Operations Management Practices of Coca-Cola Company

1. INTRODUCTION, COMPETITIVENESS, AND STRATEGY

1.1 Introduction

Coca-cola is a carbonated soft drink that is sold mainly in restaurants, stores, and vending machines. The Company is based in the United States (U.S.) and offers approximately 400 brands in more than 200 countries. In addition, the firm creates concentrate syrup and sells it to bottlers around the world, which operate under the Coca-Cola franchise. The original Coca-Cola recipe was invented in 1885 in Columbus by John Pemberton, in which it was referred to as “Pemberton’s French Wine Coca.” The first sales were completed in Atlanta at Jacob’s Pharmacy in 1886, and from then onwards only nine pieces were sold every day for the following eight months. Later on, Assa Griggs took over the company in 1888 for $2,300, and the company was incorporated in 1892 as the Coca-Cola Company (The Coca-Cola Company, 2018).

The Vision of Coca Cola Company is “to maintain our reputation as the leading cola company in the world’ while the actual mission statement is “Everything we do is inspired by our enduring mission: to refresh the world in body, mind, and spirit, to inspire moments of optimism, to create value and make a difference” (The Coca-Cola Company, 2018). The vision statement is an ideal roadmap that steers the entire business aspect and evaluates what is required to achieve sustainable quality growth, which is sustainable in terms of people, portfolio, partners, planet, profit, and productivity. Hence, the main objective of the company is to use their assets, financial strength, brands, distribution systems, strong commitment, and global reach, through the associates and management, to accomplish sustainable growth in the long term.

Coca-Cola Company has adopted a new mission statement, which states their commitment in accomplishing financial and business success by utilizing advanced technology while at the same time maintaining a positive impact on the society as they deliver performance with purpose. The mission also focuses on being the leading consumer goods company centered on beverages and convenient foods. The company seeks to offer financial rewards to its investors and chances for enrichment and growth to workers, communities they operate in and business partners, and above all, strive for fairness, honesty, and integrity.

1.2 Company Product and Services

The Coca-Cola Company vends soft drinks in the form of syrups and concentrates as well as other main beverage products. The company deals with at least 300 beverage brands globally, such as Coke, Lift, Fanta, Fruitopia, Sprite, Powerade and fruit juices among others, packaged in glass and plastic bottles as well as aluminum cans. The prices of Coca-Cola product differ according to the place of sale, size, and packaging.

The product portfolio of Coca Cola Company includes functional beverages and carbonated soft drinks, health and well-being products, such as water. The alcoholic beverages include Jim Beam while food and services products entail coffee under grinders brand.

Coca-Cola products begin as raw materials, which are taken through several stages, such as preparation of ingredients, mixing, washing, filling and capping, coding, an inspection of the final product, packaging and finally loading for transportation.

1.3 Strategy

The Coca-Cola Company has a strategy to support its commodities and the company’s goal. The strategy involves manufacturing, sales, and marketing, innovation and distribution. The company has designed its plan towards the loyalty of its goods and the customers.

The firm sells its products in grocery markets, restaurants, and street vendors among others, who then sell them to the consumers. The company has applied several strategies towards competitiveness to gain the leading market share. For instance, in 2006 Germany promoted coke through a campaign “it’s your heimspiel-make it real.” In addition, the Company has put more effort to launch new products, to be innovative in packaging and to collaborate with consumers throughout the processes. Further, the Company always aims to gain a competitive advantage in different areas and by various products such as the leading mineral water seller in Germany and Traficante in Italy. Besides, the company chooses its marketing strategy selectively across different countries to cater to unique needs. For example, in the European region, the Coca-Cola Company has adapted sensitivity marketing.

Coca-Cola Company applied segmentation strategy, which assists in defining products for various customers. However, the firm does not target precise segments but instead concentrates its strategy by creating new products. On the other hand, Coca-Cola applies a mixture of undifferentiated and niche marketing for some products to improve sales. For instance, Coke remains the most common product globally by all age groups, while diet coke has a niche for people who are conscious about their health. Moreover, Coca-Cola Company partnered with iTunes by Apple in developing a digital program that attracts young people. More so, the Company applies a competitive positioning strategy as a way to lead amid its competitors, especially in the market of non-alcoholic beverages.

