Executive Summary
Coca Cola Amatil is a bottler of non-alcoholic beverages, and runs its operation in six countries Australia, New Zealand, Fiji, Samoa, Papua New Guinea, and Indonesia. It is a major partner organization of the Coca Cola company. This report will start out with detailing the nature of the business that Coca Cola Amatil is involved in, the level of competition it faces, and its target customers. After this, the financial situation of Coca Cola Amatil from 2018 and 2019, and the post-Covid-19 financial situation, as depicted in the half year report published in 2020, will be detailed. After this, the company’s supply chain management and the changes that it has experienced in the recent past, including the digital revolution brought in the company, the recent SAP transport implementation, and the drastic changes in the operations management in Papua New Guinea division of the company will be discussed. The operation management and supply chain setup will be analyzed by applying the Terry Hill’s framework for developing operations strategy. Through this framework the corporate objectives, marketing strategies, competitive priorities, operations design choices and infrastructure choices will also be discussed. In the next part of the report, the sustainability of the operation management and supply chain processes will be analysed. The procurement and supply of its main products i.e. sugar, will be analyzed and assessed for sustainability. The relationship with the local growers and suppliers will also be looked and the recent change in how relationships with suppliers’ work will also be investigated. The sociopolitical problems associated with the procurement process, as assessed by impartial researchers will also be discussed and recommendations in the light of these discussions will be made. The environmental damage caused due to major functions such as the plastic bottle production, farming run off and excessive water use, will be discussed alongside the efforts to mitigate this damage. Lastly, the economic resilience of the global supply chains of Coca Cola Amatil will be discussed in the context of radical global disruptions much like the one caused by Covid-19.
Background
The Coca-Cola Company is a multinational beverage corporation based in United States. Its prime product is Coca-Cola, a carbonated non-alcoholic drink, produced around the world through partnerships with local companies. Apart from Coca-Cola, it produces many other products including but not limited to, packaged coffee, energy drinks, fruit juices and drinking water (Blooming 1993). It has bottling partners all around the world, all of which it partially owns, one of the five major bottling partners it has is Coca-Cola Amatil Limited. Coca-Cola Amatil is partially owned by the Coca-Cola company (which owns 29% of total shares) is listed in the Australian Security Exchange as CCL (ASX 2020). Coca-Cola Amatil is responsible for distribution and manufacturing of Coca-Cola products in six countries Australia, New Zealand, Fiji, Samoa, Papua New Guinea, and Indonesia.
History
Coca-Cola Amatil started out as a tobacco manufacturing company and made its entry in the soft drinks market in 1964 and started out its operation as Coca-Cola bottlers in Perth. It slowly expanded its business around Australia, and subsequently moved into foreign markets of Fiji and New Zealand, later on it also acquired the Indonesian division of the Coca-Cola company (Coca-Cola Amatil 2020).
Organization’s position
As one of the largest corporations in the world, Coca-Cola is not just a business anymore but rather a symbol of capitalism and American culture. Thus, while having profits at the center of its operations and goals (much like any capitalist organization), it does give much more importance to image building and long-term relationship building – with other companies and even organizations. Coca-Cola, as an organization is able to compromise on short-term profits for long-term benefits primarily because its often considered a company too big to fail. This allows it to delve in innovative and risky practices, that other organizations might be wary of.
The organization’s size and influence has also meant that it has been held responsible, and rightly so, for many problematic practices around the world. The biggest controversy is related to the packaging of its products. During the 1950s, the Coca-Cola Company changed its primary product packaging material from glass bottles to plastic bottles (Lerner 2020). Today, Coca-Cola products are mostly sold in plastic bottles which are not biodegradable and have negative environmental effects. Currently, it produces over 3 million tons of plastic packaging around 110 billion plastic bottles, making it the world’s largest producer of plastic waste (Geyer, Jambeck & Law 2017).
