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The Coca-Cola Value Chain

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Length: 2732 words (7.8 double-spaced pages)
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Introduction

Coca Cola markets nearly 2,400 beverages products in over 200 geographic locations. As a result development of a superior value system is imperative to their operations. Throughout this paper we will analyze their value system by using Michael Porter’s value chain analysis model. In an attempt to paint a current picture of the non-alcoholic beverage industry we will assess the market activity by using mergers, acquisitions and IPO’S as our benchmarks to determine if the market is growing or contracting.

Value Chain Analysis

A value chain is a model used to disaggregate a firm into its strategically relevant value generating activities, in order to evaluate each activity's contribution to the firm's performance (Terms V 2006). Through the analysis of this model we can gain insight as to how a firm creates their competitive advantage and shareholder value.

The value chain of the nonalcoholic beverage industry contains five main activities. These include inbound logistics (suppliers), operations, outbound logistics (buyers/ customers), marketing and sales, and service.

Inbound Logistics (Suppliers)

Some of Coca Cola’s most notable suppliers include Spherion, Jones Lang LaSalle, IBM, Ogilvy and Mather, IMI Cornelius, and Prudential. These companies provide Coca Cola with materials such as ingredients, packaging and machinery. In order to ensure that these materials are in satisfactory condition, Coca-cola has put certain standards in place which these suppliers must adhere to (The Supplier Guiding Principles). These include: compliance with laws and standards, laws and regulations, freedom of association and collective bargaining, forced and child labor, abuse of labor, discrimination, wages and benefits, work hours and overtime, health and safety, environment, and demonstration of compliance (Coca Cola 2006).
See Appendix for additional information:

From time to time, Coca-Cola uses third parties to assess their suppliers by having interviews with employers and contract workers. If a supplier has issues about the supplier guiding principles, they are usually given a certain amount of time to take corrective measures; if not, Coca-Cola has the right to terminate their contract with these suppliers.

Operations

Coca Cola’s core operations consist of Company-owned concentrate and syrup production (Coca Cola 2006). According to their website, some of the main environmental impacts of their business occur further along the value chain through system's bottling operations, distribution networks, and sales and marketing activities (Coca Cola 2006). Management of these operations across the business value chain tends to be more challenging outside of the core operations. According to Coca Cola, they continue to address this by working with their partners to reduce the effects at every level of the manufacturing process by enlarging their comprehension of the complete environmental impact of their business through the entire lifecycle of their products from ingredient procurement to production, delivery, sales and marketing, and post-consumer recycling (Coca Cola 2006).
Please see Appendix for additional information.

Outbound Logistics (Buyers/ Customers)

The activities required to get finished products to customers include warehousing, order fulfillment, transportation, and distribution management. Coca Cola has the world’s largest distribution system. They own, lease, and operate in over 800 plants around the world (Coca Cola 2006). The 2,400 beverage products which they market reach consumers in more than 200 different geographic locations (Coca Cola 2006). Grocery stores such as Sobeys, fast food restaurants such as McDonalds (fountain sodas), and vending machines are just a few of the distribution units used to ultimately reach consumers.

Coca Cola has over 300 bottling partners which range from publicly traded businesses to small family owned operations (Coca Cola 2006). They have implemented the “Coca Cola System” in which they work cohesively with their partners in order to develop strategies aimed to meet the needs of all their customers.

Examples of their commitment to these strategies are seen in their plant in Indonesia, where boats are used to transport the products between hundreds of islands throughout the Amazon. This is often because waterways are often the main way to access these remote islands. In some of the higher elevations of in the Andes, Coca Cola products are sometimes transported by four-legged power. Across much of Africa, bottlers deliver to thousands of family-run kiosks and home-based stores.

Marketing and Sales

Out of approximately 2,400 products, Coca Cola markets four of the worlds top sales drink brands. Although the industry is relatively small and they only directly compete with two companies, creativity is a vital marketing strategy to Coca Cola.

