19. Interview with Mr. James Chris Gaffney of The Coca-Cola Company
Introduction
This chapter consists of a series of questions and answers from an interview with a leading supply chain executive. The objective of this chapter is to provide a practitioner’s perspective on the subject of life cycle issues in supply chain management. Other related subjects are also discussed in the interview.
About the Interviewee
Mr. James Chris Gaffney has been with the Coca-Cola system for 17 years. He began his career at Coca-Cola in the fountain business before taking leadership roles with the Coca-Cola North America Supply Chain team and Logistics and Planning team. Mr. Gaffney was promoted to the President of Coca-Cola Supply in December 2008. In 2010, he was selected as the strategy lead for the Coca-Cola Refreshments Product System Supply Business Integration. At the conclusion of the integration, he was appointed as the Senior Vice President Product Supply System-Strategy for Coca-Cola Refreshments. Before joining the Coca-Cola Company, he worked for with AJC International, a global food trader, as Global Operations Manager. He started his career with Frito-Lay and held various roles in distribution and logistics. He received his Bachelor’s degree and Master’s degree in Industrial and Systems Engineering from Georgia Tech.
“We recognize that our success depends on the sustainability of the communities where we operate. For this reason, we are dedicated to having positive economic, social, and environmental impacts on local communities. It is also the right thing to do in a world of growing population.”
—James Chris Gaffney, 2012
About The Coca-Cola Company
The Coca-Cola Company (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands. Led by Coca-Cola, the world’s most valuable brand, the company’s portfolio features 15 billion-dollar brands, including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia, and Del Valle. Globally, we are the number one provider of sparkling beverages, ready-to-drink coffees, and juices and juice drinks. Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy our beverages at a rate of 1.8 billion servings a day. With an enduring commitment to building sustainable communities, our company is focused on initiatives that reduce our environmental footprint, support active and healthful living, create a safe and inclusive work environment for our associates, and enhance the economic development of the communities where we operate. Together with our bottling partners, we rank among the world’s top ten private employers with more than 700,000 system employees. For more information, visit www.thecoca-colacompany.com or follow us on Twitter at http://twitter.com/CocaColaCo.
Interview Questions and Answers
How would you characterize your organization’s supply chain?
We have a large, national end-to-end supply chain. I would characterize it as increasingly complex in just the past couple of years. We have a multi-echelon supply chain with multiple product class points and multiple routes to markets.
How would you characterize you role in your supply chain?
My team and I set out long-term supply chain strategy and lay out plans to build the capability to deliver the strategy. We also prioritize capital and people resources to support initiatives within the business that deliver end-year results and multiyear capability.
How do you manage your supply chain for products that are in the Introduction Stage of their product life cycle?
We use a formal stage-gate process for product innovation and commercialization. A traditional stage-gate process for the supply chain is a cross-functional process with primary ownership on the commercialization side of the business. Supply chain participation begins early in the product development process and at a very intentional stage to help with the assessment of high-level value-added supply chain capacity needs. This helps to inform decision makers in early product-gating decisions moving from ideation to preliminary development. We also have supply chain involvement at late stages in the development to provide more detail on actual product packaging cost and actual manufacturing and distribution cost to go into the final value chain. During the execution phase, the supply chain area applies formal detail program management tools and processes to bring the product to the market, typically 60 to 90 days post-market introduction.
Sometimes, a product in the Introduction Stage doesn’t make it in the market. How does your supply chain handle this type of situation?
We have a formal process to manage a product during its life cycle, including the Introduction, Growth, Maturity, and Decline Stages. We have a traditional SKU optimization process that manages an exit strategy, and we are adding an additional step in the process that manages product recovery before we toss everything out the window for a less-than-successful product. We try to get a midlife assessment for products to help us understand whether a product is not performing as expected. We are interested to know if it is a distribution gap or a marketing gap that is the problem. We try to close the gap by either injecting additional resources to gain the proper distribution so that the plan has its appropriate setting or we try to invest incremental additional marketing to be able to drive consumer pull against the existing distribution. That is a global best practice for us that we are striving to add to our processes to resolve the gaps. Finally, we typically provide a post-audit of product launches that reexamines the products that were less than successful to provide information on a cost-corrective action.