Competition
Coca-Cola Amatil faces competition from various local and international soft drink manufacturers; however, its major competition is still with international rival, Pepsico. Internationally, Pepsi and Coca-Cola are close rivals with Coca-Cola edging Pepsi out in most countries. In the three major countries, where Coca-Cola Amatil operates, Coca-Cola has a huge lead over Pepsico products. In Australia, Coca-Cola soft drinks are consumed almost five times as much as the Pepsico soft drinks, with 32% people reporting having had a Coca Cola soft drink in the last seven days, while only 7% reporting having consumed a Pepsico soft drink. The situation is more lopsided in New Zealand, where the five most frequently consumed non-alcoholic drinks are all manufactured by Coca-Cola Amatil, cumulatively making up 66% of the total market share. The market situation is similar in Indonesia, where the four most consumed beverages are manufactured by Coca-Cola Amatil, cumulatively making up 59% of the total market share (Roy Morgan 2020).
Recent Financial Performance
Coca-Cola Amatil, according to its financial report in 2018, has around 880,000 customers, 12,000 employees, more than 140 brands, 45 warehouses, and 35 production facilities in the six countries it operates in. In Australia (in 2018), it had 9 production facilities, 12 warehouses, 32 production lines, 27 brands, 3,100 employees and 114,000 customers (Coca-Cola Amatil 2019). In 2019, the number of employees increased by 3,000 while three new brands were launched (Coca-Cola Amatil 2018).
The launching of three brands, combined with other factors, caused an increase in the trading revenue from 2018 -19 of almost 6.7%, as revenues grew from $4700.4M (in 2017) to $4752M in 2018, and to $5070.6M in 2019 (Coca-Cola Amatil 2018).
Perhaps, the one financial parameter that has seen the most fluctuation in the last few years in the Coca-Cola Amatil’s profile, is the net profit. The profits decreased from $461M in 2017, to $292M in 2018, however, the organization partially recovered in 2019, and the profits were brought back to $390M (Coca-Cola Amatil 2019).
The recent Covid-19 induced crisis negatively affected Coca-Cola Amatil, just like many other organizations, and the half year 2020 report clearly shows this. The revenue in the half year report published in 2019, stood at $2406.4M, which fell down to $2185.9M in 2020 (Coca-Cola Amatil 2020). The biggest hit was taken by the shareholders, however, as the loss/profit attributable to shareholders went from being a profit of $168M in the middle of 2019, to a loss of $8.7M in 2020, showing a decrease of 105.2 % (Coca-Cola Amatil 2020).
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Supply Chain Management & Operations Management
The supply chain that Coca-Cola Amatil supports is considered the backbone of the organization. This is not just uniquely true for Coca-Cola Amatil but is true for all bottling partners of the Coca-Cola company. The organization uses raw products, such as sugar, kola nuts and water which are hard to supply at times and the procurement of such material does have the potential to become unsustainable mainly owing to the environmental concerns related to farming practices, conservation of forests and water use, but also because of the global connectivity required for the procurement of such raw materials, in an era of increasing national autarky (Raman 2007).
Similarly, operations management is a significant part of any corporation’s success. There are numerous frameworks for analyzing the operations management of an organization, and one that stands out, due to its popularity and conciseness is Terry Hill’s framework for Operations Strategy. In this report, the operations management in Coca-Cola Amatil will be analyzed using Terry Hill’s framework.
Terry Hill’s framework consists of five components: corporate objectives, marketing strategy, competitive priorities, delivery system choice, and infrastructure choice (Hill 2005). There are three major stated corporate objectives of Coca-Cola Amatil, growth, shareholder value creation and environmental sustainability. Growth is pertinent for stable long-term returns to shareholders. Coca-Cola Amatil plans on growing within categories, across geographies and along the value chain. Growth within categories comes through innovations within the existing brands and carrying out mergers and acquisitions in the existing markets. Similarly, introduction of new brands that capture or create new beverage categories is also integral to this form of growth. Growth across geographies focuses on expanding into new countries and consolidating control over the countries already part of Coca-Cola Amatil’s client base, through focus on geography-specific product lines and marketing strategies. Growth along the value chain, which is the focus of this report, can be done through innovation in the supply chain and operations management (Hill 2005).