Coca Cola’s ultimate goal is to deepen their brands’ connection with consumers. As a result, they have to constantly reinvent their product (Coca Cola 2006). The marketing strategy they use is directly linked to the consumer; from advertising, to point of sale, to ultimately opening and consuming a Coca Cola beverage. Techniques which they have used to achieve this include developing new products and brands, changing the design of their packaging, and designing various new advertising campaigns (Coca Cola 2006).

On October 19th, Coca Cola reported their earnings for the third quarter. Earnings per share are up which results in higher benefits for shareholders. According to Neville Isdell, CEO of Coca Cola, they have experienced a growth in sales of five percent compared to the same quarter last year. This is as a result of balancing performance across their global markets and their product portfolio (Coca Cola 2006).

Service

Activities that maintain and enhance a product’s value include customer support, repair services, installation and training.

Coca Cola’s customers range from large international retailers and restaurants to smaller independent businesses and vendors. As a result, they provide services tailored to meet their customer’s needs.

Coca Cola also supports their customer’s by providing them with the training necessary to help their businesses become more effective and profitable. They have established Customer Development and Training Centers which are available to more then 21,000 independent retailers, which provide training at no cost in areas such as general management, marketing, finance, inventory management and customer service.

Mergers, Acquisitions, and IPO’s

Mergers

In order to grow profitably, minimize their costs, and to become the global market leader, Coca-Cola has business partners all around the world. These business partners play a key role in helping Coca Cola to achieve their strategic goals. Some examples of Coca Cola merging with other companies include:

Coca-Cola merged with Apple Computer to promote its iTunes digital music service. With this approach, Coca-Cola’s aim was to create a new form of communication among their younger customers (India Daily 2006).

On September 26, 2006, Coca Cola announced changes in the terms of their merge with Efes Sinai Yatirim Holding. In this merge, Coca Cola has a shareholding investment interest of “87. 63%. The Company announced that according to these changes, the merger and exchange ratios will be 97.7514% and 1.73839, respectively. Coca-Cola Icecek A.S. will also increase its capital from TRY 249,589,770 to TRY 255,331,140” (Reuters 2006).

Acquisitions

On September 26, 2006, Pepsi Co., a major competitor of Coca Cola, announced that they had acquired IZZE Beverage Company, the maker of all-natural, sparkling fruit juices. Unfortunately the announcement did not outline further details of the agreement (Reuters 2006).

On September 25th Coca Cola announced its intent to take control of CCBPI from San Miguel Corp. According to Reuters, Coca Cola Co. is set to take over management and control of the soft drinks arm of the Philippines' San Miguel Corp., though a formal deal has yet be agreed on. San Miguel wants to offload its 65% stake in Coca Cola Bottlers Philippines Inc. (CCBPI), the local unit of San Miguel soft drinks firm, which has been suffering from weak sales and demand in recent years. Coca Cola currently owns 35% of CCBPI. San Miguel also wants Coca Cola to remove a non-competition clause, allowing San Miguel to sell beverage products that compete with CCBPI” (Reuters 2006).

IPO’s

Initial Public Offering (IPO) is the first sale of a corporation’s common shares to public investors. New IPO means that the industry is continuing to expand (Yahoo Finance (2006).

Although the most recent IPO in the nonalcoholic beverage industry occurred in 2002 the industry is relatively stable. It is difficult for new competitors to enter the industry; if they are successful, they will be faced with high competition because the industry is relatively full (Yahoo Finance 2006).

Support Activities for the Main Activities

Infrastructure

Organizational Structure
Coca Cola has expended its operations over the past 120 years. They now operate in over two hundred countries with nearly 2400 product offerings. Their global operation is divided into six geographic locations- the Africa Group, East and South Asia and the Pacific Rim Group, the European Union Group, the Latin American Group, the North Asia Eurasia and Middle East Group, and the North American Group (Coca Cola 2006).

