Cadbury and Coca-Cola Supply Chain Management

Introduction

Harland (1996 p.1) posits that supply chain management involves overseeing information, materials and flow of finances from suppliers to manufactures to producers and finally, to the consumers. Oliver (1982 p.1) says that such a flow has to be coordinated and integrated amongst the companies involved. In this case, the sole objective is to reduce inventory. Supply chain management flow involves the flow of products, information and finances. It also entails the creation of a business plan, the acquisition of raw materials, inspection of the acquired raw materials for conformance with standards, manufacturing of products, and delivery of the manufactured products to the consumers. In case there are any substandard products, these shall often be returned to the manufacturer.

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Happek (2005 p. 2) postulates that a supply chain strategy deals much with how best to manage the supply chain in an organisation. Developing of a supply chain strategy requires a deeper understanding of the business strategy in place. Integration involves the combination of all business activities that are controlled through a central point (Silva, 2010 p.1). Based on the foregoing arguments, there is the need to explore the various aspects of business integration with respect to the supply chain management strategy.

In order to exhaustively examine the issue of supply chain strategy, this research paper shall endeavour to examine the acquisition of Schweppes plc by Coca Cola UK and how this acquisition has affected the soft drink manufactures supply chain.

Business strategy of Coca Cola and Schweppes

According to Coca Cola Great Britain Press Centre (2008, p.1) Coca Cola UK its concentrates from the Coca Cola International whereas the sugar that is used in making the syrup is acquired from the Tate and Lyle Plc, a leading UK supplier of refined sugar. In a bid to consolidate its supply chain, Coca Cola UK has since taken over Schweppes plc a competitor that was originally majoring in the production of food products, mineral water, carbonated drinks, non-carbonated soft drinks and other beverages.

Coca Cola UK only produces syrup that is used in making the beverage. It manufactures a large number of non- alcoholic beverage concentrates and the syrup made from the refined sugar bought from Tale and Lyle Company. Sugar is one of the ingredients in the manufacture of soft drinks that is required in large quantities. Mahdi (2007, p.1) estimates that the total cost of sugar averaged between $300 per ton in 2006, down from $500 the previous year.

The management treats the formula and the names of the concentrates used secretly so that little information is in the public domain. Coca Cola uses high fructose corn syrup, aspartame concentrates and sucrose. According to the Coca Cola supply chain management, they produce concentrates and the bottling partners undertake the role of manufacturing, packaging and the distribution of the beverages. Supplies used include treated water supplies, refined sugars and other flavours (Coca Cola 2008, par. 5). Happek (2005 p. 3) reports that Coca Cola UK changed its supply chain strategy in 2004 to be more efficient in its operations.

This was meant to streamline information technology, procurement processes and supply chain operations. In 2006, the company entered into a partnership with Wal-Mart. In this new partnership, Coca Cola Coca could no longer directly deliver their products to the various warehouses owned by Wal-Mart. Instead, the company had to identify a partner who would be charged with the responsibility of making such deliveries. The Coca Cola Company has taken to engaging in a number of strategies as a way of reducing its operational costs. One such involved streamlining its supply chain. In this case, the primary goal to streamline its supply chain is that of reducing costs.

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Water is one of the manufacturing ingredients that Coca Cola has failed to utilise economically. As a result, the company has partnered with World Wild Life fund to cut down on the quantity of water used in the production process. In a bid to protect fresh water resources, the company has also signed the CEO Water Mandate with the United Nations. This is a priority in the company’s supply chain strategy. This action will help in protecting depleted world water resources. Coca Cola produces a large number of products that are sold within the UK markets. Factoring in the concept of production possibility in the frontiers, Coca Cola seems to be conducting efficient production processes.

Willmer (2007 p.1) reports that Cadbury Schweppes has since been renamed Cadbury plc. It has decided to take on the cost reducing measures in order to focus on fewer bigger and more value creating initiatives and reduce complexity in business. Cadbury has decided to close 15 percent of its station all over the world and slash 15 per cent of its entire workforce. It projects its percentage margin to be between 15 and 20 %, up from 10.1 per cent.