1.4 Industry

Coca-Cola is classified mostly in the industry of non-alcoholic beverages, in which Pepsi and Coca-Cola control 60%. Notably, Coca-Cola covers 40% of the sector while Pepsi covers 20%, while the rest is for other firms.

1.5 Competitors

 

The competitors of Coca-Cola are those companies that produce substitute items such as juices, water, beer, and soft drinks. Coca-Cola has managed to counter competition through advertisement, making the brand easily available and through brand equity, as well as providing substitutes, especially for soft drinks to remain competitive in the industry.

Pepsi Company is the main concentrate competitor, hence making the concentrate industry remains a duopoly.  Therefore, Pepsi, which was started in the 1890s as an indigestion cure, remains the only significant competitors of Coca-Cola Company. Pepsi is currently operating in 187 countries in the world. On the other hand, Cadbury Schweppes is the second company, which began in 1824 in the U.K. and in 1783 in Ireland, which offer a notable competition. The Company has over 240 franchises bottling in Zimbabwe and Zambia, and it has currently partnered with 14 states in the world.

2. PRODUCTIVITY

This analysis will focus on soft drinks as one product produced by the Coca-Cola Company.

2.1 Measuring productivity of Workers

Coca-Cola Company measures the productivity of employees through performance appraisal. The company applies the Global Reporting Initiative (GRI), which is defined as a framework that provides guidelines that are internationally recognized and principles to help organizations and companies report sustainability performance. The company evaluates productivity by measuring the performance of employees against Key Performance Indicators (KPIs), which are directed towards environmental, economic and social performance. To measure performance, the company follows four steps; annual performance review, planning performance of the year, recognition, and rewards and finally mid-year review.

Measurement of productivity can be difficult since, in most scenarios, productivity is qualitative, and hence, it is hard to quantify and measure. However, the Company has made it easier by developing key performance indicators which help in the measurement.

Since the Coca-Cola company is manufacturing based, it could consider applying output- per worker-hour, or rather, the amount of worker-hour needed to manufacture one product, such as in the following example.

Given the following information, for a hypothetical firm;

no of employees	5
hours per month	160
number of bottles	100
the unit cost of a bottle	800
	4,000.00
	40.00

 

Assuming the company has 5 employees who work for 160 hours in a month and produces 100 bottles of soft drink. This means that the cost of a bottle would be 5*160=800 worker-hours. By dividing the worker hours by 100 bottles per month, it equals to 8 worker-hours per bottle. Hence, by paying $5 per hour, the cost of production of the unit will be 5*800 worker-hours, which is equal to $4,000 per month ($40 per bottle).

3. FORECASTING

Forecasting is defined as a planning tool that helps management to cope with uncertainties in the future based on past information.

3.1 Forecasting Approaches

There are two main approaches to forecasting. The first one is qualitative forecasting, which includes methods that involve subjective inputs that defy the numerical description. It entails historical data projection or creation of models that are associative and that utilize explanatory variables to forecast. The second is quantitative forecasting that involves the use of hard data or analyzing objectives. This approach evades personal biases that are common in qualitative methods.

Types of forecasts include judgmental aspects, which uses of subjective inputs,  time series which apply historical data that assume the future based on the past and associative models that apply explanatory variables in predicting the future.

Methods of qualitative sales forecasting include Delphi techniques, expert opinion, consumer survey methods, sales hierarchy, and sales force estimate. On the other hand, quantitative techniques include sales ration method, moving average, regression analysis, and market share projection. Coca-Cola Company uses a time series approach where demand and sales are considered over the coming quarter based on past observations. This information helps them to decide on the timing of various promotions. The Company applies the moving averages.

