PepsiCo operates about 8 plants and hires an estimated 8,000 employees across the Southern Africa region. Several of their brands exceed R1 billion in annual sales revenue: Fritos, Lay’s, Simba and Doritos just to name a few. Operations management is the focus of the firm—from designing products for new markets, to meeting changing consumer preferences, to adjusting to rising commodity costs, to subtle issues involving flavours and preservatives. The operations management function is under constant cost, time and market pressure. Extracted from PepsiCo company website:
You have been invited by the Operations Executive of PepsiCo Tumisang Matsheka to attend a conference organised and sponsored by the organisation entitled “Advancing competitiveness through Operational Excellence in emerging economies”. Your task is to prepare reports that will be presented and discussed by delegates during the 3-day conference. You have been given the following guidelines.
FORMATIVE ASSESSMENT 2 [100 MARKS]
Question 1 (20 marks)
With reference to the production processes of PepsiCo critically discuss how each of the operations management decision areas can be managed to improve its competitive advantage. You need to make use of practical examples and concepts.
Question 2 (20 marks)
You have been informed that the conference will also include a few delegates from the service sector and therefore you are expected to examine the concept of productivity and provide recommendations on the strategies that need to be considered by operations managers to improve productivity. Your recommendations should be relevant to all the delegates.
Question 3 (20 marks)
PepsiCo is contemplating locating its state-of-the-art factory in any of these three sites Durban (A), Bulawayo (B) and Gaborone (C). The goal is to locate the factory at a minimum cost site, where cost is measured by annual fixed plus variable costs of production. The following information has been presented to you,
|SITE||ANNUALISED FIXED COST||VARIABLE COST PER PRODUCT PRODUCED|
|A B C||R10,000,000 R20,000,000 R25,000,000||R2,500 R2,000 R1,000|
PepsiCo knows that it will produce between 0 and 60 000 units at the new plant each year, but this is the available knowledge regarding its production plans thus far. Provide advice using a relevant diagram on what values of volume of production if any is site C a recommended site? What volume indicates site A is optimal and over what range of volume is site B optimal and why. (Show all necessary calculations in your report).
Question 4 (20 marks)
As an expert in operations management one of the delegates has requested that you provide a presentation on the significance of process analysis and to provide recommendations on how this could be effectively executed in the context of PepsiCo.
Question 5 (20 marks)
The accountant for one of the PepsiCo factories in Palapye has provided you a list with six items in inventory along with their unit costs and annual demand in units. He has requested that you should assist him apply the ABC analysis to determine which item(s) should be carefully controlled using a quantitative inventory technique and which item(s) should not be closely controlled. (10 marks)
|Code||Unit Cost (R)||Annual Demand|
|XX1 B66 3CPO
33CP R2D2 RMS
In addition, this same factory shop uses 10 brackets per day during the year. The brackets are purchased from a supplier 90km away. The costs incurred include holding costs per bracket per year: R1.50, order cost per order: R18.75, Lead time is 2 days, working days per year is 250 days.
What would be the economic order quantity? What will be the annual inventory holding costs. How many orders would be made each year? What would be the annual order cost? What is the time between orders and the reorder point (ROP)?
Answers to Above Questions on Pepsico Case Study
Answer 1: It is important to perform a critical analysis of the production process that is followed at Pepsico in order to identify the operation management decision areas within the company. The analysis of the production process indicates that Pepsico introduces new products in terms of flavours and packaging sizes on a regular basis, and they provide significant importance on achieving quality in their products.
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