01.
Basic Introduction
-Coca-Cola’s 100 years of glory.
-Not much new technology
-Is the so-called secret formula really that amazing?
-What is Coca-Cola’s secret competitive weapon other than the secret formula of the drink?
-Analysis from the perspective of supply chain management strategy ……
02.
Coca-Cola and the birth of the company
Coca-Cola, an excellent liquid popular worldwide for more than 100 years, was invented in 1886 by Dr. John S. Pemberton, a pharmacist in Atlanta, Georgia, USA, who mixed carbonated water with sugar and other ingredients in a triangular jug in his backyard.
The English name “Coca-Cola” was given by Pemberton’s then assistant and partner, Robinson, an accountant.
Robinson was a classical calligrapher. Robinson was a classical calligrapher who thought that “two capital C’s would look good.” Hence, he wrote the name himself in Spencerian cursive.
Robinson was a classical calligrapher who thought “two capital C’s would look good,” so he wrote “Coca-Cola” in cursive Spencerian script. “Coca” is the spice extracted from the leaves of the cocoa tree, and “cola” is the ingredient extracted from the cocoa fruit. “The Coca-Cola trademark has remained unchanged for over 100 years.
In 1892, the businessman Candler bought all the rights to the Coca-Cola recipe for $2,300 and founded the Coca-Cola Company. Under his leadership, Coca-Cola was introduced throughout the United States in less than three years.
In 1899, Benjamin Franklin Thomas and James Whitehead signed a contract with Candler to develop a bottling business in most United States. Since then, its growth has been unstoppable, growing from 120 bottling plants in 1904 to 1,200 bottling plants in 1919.
In 1916, under Candler’s instruction that “the shape of the bottle should be so distinctive that it can be recognized as Coca-Cola even in the dark, and even if it is broken, it will be instantly recognizable as Coca-Cola,” the curved-shaped glass bottle was created and became known worldwide.
In 1919, Candler sold the Coca-Cola Company to a consortium in Atlanta for $25 million.
In 1919, Candler sold Coca-Cola to a consortium in Atlanta for $25 million.
Coca-Cola’s entry into China can be traced back to 1927 when it opened a bottling plant in Shanghai.
By 1948, the Shanghai plant became the first overseas plant of Coca-Cola to sell more than one million cases per year.
By 1949, the People’s Republic of China was founded, and a year later, the Shanghai Coca-Cola bottling plant was closed. After that, Coca-Cola products were not manufactured in China.
It was not until 1979 that The Coca-Cola Company signed a historic agreement with the Chinese government to return to the Chinese market.
Coca-Cola reached an agreement with the China National Cereals, Oils and Foodstuffs Corporation in 1981 to open its first bottling plant in Beijing. Soon after, China National Cereals, Oils and Foodstuffs Corporation built two more plants in Beijing and Shanghai, both of which eventually became Coca-Cola bottling plants.
In 1992, Coca-Cola’s bottling plant in Shanghai sold 11 million cases and made RMB 42 million after-tax.
By 2001, Coca-Cola had 23 bottling plants in mainland China, with several more in the pipeline, with annual production reaching nearly two million tons.
03.
Coca-Cola's business philosophy
1. Continuous improvement of product quality
The Coca-Cola Company believes that while the advertising image is essential, the product itself is the most critical factor. If the product itself is defective, consumers will eventually abandon it, so Coca-Cola has permanently attached great importance to product quality management and quality assurance. The TCCQS (The Coca-Cola Quality System) system, which is currently being promoted by Coca-Cola in bottling plants worldwide, fully reflects this philosophy of Coca-Cola. (See Figure 1-1-2)
2. Emphasis on improving work efficiency
Efficiency is a key factor determining a company’s competitiveness and profitability in the market. Therefore, Coca-Cola always pays attention to the continuous improvement of work efficiency in production and operation. Coca-Cola’s methods of improving work efficiency include upgrading plants, adopting new production technologies, emphasizing the use of information systems, continuously optimizing operational processes, practicing advanced operational concepts (such as supply chain concepts), and so on.
3. Continuous improvement of sales network
The Coca-Cola Company has permanently attached importance to the continuous improvement of its sales network, and it’s ubiquitous.
