Frito-Lay Case Study

Frito-Lay
Case Study

Frito-Lay company uses
a model referred to as direct store delivery to replenish the stores of their
customers. Companies applying this model delivers their products direct to the retailer’s
store whereby they bypass the retailer’s distribution network. For instance, Frito-Lay
manufactures it goods such as chips and stores the goods in its distribution
network and from the company’s central distribution network, the company moves
the products to a regional storage location (Coyle & Coyle, 2009). From
here the products are stocked in the company’s delivery vehicles and the
drivers make direct store deliveries to the shops around. The diver has
responsibilities includes restocking the retailers’ shelves, merchandizing the
stock, rotating the stock, and even gathering competitive prices and slotting
information at the store level.

 By employing the direct delivery system, the
company benefits in various ways which includes: the system allows the company
to streamline its supply chain and hence they are able to reduce the stock
levels in their system (Otto, Schoppengerd & Shariatmadari, 2009). The
reduced stock levels in the company’s warehouse results to reduced holding costs
and hence high profits. The direct access to the retailers’ shelves allows the
manufactures to replenish the stock any time they think the stock has gone
down, this allows the manufacturers to speed up cycles and reduce labor hours
for the retailers. Moreover, the fact that the manufacturer is responsible for
the replenishment, this helps to ensure that the store never go short of the
products and the products are always fresh and well displayed (Otto,
Schoppengerd & Shariatmadari, 2009). The smart display of the products increases
the visibility and hence increased sales and profits.

 A study research by Otto, Schoppengerd &
Shariatmadari, (2009) identified that the stocks that are managed by the
manufactures move three times faster compared to the goods that the retailers
control replenishments, shelve space and display. 

The direct delivery system allows the
manufacture to directly interact with the consumer. The drivers/ personnel in
charge of the replenishment comes in contact with the consumers and thus
following their interaction, the company is able to respond to the consumer’s preferences/
tastes and the complaints as fast as possible. This helps the company’s
products to remain competitive and gain more customers loyalty. Moreover, the
system allows easier localization and overall assortment planning of the
products. It also facilitates better inventory placement and inventory
optimization. Moreover, the system allows the company to have a full visibility
of the stock movement and the demand data, thus the company produces and packs
the products that seems to move faster. The direct delivery system helps to increase
the supply chain velocity thus resulting in high sales volume and profits. The
manufacture has the full control of the prices, as a result the company sets
the prices that are competitive to ensure the goods movement. Through this
system, the company has full visibility of the counterfeit products.

However, despite
the all noted advantages, the model has various disadvantages which includes;
the manufactures incurs a considerable setup and control costs. The manufactures
also has a high risk of increased debt since the goods replenished are not paid
on delivery. The store retailers only pay for the goods after they has been
sold, this demands the manufacturers to be financially stable. Moreover, in
case a change occurs the company may lose the stock value of the supplied products,
the system is also more labor intensive and it requires the manufacturer to
employ more drivers and this results to high costs. The high numbers of transport
resulting from smaller shipments, this increases the cost incurred by the
manufacturers.  

Managing quality
is essential for any business. Quality products ensures customers satisfaction
and hence increased customers loyalty. Quality management reduces the costs
associated to replacing faulty goods (Evans & Lindsay, 2002). Some of the
reasons why the issue of quality is critical function at Frito-Lay includes;
the customers’ expectations, the customer expect the goods thy buy be of high quality,
when the company fails to provide quality products, the customers quickly look
for alternatives and hence the company loses customers to competitors. Quality
is crucial to satisfying the customers and retaining their loyalty to the
company. The high quality products makes a huge contribution to long-term
profitability of the organization.

Moreover, by
maintaining high quality products, the company can charge high prices and the
sales still remain high. Moreover, poor quality increases the company’s costs (Evans
& Lindsay, 2002). If the company does not have an effective system that
controls quality, it incurs costs of nonconforming goods, the company may be
forced to replace the poor quality goods, furthermore e the company risks
losing the loyal customers. Quality control helps Frito-Lay to remain
competitive. The high quality goods has helped the company with a competitive
advantage. Quality helps the company to win customers from competitors who
can’t match the quality standards expected by the customers thus giving the
company with quality goods an opportunity to charge premium prices for their
quality goods.

References

Coyle,
J. J., & Coyle, J. J. (2009). Supply chain management: A logistics
perspective. Mason, OH: South-Western Cengage Learning.

Otto,
A., Schoppengerd, F. J., & Shariatmadari, R. (2009). Direct store delivery:
Concepts, applications and instruments. Berlin: Springer.

Evans,
J. R., & Lindsay, W. M. (2002). The management and control of quality. Australia:
South-Western.

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