- PepsiCo said it is two-thirds of the way through its supply chain overhaul.
- The company has been investing in AI and automation to make production and distribution more profitable.
- This article is part of the “Future of Supply Chain Management” series on corporate manufacturing and distribution strategies.
PepsiCo Chief Operating Officer Greg Rhoden, who has spent his entire 34-year career with the snack-food giant, said he has seen more change in the past three years than he had in the 31 years prior to that.
Over the past few decades, grocery sales have remained reliably in stores as consumers have increasingly purchased more goods online, but the pandemic has changed grocery shopping patterns and now people are more likely to buy food and beverages online as well.
“When I started in this job 34 years ago, everything was store-bought and consumer choices were pretty limited,” Rowden told Business Insider. “Now literally anyone can buy anything, anywhere.” PepsiCo has also expanded its product line to offer new flavors and sizes of snacks and drinks.
These changes mean demand for more brands is coming from more directions. PepsiCo says it’s investing in digitization and automation, including robotics and predictive artificial intelligence, to help it better plan for demand and produce and deliver products more quickly and accurately. It also says its supply chain transformation is two-thirds complete.
Supporting agriculture with AI predictive analysis and satellite images
PepsiCo earned more than $91 billion in 2023 from sales of more than 500 brands worldwide, including its eponymous soda, Lay’s, Doritos, Gatorade and Mountain Dew. The company’s profits for the first and second quarters of 2024 beat Wall Street expectations, but sales volumes at its Frito-Lay and beverage businesses in North America have been declining as consumers rebel against years of price hikes.
PepsiCo’s chief strategy and transformation officer, Athina Caniola, said investments in its seed-to-shelf supply chain are the “glue” that will help the company realize future profit and sales growth — and it all starts with work on the ground.
PepsiCo’s farm partners own more than 4 million acres in North America alone, and they supply the potatoes, corn and other ingredients used in the company’s chips and other snacks.
The company believes that by using less water and fertilizer to produce these ingredients, it can boost profits in an industry with low margins. It says it works with farmers to secure the technology to harvest these ingredients efficiently, then subsidizes some of the costs of that technology for small farmers.
The company also says it has partnered with companies like CropTrak, AgroScout and Microsoft to monitor production, analyze crop health, track where crops are going and better understand where to plant them to thrive.
Reduced manual work for delivery workers
PepsiCo is also rethinking how it fulfills orders and delivers products, resulting in changes to the jobs of many manufacturing and delivery workers. As automation increases, workers are performing less manual labor, like driving a forklift, and the machines that take over those tasks are under much more oversight.
Workers in manufacturing facilities and distribution centers, and the unions that represent them, often push back against automation, which can lead to layoffs. PepsiCo, Tyson Foods and Campbell Soup are among the major food companies that have announced closures or layoffs this year. Companies that announce layoffs often blame weak sales, aging facilities that can’t keep up with demand or even product recalls, rather than a direct result of automation. PepsiCo declined to comment on the reasons for the layoffs.
Food producers are also facing a generational shift: Although many Gen Zers are interested in manufacturing jobs, there aren’t enough of them taking factory jobs to fill them, and they’re more likely to leave their jobs than older workers, according to a McKinsey study.
PepsiCo argues it can’t cost-effectively produce enough food and beverages to meet demand and keep workers doing most of the work manually, so the company is training workers to monitor autonomous machines and make sure they’re working safely and efficiently. “You’re turning your analog workforce into a digital workforce,” Kanioula says.
The company’s modernization efforts also include how it assembles variety packs, which contain multiple packets of Ruffles, Doritos, Cheetos, Fritos, etc. Workers previously assembled the packs, but machines are increasingly taking over that role.
Even as PepsiCo invests in automation, it is also growing its workforce, which it expects to grow 20% to 318,000 over the five years through 2023.
Building a more intelligent warehouse
PepsiCo has said it considers the majority of its warehouses to be “intelligent” facilities equipped with technology that allows employees to track and manage the movement of goods.
The company is using sensors and AI to help with predictive maintenance checks and quality control measures, for example using patterns to identify machines or vehicles that might break down and cause problems later. Rather than suffer a shutdown if a motor fails on a tortilla chip production line, PepsiCo can proactively replace it the next time the line is scheduled for downtime.
“It’s important to be able to turn that data into action,” Rowden said.