Control Systems
Coca Cola’s guiding principle is to “lead by example and learn form every experience” (Coca Cola 2006). Coca Cola has established high standards at all levels which they strive to meet in order to ensure that they achieve international best practices in terms of transparency and accountability (Coca Cola 2006). They have developed control systems which are outlined in their Corporate Governance Guidelines, Codes for Business Conducts, and bylaws. In addition, they have established seven committees which monitor and regulate performance at all levels of operations. These include Audit , Compensation, Finance , Management Development , Public Issue and Diversity Review, Executive and Directors and Corporate Governance committees (Coca Cola 2006)


Company Culture
Coca Cola has a global citizenship which is dedicated to ensuring that their business operations are conducted in a responsible manner. According to their website, the strength of their culture derives from “the passion, leadership and integrity demonstrated by all employees world- wide” (Coca Cola 2006). Coca Cola is committed to ensuring that all company citizens are treated fairly. They have adopted the practices of the United Nations Global Compact which is an initiative guided by ten principles to encourage unity between UN agencies, labor and civil society, and to support universal environmental and social principles” (UN Global Conduct 2006).

Human Resource Management

Within Coca Cola’s human resource department, strategies are developed and implemented which will ensure that the organization builds the capability to deliver desired business results (Coca Cola 2006). With this being said, the human resource department is currently undergoing a number of changes. Coretha Rushing, head of the department for the past four years is resigning as a result of a discrimination case (New York Times 2006). Along with this, the department is also in the midst of planning to downsize.

Coca Cola has approximately 37,000 employees which fall under their human resource department. Employees receive the best value and are provided with diverse benefits and options. Some of these include health and life, retirement, tuition and program, and additional benefits. As previously mentioned training programs made available to independent retailers in general management, marketing, finance, inventory management, and customer service to independent retailers also fall within this department.

Technology Development

Coca Cola recognizes that they must keep up with technology in order to maximize productivity. In 2003 they formed a contract with Symbol Technologies, Inc. They provided more than $3 million in technological support. They built a system which combines the PDT 8100, data-communication cradles and printers for pre-sales operations. According to Coca Cola, “future growth will include wireless wide area network communications for ‘anywhere, anytime’ information and laser bar code scanning” (Symbol Technologies 2006). As a result, Coca-Cola’s sales representatives are now able to visit 30-40 outlets daily which is 25 percent higher than before. Technology investment brings different benefits to Coca Cola. These include increased productivity for sales representatives and increased number of sales visits by 25 percent. In the future, technology will continue to provide the highest level of service to the Coca Cola Company by improving efficiency, leveraging existing knowledge, and proactively mitigating legal issues by educating clients on key issues affecting the company (Coca-Cola 2006).

Procurement

Coca-Cola has plants, production sites and bottling facilities all around the world. This plays an important role in their business since they are one of the global leaders of the non-alcoholic beverage industry. According to the CIO of Coca-Cola, “outsourcing comes at the expense of improving in-house skills, which will eventually lead to reduced costs.” As a result, Coca-Cola uses outsourcing to be a world leader by implementing control mechanisms to its contractors, as is mentioned in appendix 1. In the mean time, they invest in and train their employees in order to achieve their long-term strategic goals. They take corporate responsibility very seriously, and make sure that all of their business partners comply with their Supplier Guiding Principles (Zdnet 2006).

Analysis

Supplier Guiding Principles play a key role in maintaining Coca-Cola’s quality of standards. Coca-Cola makes sure that their suppliers comply with these standards by using third parties to assess them. However, there are still many issues with regards to water resources, and health problems. For example, Coca-Cola drained so much water in India that at least five Indian communities are now faced with water shortages in addition to other health problems. Another example includes, Coca-Cola using expired materials for the production of soft drinks in Vietnam. An inspection was made in July 2006 and inspectors discovered 7.5 tons of expired material had been used to produce soft drinks. They also found that there was a large amount of expired soft drinks which had already been sold into the market (Corp Watch 2006).

It is important to gain the support of the local community as it will effect the growth, and the image of the company. As a result, Coca Cola has certain rules in place which they must also comply with in order match their organizational responsibility guidelines. On the contrary, examples previously mentioned display hypocrisy and damages their image (Corporate Accountability International 2003).