Following the acquisition of the company by Coca Cola, the company is anticipating increased sales (McCabe 2002 p.1). This is mainly attributed to the ability of the two separate entities to operate independently. The company anticipates spending nearly $ 450 million in an effort at reducing its costs from 2007 to 2011. The company has reorganized its confectionary business from three into four regions.

In this case, the Middle East, Britain, Ireland and Africa shall all be classified in one region. The America, Asia Pacific and Europe will be classified separately. Already, the company has identified and developed a substantial clientele base within the gum market in Turkey. In addition, the company has ventured into the confectionery market in Romania. Up to this point, the company has regarded this as a non-core business in such countries as Canada, Australia and Italy.

The company has identified a candy company in Japan as its next acquisition. Schweppes has good business relationship with the Berry Callebaut. This has come after the signing of the memorandum of understanding between the two companies where Schweppes will be obligated to supply 14000 tones of liquid chocolate and cocoa liquor annually. The company gum growth has picked momentum following their entry in the Russian and Turkey markets.

The integration position between Coca cola and Schweppes as put by Coca Cola and Cadbury Schweppes

Cadbury Schweppes’ position on integration

In its provisional conclusions on the integration of Coca Cola UK, the Competition Commission advised Cadbury Schweppes that a scale monopoly still existed between the two companies. Coca Cola was also engaged in a practice that would eventually restrict, prevent or distort competition. This appeared to work in favour of Schweppes and Coca cola. There were no clear distinction between on the one hand, the carbonated drinks and on the other hand, the technicalities associated with the manufacture of the soft drinks, the nature of consumption, demand and distribution. There was no clear-cut distinction between hot and cold drinks in terms of who consumed them.

Treating the carbonated drink market in exclusivity would mean ignoring competition, which is very instrumental to those supplying carbonated drinks. There seemed to be a few notable differences in the technical aspects of hindering integration. The mode of manufacture, distribution, consumption and demand for the carbonated drinks, and soft drinks (especially squash and cordial) had no major differences in demand.

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Packaging was done in bottles of similar sizes. The company’s manufacturing procedures were similar. The only point of departure in the production department was that the carbonated drinks were diluted before purchase whereas squash was diluted at home. The channels of distribution of the carbonated drinks were not any different from the other soft drinks. In fact, quantities of carbonated soft drinks, fruit juices and the dillutables released into the market are similar.

After the acquisition of Schweppes, success in the market was inevitable. In this case, the goal of the company was to maximize on the volumes of the manufactured products. This necessary move would eventually prove fruitful to the company when it comes to fixing of prices. In price evaluation, Cadbury Schweppes had to look at the soft drinks on offer and the retailer owned label drinks.

Cadburys’ integration with Coca Cola UK had few bottlenecks as a glass bottling line can easily be converted to pet at a cost of as little as $ 250,000. The management at Cadbury is suggested that contract packers up to that time when sales shall have justified investment into this venture can do canning. Cadbury Schweppes’ advertising to sales ratios for carbonated drinks were relatively low. On differential discounts after integration, Schweppes maintained that Coca cola was a brand which many retailers would consider stocking. Schweppes was not in favour of differential discounts as it may contribute to complex monopoly conditions due to its anti competitive nature.

Coca Cola’s position on integration

The commission’s provisional conclusion in relation to coca colas integration with Schweppes was that a scale appeared to exist and this appeared to favour Coca Cola Company and Cadbury plc. A complex monopoly appeared to exist in the sense that reasonable number of bottlers engaged into activities that restrict, prevent and distort competition. This complex competition appeared to favour both coca cola and Schweppes, hence a possibility of integration.

When matters relating to integration were raised, coca cola retorted that its success has always been due to competition and that they highly favoured competition for integration to prosper and that their first priority is to ensure that the consumers demands are met by coming up with the wider choice of drinks. The fact that coca cola had successful, well known and well advertised brand had no bearing on market power.

On issues pertaining to relevant market, coca cola position was that all commercial beverages had economically relevant market. Coca cola was favouring perfect substitutability test but rather preferred relative interchangeabity test on choosing the relevant market for its products. They also proposed a high degree of substitution for people in within and between soft drinks and other commercial beverages.