Another component of Terry Hill’s framework which is directly relevant to this report is the element of competitive priorities. Competitive priorities basically inform the operations strategy that is going to be utilized, the operations strategy consists of delivery system choice and infrastructure choice. In the case of Coca-Cola Amatil, the pricing is important as a competitive priority, however, it is usually not the point of contention between the two major competitors in the soft drink market. There are two areas on which most of the competition is hinged, first is the quality of relationships these organizations have with their partners including the suppliers and the distributors and secondly, the delivery system that is in place for transporting the products from the warehouses to the retailers (Yoffie & Kim 2010).
Recent Innovations
As detailed in the previous section, there are two major points of competition between Coca-Cola Amatil and its competitors: relationships with the suppliers and distributors and the delivery system in place for the distribution of the products. Consequently, it comes as no surprise that these two areas have received the most attention within Coca-Cola Amatil, and also been the center of innovation. But this does not mean that other areas have been ignored or have not innovated at all.
Recent changes in PNG
A great example of an operations management revolution comes from Amatil’s work in Papua New Guinea. Coca-Cola Amatil also serves the Papua New Guinea (referred to as PNG, from here onwards) and it has a supply chain network consisting of two production units, five production lines, six warehouses and 800 customers. The demand of the products was rapidly increasing however, the supply chain did not change at all over the last 28 years and net sales growth stalled (Coca-Cola Amatil 2020).
Coca-Cola Amatil decided to the resolve the issues around process and control and structured the processes integral to a smooth-running supply chain. Daily stand up meetings, the imposition of frequent checkups, rectification in the process of procurement of raw material and advanced demand planning were some of the steps taken make the supply chain operations run smoother. Rather than having a large team, with individuals having specific and narrow roles, the company introduced small teams that were experts in their subject matter but worked in collaboration with one another to ensure that at no point, the operations were running at less than their capacity (Supply Chain 2020).
Another key component of this turnaround was the improvement in the relations with the partners. Much like the employees, each department and partner (mostly suppliers) were working in silos, the new agreement and style of business meant that the local growers situated far away from the production plant, were also in direct contact with the production facility manager; in this way, the production and supply were calibrated to save time and ensure the achievement of highest level of efficiency. Engagement with the local partners was also vital in this process. The management arranged town halls with local distributors and listened to their concerns. The relation with the suppliers and the partners changed from a transactional one to one of business partnership and shared goals. The supplier of the cans (Orora) and Carbon Dioxide (BOC) saw a transformation in the relationship with Coca-Cola Amatil as well, as Coca-Cola Amatil invested in these companies to upgrade their technology-driven processes, this increased the trust of the partners as they could see that Coca-Cola Amatil chose to invest in them rather than forging new partnerships. The training of the staff working in the supply chain was a vital element of this program, the skilling-up of the entire staff increased the level of enthusiasm people in the company had, and also increased their energy, while also increasing their competence (Coca-Cola Amatil 2020).
SAP transportation implementation
A major innovation that took place recently was in the product delivery system in Coca-Cola Amatil. The innovation allowed the company to respond to unforeseen and unpredictable circumstances in a brief period of time. The project has not been completely implemented as of yet and is in the second of its three phases (Crozier 2019). The company will collaborate with the software giant, SAP on transport management. Coca-Cola Amatil delivers it products from its warehouses to the retailers and other customers through 500 trucks, trains and even ships, in one day. Through this project, 10 delivery networks will be developed, some of which will be for larger, bulk deliveries while others will be for smaller deliveries, directly towards the shop owners and retailers (Crozier 2019).
The system will help the company in two ways, firstly the company would be able to keep track of the locations and the product volume in each carrier, and will be able to figure out the best route for delivery, and secondly it will be able to calibrate the demand from the customers with the delivery service in real-time rather than at the end of a working day (Crozier 2019).