How do you manage your supply chain for products that are in the Growth Stage of their product life cycle?
We have a formal process that plans new launches and that is used to gauge new product success. We have a lot of bullwhip effects that gives us false positives (that is, suggesting a successful product when in fact it is not) that potentially might cause us to overreact. We are changing things to a more demand-driven view. We are providing insights to understand how a product is performing at retail and make the appropriate decisions to reinvest incremental raw materials, package ingredients, and line times, as well as revising an inventory plan to manage real consumer demand. We then go back into our infrastructure process, and if we, say, launch a product that is justified to have four production locations in the initial plan, and if it goes from 15 million cases to 20 million, then we would have a case to justify additional incremental production capacity. Also, in some situations, we identify some precandidate production facility locations and identify the capital requirements so that if the product performs well it will trigger the business case to accomplish the needed growth support.
Do you ever have situations where the growth of a product takes off such that supply chain demand greatly exceeds supply chain capacity?
Yes, we have dealt with this in the past, particularly with some of our newest beverages, vitaminwater and Simply Orange. These situations certainly sound promising, but they can also be a real challenge because we are a consumable and our cycle time gap to putting production capacity on the ground is typically a long period of time. We also have had products that boom and bust. We have a brand of products called Simply Orange that has been capped (that is, growth exceeded capacity) three or four times in its life and has always been up, but the upside has not always been smooth. The production-capacity additions are more discrete, so you have to manage that through supply and demand balancing. Typically, we get ahead of the game and manage through a limited supply for a time prior as incremental investment is brought on. Given that new product capacity temporarily exceeds demand, some concern is expressed about underutilizing the investment, which typically lasts for less than a year, and a year later we are thankful we made the investment. We then start all over again as growth in demand starts exceeding capacity. Simply Orange is a brand that went from $0 to a billion dollars in ten years but has been through three growth-capacity loop cycles. You are never perfect. You are either early or late on the infrastructure investment, and people either moan and groan because you place too much depreciation on them or they moan and groan that you’re losing profits because of net sales loss.
How do you manage your supply chain for products that are in the Maturity Stage of their product life cycle?
There are some things we do in this stage. We have a company philosophy around continuous improvement that there are always opportunities for improvement. At the Maturity Stage, the emphasis will be on improving overall profits, stabilizing core process performance, and on reducing inventory. At this stage, we are looking to improve the overall operations and ultimately deliver the product with less effort. We look for opportunities to improve service in the business. We try to reduce all lost sales and seek zero defects on service. In summary, we stabilize the process, increase the demand, take out all nonvalued activities and waste from the process, and drive continuous improvement. We have seen some decent leverage with this approach. Reducing all lost sales, for example, even if it is only a half a point in growth, will make a difference.
How do you manage your supply chain for products that are in the Decline Stage of their product life cycle?
This comes down to an assortment strategy. The commercial group (as opposed to the supply chain group) really owns the decision on this stage of the product life cycle. We are a company of brands. The brand teams in the commercial group would say a larger assortment and even complexity in an assortment is a good thing. From the supply chain perspective, we would advocate a balanced view. We need to be very thoughtful in identifying the portfolio that we need to meet the vast majority of customer needs and then manage the portfolio to that point. We are not as balanced as we would like to be. We have to deal with the acute gaps where customers will no longer order a product or give us shelf space. When we have lost distribution of a product, it then falls into an SKU deletion process, and we eventually clean it out. We are continuing to be more proactive to quicken the product-deletion process that best practices would suggest. So as it turns out, the supply chain group is on one end of this balancing continuum and the commercial group on the other.
Are there any additional points you might like to add about supply chain management?