Example: Carbonated Soft Drinks (CSD sales estimates for 2011 and 2012)

Period	CSD Forecast (per capita)	CSD Forecast
2011	12.985	4,061.30
2012	12.823	4,048.80

CSD estimated sales.

Period	CSD Forecast (per capita)	Estimate CSD	CSD Forecast
2011	12.985	4,010.60	4,061.30
2012	12.823	3,997.70	4,048.80

 

4. PRODUCT AND SERVICE DESIGN

The specific design and formula for Coca-Cola remain a trade secret whose original copy is stored in Sun Trust Bank vaults Atlanta for the last 86 years. The Coca Cola is packaged in a bottle known as the “contour bottle” that was developed in 1915 by Earl Dean. The bottle is a distinguishing feature from competitors

4.1 Production Process of Coca-Cola Soft Drink

In the first step, pure water is put through filtering, disinfecting and softening to remove impurities. In the second step, sugar is added to the beverage concentrate syrup, which is the main element of the soft drink. In the third step, the mixture is soaked in carbon dioxide with high pressures and low temperature, which is responsible for the fizziness in the drink. In the fourth step, automated machines dispose of the mixture in specific quantities in bottles that are sterilized while others are dispensed in cans, which are then capped and sealed. In the fifth step, the containers are shifted to another machine that puts labels and bar codes, which are inspected to ensure that all requirements are met. In the sixth step, cans and bottles are transported and packed in cartons and placed on wooden pallets. The packaged beverages are taken to storage facilities awaiting release to customers (Coca-Cola HBC, n.d).

5. CAPACITY PLANNING

Capacity is the maximum rate of output that is achievable by a given organization.

5.1 Managing Capacity

Capacity Planning at Coca-Cola Company is conducted at two levels that match up to tactical and strategic decisions. At the strategic level, the Company makes long-term decisions on investments in the company such as the acquisition of new equipment. The tactical level focuses on short-term matters such as workforce planning, day to day machine usage, and inventory. The main aim of capacity planning at the Company is to achieve current and future requirements through the least wastage possible. Effective capacity planning depends on production facilities such as location, design and layout, production line, technology, operational structure, human capital and external structure such as policies.

The Coca-Cola Company has just enough capacity, even though the requirement tends to change over time. Hence, the management needs to keep evaluating the capacity needs of the company. This is because, allocating too much capacity leads to high and poor utilization and may lead to high costs, while allocating too little capacity leads to poor responsiveness, especially since demand is not met. Hence, this also leads to higher costs and loss of revenue.

The company can increase capacity by extending the usage time of available equipment through added shifts, compensating workers for overtime or even outsourcing for temporary workers. In the long term, the company can acquire new equipment to add to the existing ones. In addition, the company can adapt shared capacity technique, where it improves its chances in the market by sharing capacity with other individuals in the distribution chain, such as warehousing. Finally, the company can also adapt subcontracting, where it involves other companies in the production of some products.

5.2 Calculating Capacity

Capacity can be computed by applying the formulae (number of employees or machine * utilization*number of shifts*efficiency). For example, assuming a simple machine, no material, or labor constraint situation, with a demand of 1.2. A million pieces annually, and 300 units/ hr equipment capacity, the computation in the table below shows that there is a 76% capacity utilization.

Days of operation in a year			Hours
365			8	time shift
-100	weekends		-1	breaks
-15	Holidays		7	productive time
250	regular days		3	number of shifts
			21	net hours per day
		5,250.00	Hours per year
		300	Units per hour
		1,575,000.00
		1,200,000.00	Number of demanded pieces
		0.76
		76.19
		76%	Capacity utilization

 

To increase capacity, I would increase the time shift hours from 8 hours to probably 10 hours a day, or involve night shift hours to have an all-around day and night shift. To reduce capability, I would increase the units per hour in equipment capacity, by either outsourcing equipment or acquiring new equipment.

6. PROCESS SELECTION AND FACILITY LAYOUT

6.1 Facility Layout

Facility layout entails the display of the various parts of manufacturing conveniently to achieve results. It takes into consideration, space, the safety of users, and the final product as well as facility and operation convenience. Adequate facility layout ensures that steady and smooth production flow is evident while human resources and equipment are at a minimum.