Conclusion

Through our examination of the market activity of the non- alcoholic beverage industry we have not found any significant changes within the industry. There were only two mergers and two acquisitions with the most recent activity being in September of 2006. All of these transactions were between unrelated parties which indicated a minimum growth in the industry. There most recent activity pertaining to IPO’s was in 2002. Again, this is an indicator of the marginal growth of the industry. However, because Coca-cola is constantly expanding their operations all over the world we can probably foresee that this may change in the near future. .

Coca Cola is doing an increasing amount of outsourcing in order to minimize their costs, maximize their profit, gain more market share, and to protect their competitive advantage. They have mechanisms in place that control and assess their business partners in order to ensure the quality of their products and their image; however, their practices in some parts of the world do not act in accordance with their corporate responsibility guidelines. This results in bad publicity and negative brand image. The company is trying to circumvent these negative effects by instituting training programs which promotes equilibrium of the company’s value system.

References

Coca Cola (2006). Citizenship. Retrieved October 22, 2006 from, http://www2.coca-cola.com/citizenship/supplier_guiding_principles.html

Coca Cola (2006). Careers.. Retrieved October 22, 2006 from,
http://www.thecocacolacompany.com/careers/employee_benefits.html

Coca Cola (2005). Value Chain. Retrieved October 22, 2006 from, http://www2.coca-cola.com/citizenship/value_chain.html

Coca Cola (2006). The Coca Cola Company Reports 3rd Quarter and Year-to-Date 2006 Results. Retrieved October 25, 2006 from, http://www.thecoca-colacompany.com/presscenter/nr_20061019_corporate_third_qtr_earnings.html

Corp Watch (2006). Tons of Expired Coca Cola Materials Destroyed in Vietnam. Retrieved March 24, 2006 from, http://www.corpwatch.org/article.php?id=13906

Corporate Accountability International (2003). Statement of Corporate Responsibility of Corporate Accountability International Associate Campaigns Director Gigi Kellett at the Annual Shareholders’ Meeting of Coca Cola. Retrieved October 21, 2006 from,
http://www.stopcorporateabuse.org/cms/page1256.cfm

E-Competitors (2006) Glossary. Retrieved October 24, 2006 from,
http://www.e-competitors.com/Glossary/Terms_V.htm

India Daily (2006). Coca-Cola has agreed an Alliance with Apple Computer to Promote its iTunes Digital Music Service. Retrieved October 23, 2006 from, www.indiadaily.com/editorial/12411.asp

Legal Tech (2001). The Coca-Cola Company Legal Division Technology Statement of Vision. Retrieved October 23, 2006 from, www.legaltech.com/coca_cola.htm

The New York Times (2006). Company News Coke Is Losing A Human Resources Executive. Retrieved October 22, 2006, from http://query.nytimes.com/gst/fullpage.html?res=980CEEDC123AF932A25751C0A9629C8B63


Symbol Technologies, Inc. (2003) Coca Cola FEMSA To Roll Out Symbol
Rugged Mobile Computers for Next-Generation R. Retrieved October 25, 2006 from,
http://www.symbol.com/news/pressreleases/press_releases_coca-cola_femsa.html

Symbol Technologies, Inc. (2006) Coca Cola HBC Improves Sales Productivity by 25
Percent with Symbol Solutions. Retrieved October 24, 2006 from, http://www.scansource.com/symbol/files/CocaCola_CS.pdf

Reuters (2006) Beverages (Nonalcoholic): Milestones. Retrieved October 24, 2006 from, http://www.investor.reuters.com/business/KeyDevelopmentsBusInd.aspx?industry=BEVNON&topiccodes=207&target=%2fbusiness%2fbussecindustry%2fbussecindfake%2fbusindmajerdev

Yahoo Finance (2006) IPO’s By Industry. Retrieved October 25, 2006 from, http://biz.yahoo.com/ipo/indg_m.html


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