(Its Pervasiveness marketing strategy is the central expression of this philosophy. Coca-Cola’s sales network includes a network of franchisees in the bottling business and a network of marketing channels in each region.
Among them, Coca-Cola’s marketing channel strategy, mainly in the Chinese market. The driving force behind the improvement of Coca-Cola’s sales network is its philosophy of “shared wealth,” which means that it strives to create wealth together with its franchise bottlers, employees, partners, retailers, suppliers, consumers, and other interested parties.
4. Emphasis on training professional talent
The Coca-Cola Company has permanently attached importance to the training of human resources. They have established training centers and management academies worldwide to provide continuous training for employees at different levels and in different positions. In China, for example, Coca-Cola has established a training center in Tianjin, where the entire Coca-Cola production process, technical training, and individual professional lectures and seminars are conducted. In addition, The Coca-Cola Company also runs a Coca-Cola Management Institute with Fudan University to professionally train top management. The Coca-Cola system itself is global, so they also send employees to the U.S. headquarters and other regions to learn and exchange with colleagues in the system.
04.
Performance results for The Coca-Cola Company
05.
Coca-Cola supply chain management model throughout the China region
Key members of the Coca-Cola supply chain
To analyze Coca-Cola’s supply chain management model in China, it is essential to first understand its products.
At its most basic level, Coca-Cola’s main product, carbonated beverages, is a composition of flavours, sweeteners, and carbonated water (water with carbon dioxide).
There are three significant players in its supply chain:
1. Concentrate plants. 2. Bottling plants. 3. Distributors.
Packaging suppliers and sweetener manufacturing companies are the leading suppliers in this industry
Packaging suppliers and sweetener manufacturing companies are the leading suppliers in this industry.
The supply chain management strategy is that Coca-Cola controls the manufacturing of concentrates. The other links of the chain are regulated according to the market.
Figure 3:Coca-Cola supply chain relationship
1. Concentrate manufacturing plant
The concentrating plant mixes the essential ingredients (excluding sugar and high fructose grain syrup) together, packages them in plastic bottles, and transports these mixtures to the bottling plant, which adds sugar and high fructose grain syrup to these mixtures, and sometimes artificial sweeteners, usually aspartame, to create diet-type beverages. This process includes a small investment in machinery, production costs and labour. In 1995, a typical concentrate plant cost $2.5 million, and a plant of this size could meet the demand for the entire China region. The highest costs for a concentrate plant are in advertising, marketing and relations with the bottling plant. The marketing program is a 50:50 split between the concentrate plant and the bottling plant. In China, the ratio is typically 50:50. The concentrating plant usually develops such programs, especially in product planning, market research, and advertising. The bottling plant plays a vital role in trade development and consumer promotion. It bears a corresponding percentage of the rise and advertising costs. In China, the concentrate plant, known as Coca-Cola China Beverages Limited, is headquartered in Shanghai and has offices in Guangzhou, Wuhan, Beijing and Chengdu, which employ a large number of sales and marketing support staff as well as technical and quality engineers to work with their licensed bottlers and help them improve their performance. This personnel helps the bottlers train their staff, work with them on marketing projects requested by headquarters, and observe their marketing operations. On the technical side, they advise and review the construction of new plants and equipment upgrades for the bottling plant, establish various quality standards for bottling, and advise on the operating procedures for each process in the bottling plant.
At present, it has designed a quality system that covers quality, environmental protection and safety aspects.
At present, it has designed a quality system covering quality, environmental protection and safety aspects, a Coca-Cola quality system (similar to the international standards of I S O 9000, I S O 14000, etc.), and assisted and supervised the bottling plant to establish this quality system. In addition, to ensure the quality of products, the concentrate plant also has a direct relationship with the suppliers of the bottling plant. It stipulates that all suppliers of primary raw and auxiliary materials and packaging for the bottling plant must meet the requirements of Coca-Cola, which means that the infrastructure and management level of these suppliers must be able to guarantee the production of raw materials that meet the needs of Coca-Cola and be approved by Coca-Cola before they can become the bottling plant’s suppliers. At the same time, Coca-Cola also takes advantage of its scale to negotiate with its suppliers to make the bottling plant get reliable supply, fast delivery and lower price.
