Coca-Cola Plans To Refresh Supply Chain

In the low-margin soft-drink business, it takes more than a twist of lime or a new way of packaging to keep profits bubbling to the top. Coca-Cola Enterprises Inc. believes there are efficiencies and other advantages to be realized in the way cans and bottles are pushed to store shelves. So, the big bottler is combining its logistics and retail expertise with SAP's software-development talent to create applications to improve delivery to stores.

The goal is to put new capabilities into the hands of the account managers, delivery drivers, and in-store merchandisers responsible for keeping Coca-Cola Enterprises' products moving through the retail chain. The bottler uses SAP applications in other parts of its business, but direct-store-delivery functionality has been lacking, says Coca-Cola Enterprises' VP and CIO Margaret Carton. "It will allow us to replace our existing transaction system with an entire SAP suite [and] improve our processes, execution, and information availability."

The project is one of several business-technology initiatives at Coca-Cola Enterprises and its upstream partner, Coca-Cola Co., both of which are looking to generate healthy profits amid modest volume growth. Coca-Cola Co. has nearly a 40% stake in Coca-Cola Enterprises, which sells 80% of the bottles and cans containing Coca-Cola Co. drinks in the United States.

Coca-Cola Co. spent much of 2003 combining three North American business units--Coca-Cola North America, Fountain, and Minute Maid--into an integrated division. A goal was to streamline IT, supply-chain, and procurement operations in the process. (See "Beverage Makers Seek Efficiencies," Feb. 17, 2003, p. 30) The changes have made Coca-Cola Co. "leaner, more efficient, more effective, and more accountable," said president and chief operating officer Steven Heyer in a conference call last week to discuss the company's fourth-quarter results. Coca-Cola Co.'s revenue increased 8% to $21 billion for the year, but net income was flat at $927 million.

Meanwhile, Coca-Cola Enterprises is in the early stages of a five-year, $200 million IT initiative called Project Pinnacle that CIO Carton describes as a "companywide business-transformation project." The rollout will be based largely on SAP software running on IBM systems. "It's all about implementing standardized business processes," Carton says. The direct-store-delivery work with SAP is part of Project Pinnacle.

For its latest fiscal year, Coca-Cola Enterprises reported net income of $676 million, a 37% increase, on revenue of $17.3 billion. But the company predicts volume growth of just 1.5% in North America this year, typical of the challenges facing Coca-Cola Co., as well. To squeeze profits out of such a low-growth business will require wringing more efficiencies. In October, Coca-Cola Co. and bottling partners created a supply-chain-management company in Japan. It expects to reap $100 million in procurement, product, and logistics cost savings this year, much of which it says will flow to the bottlers.

Coca-Cola Enterprises' partnership with SAP should help. The companies plan to develop software capabilities to manage price lists, product promotions, and other merchandising efforts, and integrate them into SAP's apps.

Yet, the Coca-Cola companies still have work to do on data sharing. When Coca-Cola Enterprises president and CEO John Alm was asked about his company's plans to use radio-frequency identification, he said industrywide data synchronization was a more pressing issue, promising the most immediate benefits for the "entire supply chain."

Coca-Cola Co. is in close discussions with Coca-Cola Enterprises and other bottling companies about ways to restructure their complex business-to-business relationships. The changes are expected to involve their supply-chain, customer-management, and IT operations.

Photo by Sacha Lecca