customers According to Their Promptness to Adopt New Products, Operations Research, Canada.

Andreas, W & Marcus, W 2011, Supply-Chain-Management in stürmischen Zeiten. Berlin.

Bierderman, D, 2004, Reversing Inventory Management. Traffic World Press: Michigan.

Cleland, D. I. & Gareis R. (2006). Global Project Management Handbook. “Chapter 1: “The evolution of project management”. McGraw-Hill Professional

Clow, K & Donald, B 2007, Integrated Advertising Promotion and Marketing Communications, 3rd Edition, Upper Saddle River, New Zealand

Dev, C & Don E, 2005, In the Mix: A Customer-Focused Approach Can Bring the Current Marketing Mix into the 21st Century. Marketing Management Journal

Dobkin, J 2009, Direct Marketing Strategies: Forget Theory – Here’s What Really Works, Danielle Adams Publishing Mexico.

Ireland, H 2010, Understanding Business Strategy. South Western, Canada.

James, S 2007, The Business Communication Casebook: A Notre Dame Collection. Edition2. Cengage.  United States

Johnson, M & Zsidisin, I 2012, Learning from toys: lessons in managing supply chain risk from the toy industry, California Management Review, Vol. 43 No. 3, pp. 106-24.

Juttner, U 2012, Supply chain risk management: outlining an agenda for future research”, in Griffiths, J., Hewitt, F. and Ireland, P. (Ed.), Proceedings of the Logistics Research Network 7th Annual Conference, pp. 443-50.

Kerin, K & Roger, A 2012, Marketing: The Core, Mc Gaw-Hill Ryerson. Canada

Michael, P & Nicholas, A & Anita, M 2008, An Interview with Michael Porter, The Academy of Management Executive, U.S

Norrman, A & Lindroth, R 2012, Supply chain risk management: purchasers’ vs planners’ views on sharing capacity investment risks in the telecom iindustry, Proceedings of the 11th International Annual IPSERA Conference, Twente University, 25-27 March, pp. 577-95.

Rainer, T 2009, Introduction to Information Systems (2nd Ed.), Wiley, United States.

Sandhusen, R 2008, Chapter 6: Organizational markets and buyer behavior, Rohan, UK

Stevenson, W, 2005, Production operations management. Irwin Press:  Boston

Sucky, E 2009, Inventory management in supply chains: A bargaining problem. International Journal of production Economics.

The Royal Society 2012, Analysis, Perception and Management, The Royal Society, London.

Wieland, A & Wallenburg, M 2012, Dealing with supply chain risks: Linking risk management practices and strategies to performance. International Journal of Physical Distribution & Logistics Management, 42(10).

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