2. Bottling plants
Coca-Cola franchised bottling plants in China purchase concentrates, add carbonated water and syrup, bottle and can these beverages, and deliver them to customers everywhere. These bottling plants even offer a “direct-to-home” delivery service that includes direct sales staff involvement and management of the beverage set-up in the store. This service includes organizing merchandise cabinets, placing merchandise markings, cleaning packaging and shelves, and determining merchandise placement.
The filling process is a capital-intensive process and includes several specialized, high-speed production lines. These lines are only interchangeable when packaging products of the same size and construction. In China, soft drinks are available in at least six different sizes and configurations. Bottling plants must strictly follow the standards set by The Coca-Cola Company when filling Coca-Cola products.
Coca-Cola’s franchise agreements allow bottlers to operate other brands of non-Coke products and allow bottlers to choose whether or not to promote new beverage products, for example, one of Coca-Cola’s bottlers in China, Guangzhou Guangmei Food Co. market share in the region. However, they still have some restrictions on bottlers, who cannot directly sell other competitors’ brands, e.g., they cannot sell Pepsi, Very Cola, etc. Bottling plants have the right to decide whether to participate in packaging design, advertising and market testing of new products in their region and have the final say in pricing, new packaging, selling, advertising and marketing. However, the bottler can only use the packaging authorized by Coca-Cola.
3. Distributors
Coca-Cola products are large-volume, low-priced consumer goods in general.
They are usually sold through many street retail stores, supermarkets and stores, so the distributors in the supply chain include various food wholesalers and mega supermarkets.
Coca-Cola’s supply chain distributors include various food wholesalers, mega supermarkets, large supermarket chains, etc.
06.
Coca-Cola's supply chain strategy
Start-up and growth stages
Contrast.
Supply chain strategy of public enterprises.
Through its own sales channels and marketing network, it can open up the sales of its products and expand its market share. The premise is that the company has substantial capital and significant capital investment; if the capital investment is insufficient, it will affect its market competitiveness and growth rate.
So, what does Coca-Cola do?
07.
Franchise contract approach to managing the supply chain strategy
1. Coca-Cola's positioning
-Positioned as advertiser and concentrate manufacturer
-Granted bottlers sales rights through licensing contracts with fixed concentrate delivery prices and regional exclusivity
Leveraging the entrepreneurial talent of bottlers, Coca-Cola established sales channels and marketing networks to deliver Coca-Cola beverages to millions of households.
2. Results of the Concession Contract Approach
-Positioned as advertiser and concentrate manufacturer
-Granted bottlers sales rights through licensing contracts with fixed concentrate delivery prices and regional exclusivity
Leveraging the entrepreneurial talent of bottlers, Coca-Cola established sales channels and marketing networks to deliver Coca-Cola beverages to millions of households.
08.
Supply chain management strategy for holding business approach
Newmarket changes
-As competition in the beverage market intensified, the competitive landscape changed subtly
-Competitors, represented by PepsiCo, have adopted an aggressive competitive strategy. On the one hand, they gain a competitive advantage in new beverage segments such as large chain stores and restaurants. On the other hand, they are trying to infringe on Coca-Cola’s traditional market.
The competitive situation was highly unfavourable to Coca-Cola’s development. Under such circumstances, Coca-Cola had to regain the lost market share and reverse the slow sales growth.
Coca-Cola's first move
Put pressure on bottlers to speed up the investment in modern production processes to strengthen Coke’s competitive position in the market.
Bottlers' response
-They believed that the beverage market was saturated and that it was time to recoup capital rather than increase investment. Since the bottlers were backed by long-term contracts and controlled Coke’s marketing network, they had a lock on Coke’s cost of goods.
-Therefore, any initiative to change the status quo was either vetoed
Coke’s strategic intent was undermined because the bottler had a long-standing contract and control over the marketing network and a lock on the cost of goods.
Coke’s strategic intent was severely thwarted, and the supply chain management faced severe challenges.
Coca-Cola's second move
Using the opportunity to launch a new variety it had developed, high-sugar corn concentrate, it launched complex negotiations with the bottler.