Coca cola position on integration was that manufactures of competing beverages shared the view as they persuade customers in an effort to make customers embrace culture of brand substitution. Coca cola seemed to concur with a study that was conducted by British Market Bureau, which reported that consumers like it when a range of beverages and beverage types come at different times of the day and in different context.

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On product range, Coca Cola denied knowledge of evidence that a narrow product range subjected a manufacturer to material oblivion as opposed to the one with broader range of products. On distribution channel, Coca Cola argued that the channels of distribution in the carbonated soft drinks industry are not obviously restricted as multiple retailers and wholesalers stocked wide range of soft drinks and there is no prior arrangement with the wholesalers as to which brand of the drinks they will be stocking. In advertising, coca cola said that while advertising was pertinent, it was not a means to achieving profitability in any business venture and more precisely in the soft drinks industry.

They intimated that each manufacturer would at their discretion chose to advertise or not and if the chose to advertise, to what extent and by which media houses. Coca Cola proposed ways through which certain products could be promoted nationally, regionally and locally. They reiterated that the amount of money spent on advertising could not surpass the benefits accrued from successful advertising campaign. Coca cola said that the reason as to why there were large numbers of carbonated soft drinks in the United Kingdom explained why the proprietors have considered a worthwhile risk to venture into manufacture soft drinks.

Coca Cola held a view that instead of embarking on massive advertisement campaign by the manufactures, they should focus at reducing the prices for the consumers or alternatively sell their brands to major retail chains so that they could use them as their own label drinks. On their position on whether advertisement can be used as a barrier to entry of other industry players in the market, Coca Cola Reiterated that its advertising activities did not drive up the cost of entry for its competitors. It is only that its competitors had no purchasing economies, which Coca cola seemed to enjoy. These network agencies acquired television time on behalf of coca cola.

Coca Cola’s well-known brand name gave it an upper hand in securing. This is of course a legitimate competitive advantage as it considered itself a successful brand. On differential discounts, Coca Cola said that there would be a problem only if the manufacturers differentiated between prices quoted to customers with an intention of maximizing their profits or if discount increased costs to would be competitors. On recommended retail prices, Coca Cola said that this was the concern of competition authorities. In order to reach its goal of increasing its sales, Coca cola was in favour of reducing the prices of its brands. It therefore encourage the idea where frequent prize promotions to increase sales of its brands.

Conclusion

Cadbury and Coca Cola had slight divergent positions on their supply chain management and their supply chain strategies and this was of course evident in the critical analysis of their integration positions where there was slight duplication. Nonetheless, this did not deter them from integrating their supply chain management strategies.

Reference List

Coca Cola Enterprises. 2006. Corporate Responsibility and Sustainability Report. Atlanta. Web.

Coca Cola Great Britain Press Center. 2008. Coca-Cola Great Britain Announces Launch of Schweppes Abbey Well. London.

Competition Commission. (n.d). Views of Brand Owners. London.

Harland, C.M., 1996, Supply Chain Management, Purchasing and Supply Management, Logistics, Vertical Integration, Materials Management and Supply Chain Dynamics. In: Slack, N (ed.) Blackwell Encyclopedic Dictionary of Operations Management. London: Blackwell.

Happek, S., 2005, Supply Chain Strategy: The Importance of Aligning Your Strategies. Atlanta.

Mahdi, D., 2006, Plans for Redrawing the Middle East: The Project for a “New McCabe, D., 2002, Cadbury investor seminar. Paris.

Oliver, R.K., Webber, M.D., 1982, “Supply-chain management: logistics catches up with Strategy”, Outlook, Booz, Allen and Hamilton Inc. Reprinted in Logistics: The Strategic Issues, ed. M Christopher, Chapman Hall, London, pp. 63-75.

Silva, R. 2010. Why You Need Business Integration? AusBusiness Review. Web.

Wilmer, K. 2007. Cadbury Schweppes unwraps its confectionary strategies. Food Production daily. Montpellier. Middle East. Global Research. Web.

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