Recommendations for a resilient supply chain
Covid-19 has shaken the world to its core, and the highly inter-connected and globalized world of supply chain is also deeply affected by the crisis. As noted by the World Economic Forum, over the past many years, the supply chain network has been developed keeping economic efficiency and optimization in mind, which has resulted in a decrease in the importance of resilient and stable supply chains (2020). An important factor that determines the stability of a supply chain is the presence of viable alternatives, in the case of Coca-Cola Amatil, the presence of alternatives or multiple suppliers is an important concern which has been partially addressed through a decrease in dependence on imported raw materials, such as sugar and focusing more on using local grown products (May 1998). While, this may not work for all the raw products, such as Kola nuts, Coca-Cola Amatil, should through its agreements and amicable relations with the farmers growing Kola nuts, try to achieve a certain level of stability in the procurement process of such raw materials (May 1998).
Similarly, as mentioned earlier, the implementation of SAP transport system will help in achieving a more responsive distribution system. In case of a natural tragedy or sudden change in circumstances, the supply can be increased or decreased. This implementation is in its second phase and still has not been completed and even after its completion, it would only focus on distribution from warehouses to customers (Crozier 2019). This transport management can be expanded to cover shipments of raw materials towards the Coca-Cola Amatil’s production units. Adding this capability would help in calibrating demand with the supply even further, thus giving an informational advantage to the organization.
Environmental concerns & Amatil’s initiatives
Sustainability concerns are always associated with the work of Coca-Cola (for the right reasons), as mentioned previously, it is the largest producer of plastic waste in the world. Coca-Cola’s head of sustainability Bea Perez said that it would not abandon the use of plastic bottles, rather, by 2030, it would make sure that it is recycling all the plastic that it is producing (Thomas 2020). While, on a global level, the 100% recycling target may not have been achieved, in Australia, Amatil has achieved its goal of recycling 100% of the plastic that it produces (Coca-Cola Australia 2020). Similarly, while Coca-Cola aims on making sure that 50% of its packaging would be made out of recycled material, Amatil already has surpassed this target and is able to produce 70% of its product packaging from recycled materials. Similarly, Amatil has also worked in the Citizen Blue initiative through which they aim to reduce litter and improving recycling rates in the community by increasing awareness (Coca-Cola Australia 2020).
The company is also named amongst one of the companies that uses a large amount of sugar for its production processes. Amatil is now using 100% sustainably accredited sugar in the production of all of its beverages (Food & Drink Business 2019). It uses Smartcane BMP production framework which increases on-farm productivity and reduces the social environmental costs associated with the sugar farming in certain areas. By adopting this framework, it has managed to decrease the use of pesticides and herbicides in the sugar farming, minimized water loss, reduced run off of chemically laden water into the oceans, and slowly shifted towards ethanol as a fuel instead of fossil fuels (Food & Drink Business 2019). On the other hand, it has also improved the taste of its no sugar beverages and focused its energies on marketing the no sugar beverages it produces, causing a hike in its sales (Food & Drink Business 2019).
Conclusion
Coca-Cola Amatil is a company which has, in a relatively short period of time, established itself as one of the most important bottlers under the banner of Coca-Cola Company. While its shareholders may have seen an economic loss due to the crisis caused by Covid-19, it is not hard to see that it is a company which is bound to bounce back, as it has the ability the innovate and strengthen its supply chain and operations management even further. Its progress seems to be in the right direction as the improvements are being made in areas of competitive priorities, as determined by the Terry Hill’s framework. However, it would have to expand its innovative initiatives to make its supply chain shock proof for the future, this includes the SAP transportation management primarily. One area where Amatil seems to have a leap bound advantage over its competitors (and even over other bottlers associated with the Coca-Cola Company) is its environmentally sustainable policies, including the sue of sustainable sugar, 100% recycling of the plastic produced by it, and the use of recycled material in its production plastic bottles.
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