The focus of the negotiations
-On the one hand, if the new variety could successfully replace the original concentrate, it could save Coke 20% of production costs, but Coke did not enjoy the profits alone but shared them with the bottler, provided that the bottler agreed to modify the terms of the contract and make concessions on some of the terms
-On the other hand, Coke influenced the bottlers’ business activities through franchise buybacks, purchase of holdings, and the provision of intermediaries and financing strategies to make bottlers accept Coke’s management philosophy
Coke’s supply chain management strategy.
-Those bottlers who were not willing to accept Coke’s terms and conditions were not supported by Coke regarding financing and management resources and declined as the market became more competitive.
Negative consequences of the ownership approach
The strategy of absolute control over bottlers led Coke to increase the capital intensity of the company, expand the size of the company’s assets, and increase the company’s business risks.
-The strategy to change the capital structure of the company and to control the supply chain management was again in front of the company
09.
Supply chain management strategy in the form of shareholding
The company’s business goal is to maximize shareholders’ wealth. Still, the profitability of different links in the supply chain varies, and a large amount of capital invested in relations with less profitability will lead to a decline in shareholders’ returns. Improving the company’s capital structure and asset structure became a choice that Coca-Cola had to make.
The establishment of Bottlers Holdings Inc.
-Turning over the “hot potato”?
The Coca-Cola Company established Bottlers Holdings Inc.
The bottler holding company controlled the bottlers’ operations.
-Through the bottler holding company, Coke was able to strategically control the entire supply chain, but this was only the first strategic step in Coke’s plan to divest itself of its absolute control.
After establishing the bottler holding company, Coke will consider the situation and take the bottler owning company public according to the development of the capital market.
-Utilizing the capital market, the company eventually achieved an improved capital structure and reduced capital intensity.
10.
Management Insights from Coca-Cola
Companies managing their supply chains must have core competencies and secret weapons. Otherwise, their management and influence on the supply chain will pale in comparison, not to mention any strategic vision and adjustment. Coca-Cola’s core competency lies in its secret formula, well-known brands and management resources that are different.
Complementary strengths, avoiding weaknesses
-When Coke was still in its infancy and growth stage, it saved Coke a lot of money by building marketing channels through the power of bottlers.
-Coke controlled the advertising campaign and realized the scale effect. The effective combination of these two aspects enabled Coke to run the marketing network at a lower cost.
Supply chain management with interface management techniques
-The management of interfaces is directly related to the practical realization of the company’s business strategy vision and implementation. For different marketing environments, Coca-Cola has adopted different interface management strategies.
-In the start-up and growth stages, the company manages the interfaces through long-term contracts.
-In the maturity stage, the interface was managed through the acquisition of bottlers.
-Depending on changes in the business environment, bottlers are divested to achieve the company’s strategic intent.
User-centric
The customer-centric management philosophy required Coca-Cola to shift its focus from traditional household retail stores to sizeable regional supermarket chains.
This required significant capital investment, and bottlers were reluctant to do so, so Coca-Cola adopted acquiring bottlers and successfully restructuring the supply chain.
Cooperation and competition are the main themes of supply chain management
-In the supply chain, different companies have to play different roles and build long-term partnerships.
-Coca-Cola manages its supply chain with long-term contracts, holdings or stockholdings, and is committed to building long-term partnerships, with which the productivity and added value of the supply chain can be increased. The profitability of the supply chain can be improved.
-Coca-Cola is through a set of strict supply chain management systems and service specification
Coca-Cola has implemented a strict supply chain management system and service specifications to serve and monitor bottlers, distributors, and retailers in all aspects of the supply chain. By regularly reviewing each distributor and retailer, collecting relevant product information, and guiding the operations and services of distributors and retailers based on the review results and feedback, Coca-Cola achieves competitive advantage through cooperation.
11.