Various types of layout exist, including the process layout, which is common among firms that create low volume and customized goods that have a differing requirement for processing and different sequence of operations. The second one entails the product layout, which is common in flow shops that involve assembly. In this case, the process is repetitive with a continuous flow. It requires highly standardized and high volume products. The third one includes the fixed position layout, which involves large products that are heavy to move such as military equipment. The fourth aspect is the combination layout, which consists of a mixture of the prior layouts. Finally is the cellular design, which includes grouping of machinery in terms of the requirements of the process for a set of the same items that need the same processing.

6.2 Coca-Cola Company Process Selection

The diagram below shows the process that soft drinks undergo within Coca- Cola Company;

(Jie, 2017)

Coca Cola Company follows a Product layout that is quite effective since it enhances the free flow of activities.

The first step involves the preparation of ingredients, which is done in the ingredient department. After ingredients are conclusively prepared, they are taken to the department of rinsing and washing to clean through a hydro-wash. After that, it is considered to blending and the mixing department where all ingredients, such as carbon dioxide, sugar, and other secret ingredients are mixed. Once mixing of ingredients is finished, they are sent to the tableting department where they are compressed to form a tablet. After that, it goes to bottle type production, where capping is done and later the labeling of the brand name. Then, this is followed by an inspection, which ensures that the commodity is complete, and finally the product is packaged and delivered to the consumer.

7. LOCATION

Coca-Cola Company follows a franchise model in production and distribution. The mother Company produces syrup only and sells the concentrate to bottlers across the globe. The bottlers are then responsible for producing the final product, which they attain by mixing filtered water with the syrup and sweeteners. They then carbonate the product and bottle it before dispensing to various distributors. The Coca-Cola Company is the largest company producing beverages around the world. The production and distribution cover more than 200 countries across North and Latin America, Asia Pacific, Europe, Africa, and the Middle East.

Two specific locations that manufacture and sell Coca-Cola soft drinks are Mexico and Dubai. Mexico is the leading market for Coca-Cola in Latin America while Dubai leads in the Middle East. Statistics show that the Mexican market consumes more Coca Cola products, which is almost double the American market consumption. The former president Vicente Fox popularized Coca Cola soft drinks in Mexico in 1960 since he was conducting deliveries for the Coca-Cola Company. However, there are two countries which Coca-Cola is not sold officially. The two countries include North Korea and Cuba since they are under U.S trade embargo.

8. WORK DESIGN AND MEASUREMENT

Work design involves stipulating work activities of specific employees in an organization.

8.1 Work Design Measurement Techniques

Work measurement involves analyzing jobs to set performance benchmarks and standards. It usually encompasses linking the responsibility of workers to the time that is needed to finish tasks, and hence to achieve expected performance levels. Job design, on the other hand, entails specifying the work of a particular employee in an organization. It helps to improve job performance by clearly defining responsibilities for various activities. While work measurement could involve activity sampling and time study, to determine the time a worker is supposed to take to accomplish an activity, job design aims to balance the responsibilities of work through specialization techniques and job rotation aspects to improve job satisfaction.

There are two main methods to work design, including efficiency and behavioral approaches. The efficiency approach focuses on a systematic and logical approach to work design. It emphasizes labor specialization where an employee works on a segment of creating a product or a service. Hence, the behavioral approach focuses on the satisfaction of needs and wants of the worker in the design process.

8.2 Job design and specialization

The process allows people to concentrate on a specific job to enhance efficient performance under minimum supervision. It is also known as the division of labor. There are various types of job designs, such as job rotation, job simplification, job enlargement, and job enrichment.