One of the big priorities for us in recent years the is recognition that for every dollar of raw materials we buy and every case of product that we physically produce less than 100% of what we produce results in a revenue producing sale. The reality is you put a lot of cost into something that did not produce any revenue. That can be caused by some kind of product breakage or expired shelf life that results in revenue loss. Actually focusing on the yield of maximizing all of your assets that you have at your command is required in our business. Doing the best that we can on these cost issues has added $100 million to the bottom line by looking at the root causes on the controllable variables and dealing with them. We continue to say there are controllable impacting variables that keep some of our product from making it to market at full price that we can reduce. How you handle and get the most of every dollar you buy is a bigger opportunity than some people realize. The real discipline to process is a relentless focus on every single case and every dollar. This discipline is a real benefit to us every single day.
How does your firm value the new technologies coming out?
We did not historically make the best use of technology because we were enamored with technology for the sake of technology. Our focus was on the use of technology and not on the process around it. Today, we do not earn the right to apply technology until we have gotten a very clear understanding and effective use of our business processes. In addition, we need to clearly demonstrate pain points in the process where there is no technology or lesser technology. Given this, it provides a clear case to justify the introduction of new technology. We use a lot more feedback mechanisms and continuous improvement processes to get what we need. If we are getting what we expect, let’s keep doing it. If not, let’s correct what we are doing and reduce the cycle path of feedback so that we can correct things quickly to minimize the path-correction efforts. This allows us to spend most of our efforts in the right direction.
How has Coca-Cola’s new delivery technology impacted its supply chain?
Our new Coca-Cola Freestyle system of delivering our products is impacting our supply chain. The machine has the ability to generate a replenish order to the customer so that they can tell the distributor to create a replenish order to replace the cartridges needed. The machine knows when it has reached an economic order quantity. The suggested order can go directly to their distributor and in parallel back to our production facility to inform scheduling. It has turned out to be the first truly customer-driven supply chain. Consumption at the outlet is tracked every single day, in detail at the drink level off of every machine. It is communicated every night back into our supply chain. We even know when they should have ordered, and that permits us to call them and ask about it. In addition, we have telemetry in the machine to tell us if it is sick and needs fixing. This and other types of technology are leading our strategic planning to move to a more demand-driven firm. They create demand signal visibility that can be the engine helping move the rest of our legacy businesses into a demand-driven process—whether they are vending machines that will let you know what you need to load it up with so that when the driver shows up the machine knows exactly how many cans of each product the driver should bring, or a traditional grocery model where we are connected to the point of sale and drive it back into a demand signal for inventory. Instead of making an information technology (IT) investment for one business, our investment in Coca-Cola Freestyle will allow us to accelerate our maturity in technology a lot faster.
What does your firm do in sustainability?
If we are not focused on sustainability, we will go out of business. Sustainability is not just a nice thing to do, it is an essential thing to do. We have made public, long-term commitments around the primary resources we use to stay in business: water, packaging, agriculture ingredients, and energy. Our chairman made it clear that the Coca-Cola Company has to deliver on these commitments, and so sustainability is an important part of our overall supply chain strategy. We track and publish our own scorecard on our progress on the Web (good, bad, or ugly). One of our goals is to replenish every drop of water we use in our products. We are also looking for a dramatic decrease in our packaging that hits landfills and a huge increase in the recapture of every bottle we use. All of our plants are striving to have 100% landfill diversion, and some have already achieved that goal. Trucks at these plants are no longer taking away trash, but just recycling materials. Sustainability for us is a part of our having permission to do business in the communities where we operate. You can track our progress on these things on our website: www.thecocacolacompany.com/citizenship/index.html.
One final point can be added about our core strategy and our supply chain. Our business, as big as it is, is not an or business, it’s an and business. We have to do everything. We have to deliver great service, we have to provide perfect-quality products that consumers want to buy and are a part of a consumer’s healthy lifestyle. We have to do it at an affordable price and drive out waste every year. We have to be a sustainable player, we have to be an attractor of capital for our business, and we don’t get an out on anything. If we don’t do this, it’s tough luck. It’s not an or business, we have to do everything and we have to be good at it.