General Analysis of Coca-Cola Supply Chain in China Overview
Coca-Cola’s business philosophy is based on three points: “First choice in mind, convenience and value for money.” The Coca-Cola supply chain is shown in the figure below:
Figure 4: Coca-Cola’s supply chain in ChinaCoca-Cola’s supply chain management in China
In Coca-Cola’s supply chain, one item plays a very critical role, and that is the concentrate. In Coca-Cola’s beverages, there are strict regulations on the amount of focus in each litre of beverage, which must contain concentrate to have a specific flavour. Otherwise, it becomes carbonated sugar water. In the logistics of the supply chain, Coca-Cola sells a certain amount of concentrate to the bottling plant to produce a corresponding amount of product and purchases a certain amount of sugar and packaging to sell a comparable amount of product to the bottling plant consumers. Since Coca-Cola monopolizes the supply of concentrate, it can include in the price of concentrate the franchise fee, advertising fee, and marketing fee charged to the bottling plant. These fees are proportional to the sales volume. The capital flows smoothly from consumers to distributors to bottling plants and then to Coca-Cola. In addition, the sales volume of concentrate is proportional to the sales volume of beverages. By counting the quantity and type of concentrate sold to bottling plants, we also have information on the sales volume of each beverage. The Coca-Cola Company plays a dominant role in the supply chain. Still, there is a division of labour between it and the other central supply chain member, the bottling plant. This is evident throughout the supply chain, from raw materials to consumers.
1. Raw materials
The technical department of Coca-Cola selects a group of approved suppliers based on their geographical location, size, equipment level, management level, and supply and demand of raw materials, and the bottling plant can only purchase raw materials from these approved suppliers. The primary basis for Coca-Cola to select these suppliers is the quality of raw materials. By controlling the quality of raw materials, the quality of Coca-Cola products is fundamentally ensured. Under the premise of quality assurance, Coca-Cola also considers the location and price of suppliers, and by controlling these factors, it also reduces costs for bottling plants and prepares them to achieve “value for money.” In addition, when the price of raw materials is too high, alternatives are also considered, [e.g., since 1998, the cost of white sugar, one of the primary raw materials for carbonated beverages in China, has risen from 2,000 yuan to a maximum of 4,500 yuan, which has increased the cost of Coca-Cola’s product line, and at this time Coca-Cola considered introducing liquid fructose, which is widely used in the United States and negotiated with suppliers in this regard to build a plant in China. China to build a plant in China]. The bottling plant could choose one or more of Coca-Cola’s approved suppliers and independently negotiate with them on price, transportation and other issues. The relationship between the bottling plant and the raw material suppliers is, on the surface, a standard business practice between independent enterprises. Still, Coca-Cola has already exercised control over it.
2. Manufacturing Process
The Coca-Cola bottling plants in China basically have no equity relationship with The Coca-Cola Company and are independently operated and accounted for.
However, the manufacturing process of its products reflects the shadow of Coca-Cola. When Coca-Cola first entered China, its franchised bottling plants were state-run soda plants with small production scale, backward equipment, poor management, and could only produce simple glass bottles of soda. Some bottling plants were not initially making beverages. Coca-cola used old equipment left behind after updating equipment from other countries. Then, the bottling plant’s production, quality control, and engineering staff were trained in beverage production and quality control. A set of standards was established for the bottling plant to implement, which included production processes, product quality, etc. In this way, each bottling plant basically operated in the manner required by Coca-Cola. In recent years, the equipment selection, process flow, and parameter requirements of the thousands of new plants established one after another has to be approved by Coca-Cola. Generally, Coca-Cola technicians visit each plant 3-4 times a year to conduct quality audits. In this way, it dissolves Coca-Cola’s product and quality requirements into the bottling plant’s own operating system so that the product manufacturing process, over which it has no control, operates according to its own needs.
3. Distribution Process
The distribution process, in which Coca-Cola plays a leading role in getting the manufactured product to the consumer, also has a strict division of labour between Coca-Cola and the bottling plant. The overall distribution strategy of Coca-Cola products is divided into two parts, one is the “pull” part, which is to attract consumers to buy Coca-Cola products through advertising, promotion, public relations and other market expansion strategies; the other part is the “push” part, which is to attract consumers to buy Coca-Cola products through The other aspect is the “push” part, which is to sell Coca-Cola products to retailers through various channels, price promotions, credit sales and different sales strategies. The marketing strategy is generally formulated by Coca-Cola, especially the “pull” part is entirely handled by Coca-Cola. In contrast, the “push” part is proposed by Coca-Cola and then formulated by the bottling plant itself according to the actual situation. The bottler has the final say in choosing distributors, planning sales channels, developing pricing strategies and credit sales.
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