Job enlargement is a technique of job design where there is an upscale of tasks in a certain job. It entails improving the scope of a worker’s responsibility and duties. Indeed, the process is quantitative. Job enlargement is a restructuring technique whose goal is to improve the flexibility of workers while reducing monotony that comes up at a particular time. In this design, it is important to train employees, especially for people and time management. On the other hand, job enrichment entails workers finding contentment and satisfaction in their jobs, while at the same time feeling responsible and worthy in the workplace. Job rotation involves shifting between different jobs. For instance, an employee could be working in a section of the organization and move to a different one the next day. This prevents workers from boredom since they tend to perform various tasks and learn new skills. Job simplification is a design where tasks are divided into small sections and assigned to employees as whole jobs. It requires that functions are divided into small units, which are analyzed; hence, each sub-unit has fewer operations.

Coca Cola Company applies Job enrichment design, where managers offer support to employees, encourage them to solve problems and grant them the independence to perform jobs that they enjoy and love. Coca Cola Company recruits workers who possess specific qualities, such as the ability to inspire, produce ideas as well as achieve results. It is worth noting that the firm recruits employees who value standards of the company and abide by them

8.3 Standard Time

Standard time is defined as the time needed by an employee who is operating at a normal pace to achieve a particular task by applying a given method. It is used in workforce planning, material requirement planning, line balancing, simulation of systems, payment of wages, and cost accounting. It can be established using the following methods; time study, standard data system, work sampling and system of predetermined motion time.

Coca Cola Company computes standard time using the time taken to complete a task (observed time), performance rating (the pace at which an employee is working), personal fatigue a delay (PFD), using the formulae:

Standard time = (1+PFD) (Observed time) (rating factor)

An example of the application of this formula can be illustrated as follows;

There are 4 employees working in a firm, and the time required to complete a task are as follows; 1st worker: 15 minutes; 2nd worker: 16 minutes; 3rd worker 20 minutes; 4th worker: 10 minutes. If the performance of the 1st worker is considered to be 100%, the standard time (T_std) can be calculated, given fatigue time allowance is 7%, personal time allowance to be 5%, and the delay allowance is 5%.

cT_std = T_obs(P)(1+A_PFD) = T_n(1+A_PFD), where A_PFD = (0.05 + 0.07 + 0.05) = 0,17. Thus T_std = 17.55 mins. Given, A_PFD (personal, fatigue, and delay allowance) is the total of all the 3 allowances.

9. QUALITY MANAGEMENT

9.1 Meaning of Quality Management in the Coca-Cola Company

The Coca-Cola company ensures that all products manufactured are of high quality with the same standards. This ensures that the Company meets customers’ expectations and requirements. Coca-Cola utilizes Quality Assurance (QA) and Quality Control (QC) in the production process. QC focus on the production line while QA focuses on all operations and other functions that address likely problems (Coca-Cola, 2011). The company uses updated computers to check all areas of production, consistency maintenance, consistency of the formula, bottle creation, and filling levels and labeling of all bottles. QA and QC are necessary for risk reduction of defective goods reaching customers since once problems are detected, they are resolved throughout the production process.

Coca-cola applies Total Quality Management (TQM) that entails management of quality in every level of the company inclusive of customers, production, and suppliers. The process is vital in gaining competitiveness towards the achievement of customer satisfaction. Further, teamwork ensures all staff members are involved through the production process to ensure that each worker understands their roles, hence improving motivation, morale, and productivity. Other TQM practices applied by Coca Cola Company entail receiving feedback from customers as well as sharing information with them.

9.2 Determinants of Quality

Coca-Cola Company has standardized bottles that bear elements which are checked during production to ensure that quality is met. The common ones include ingredients, distribution, and packaging. Besides, testing is conducted during production where selected employees monitor progress. Hence, staff monitors quality in hygiene operations, product, quality of packaging, and distribution.

9.3 Quality Inspection

The Coca-Cola Company applies inspection all through the process of production. Notably, selected employees test the Coca-Cola formula to guarantee that every product achieves specific requirements (Coca-Cola, 2011). In this case, inspection is usually called product sampling after production. The main aim is to ensure that corrective action is undertaken to maintain quality. More so, the inspection process reduces the probability of product recall.

