Analysis Tool Cuts Bottler's Costs

Being a soft-drink bottler and distributor used to be much easier just a few years ago. But all that has changed with the exploding variety of carbonated soft drinks, bottled water, sports drinks, fruit drinks, and more that bottlers must manage today--all the while operating on razor-thin profit margins.

"The bottling business has changed a lot in the last five years," says Eric Croson, CFO at Pepsi Bottling Ventures LLC, the third-largest Pepsi bottler in the United States. Back then, the company had only about 150 products to manage, mostly carbonated drinks such as Pepsi and Mountain Dew. But through acquisitions and new-product introductions, Pepsi's product line now includes Gatorade sports drinks, Aquafina bottled water, and SoBe health drinks. As a result, Pepsi Bottling Ventures now has to manage as many as 400 products, Croson says.

To monitor its sales and distribution operations and develop marketing and pricing strategies, the bottler three years ago started using Salient Corp.'s Margin Minder sales-performance and trade-promotion analysis software. The application helped cut costs by nearly 3 cents per case; with 55 million cases shipping a year, that's an annual savings of $1.25 million.

Pepsi Bottling Ventures was created in 1999 by merging part of the bottling business Pepsico Inc. was spinning off and Pepcom, a subsidiary of Japanese-owned Suntory Ltd. It distributes Pepsi products throughout much of North Carolina, New York's Long Island, and parts of Delaware, Maryland, and Virginia.

For nearly two years, the company struggled to extract information for sales and profit-margin-contribution analysis from legacy IT systems, which eventually were replaced with SAP enterprise-resource-planning applications. Salient's Margin Minder software was implemented in early 2002.

About 150 executives and managers, mostly in sales, use Margin Minder to get weekly performance reports on products according to brand, package size (six-packs, 12-packs), channel, key customers, unit volume, revenue, and raw-materials, among other met- rics. Managers can query Margin Minder for supplemental ad hoc information.

The insights help Pepsi Bottling develop its quarterly marketing strategy, including what prices to charge (called "deal creation" in industry parlance), says Derek Hill, VP of planning. For example, the system helps marketers determine the best price for a six-pack of 12-ounce cans of Mountain Dew that not only meets the bottler's profit-margin requirements but also those of the retailers that sell the drinks.

"The key to market success is understanding the prices that drive consumer decisions and the margin requirements of PBV and our customers," Hill says. Margin Minder also helps managers identify products that don't contribute enough to the bottom line and should be discontinued. It also has helped reduce the sales cycle for introducing new products from six weeks to two.

The bottler also uses Margin Minder to analyze and manage its distribution processes. Its sales force sends in orders using cell phones and handheld computers, and that data is loaded into a routing system from SAP that schedules deliveries. Margin Minder is looped into this system because it's capable of analyzing sales by customer, address, and ZIP code. That helps managers determine the most cost-effective means of making deliveries, includ- ing the number of trucks to use and their most efficient routes, Hill says.

Pepsi Bottling Ventures could use SAP's Business Information Warehouse for its analysis chores, given that the SAP applications hold most of the operational data used for analysis, Croson says, but Margin Minder "provides the capabilities we need." Margin Minder could be even more helpful if it were able to pull in more information and provide an even broader view of the bottler's business, he says. The company is implementing a Margin Minder budgeting module that will help with financial planning.