9.4 Use of Cause and Effect diagram

The cause-effect diagram also known as the Ishikawa diagram establishes the reasons an occurrence happened or is likely to occur by analyzing all likely causes in small parts. The cause-and-effect diagram is important in explaining the dispersion process and helps to compare causes and effects. Coca-Cola Company can adapt to three main types. This includes process classification, cause enumeration, and dispersion analysis. The cause enumeration and process classification consider the effect as the issue that needs to be resolved, the outcome to be accomplished, and opportunity that needs to be tapped.

The company can use the cause-effect diagram to improve their product or process by analyzing the following aspects, including their regulations and policies, maintenance issues in machines, attainment of quality raw materials, errors in readings and calculations that could falsify information, the moisture content in the environment that could cause contamination, and devotion of employees in the production process. My recommendation is that the company should consider adding the product image and supplier image within the cause-effect diagram consideration since they have a crucial effect on loyalty and customer acceptance of the product.

10. PRODUCTION PLANNING AND INVENTORY MANAGEMENT

10.1 Production planning

Before production commences, cleaning activities are carried out to rinse inner pipelines, equipment, and machines. This is done in lines switch over, for instance, transforming Coke to Diet Coke and yet sustain the taste. Quality checks are done for product quality and hygiene purposes. Once checks are over, the production process commences.

Besides, the Coca-Cola Company uses “Quester” database system to help in performing checks throughout the line. All pieces are coded, and every line is given a bill of materials right before the process. This is important in ensuring that the right elements are positioned on the line. This check reduces problems within the production line and is usually evaluated regularly. Other checks conducted on the line are carbonation and packaging which are usually examined by an employee who marks the values to make sure that the required standards are met.

To further test the quality of the product, technicians conduct more than 200 spot checks daily to guarantee consistency and quality. This practice is carried out before production or in the course of production where a bottle sample can be removed from the line of production. Some of the quality tests are carbon dioxide and sugar, packaging quality, micro testing, and tightness of caps.

10.2 Inventory Management

Inventory management entails those activities involved in developing and managing levels of inventory of semi-finished components, raw materials, and the finished commodity. This is done to ensure that there are enough suppliers and to minimize costs of under and over stocks.

The Coca-Cola Company makes orders quarterly within a year and uses First-In-First-Out (FIFO) inventory method. The approach is based on the premise that the sale of goods uses the same order as that which the goods are bought. Hence, the company does not adopt the EOQ model when placing orders for raw materials

Continuation

Example of FIFO in Coca-Cola (Kamran, 2013).

11. CONCLUSIONS AND RECOMMENDATIONS

Coca-Cola Company has an extensive history across the world,. The analysis highlights that the firm needs to adapt an aggressive strategy. The company has a steady competitive position with rapid growth. Hence, I should apply internal strengths in order to penetrate markets and create development strategy such as catering more for customers who are conscious about their health and through diverse flavors. I would recommend the Coca-Cola Company to join other organizations to increase its production effectiveness. In addition, the company can work in acquiring potential competitors through mergers or acquisition to increase its market share. More so, branding innovation and enhancing strategy will lead to the profitability of the company in the long term.

References

Coca-Cola. (2011). Retrieved from https://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2011/05/Coca-Cola_125_years_booklet.pdf

Coca-Cola HBC. (n.d).  Plants and processes. Retrieved from https://it.coca-colahellenic.com/en/our-activities/plants-and-processes/production-processes/

Jie, C. (2017). Coca Cola layout flow and product design. Retrieved from https://www.scribd.com/document/347229918/Coca-Cola-Layout-Flow-and-Product-Design

Kamran (2013) Perpetual Inventory Systems in Coca-Cola. Retrieved from https://www.slideshare.net/asif76/perpetual-inventory-system-in-coca-cola

The Coca Cola Company. (2018). Retrieved from http://www.thecocacolacompany.com/citizenship/quality.html

Kamran (2013) Perpetual Inventory Systems in Coca-Cola. Retrieved from https://www.slideshare.net/asif76/perpetual-inventory-system-in-coca-cola