- PepsiCo says it’s two-thirds of the way done with an overhaul of its supply chain.
- It has invested in AI and automation to make its production and distribution more profitable.
- This article is part of “The Future of Supply-Chain Management,” a series on companies’ manufacturing and distribution strategies.
Gregg Roden, PepsiCo’s chief operating officer, has spent his entire 34-year professional career working at the snacking giant. He said that in the past three years alone he’d witnessed more change than in the 31 years before that.
Over the past couple of decades, as consumers bought more goods online, grocery sales remained reliably stuck in the store. But the pandemic shifted grocery-shopping patterns, and now people are increasingly likely to buy food and beverages online too.
“When I started 34 years ago, everything was bought from a store, and we had a pretty narrow portfolio of options for the consumer,” Roden told Business Insider. “Now, literally anyone can buy anything, anywhere.” PepsiCo has also expanded its product line, offering new flavors and sizes of its snacks and drinks.
These changes mean demand for more brands is coming from more directions. PepsiCo says it is investing in digitization and automation — including robotics and predictive artificial intelligence — so it can better plan for demand and more quickly and precisely produce and deliver its products. And it says its supply-chain transformation is two-thirds complete.
Supporting agriculture with AI predictive insights and satellite imagery
PepsiCo generated more than $91 billion in 2023 from the sales of more than 500 brands worldwide, including its namesake soda, Lay’s, Doritos, Gatorade, and Mountain Dew. The company’s earnings for the first two quarters of 2024 exceeded Wall Street’s expectations, but volume in North America for the Frito-Lay and beverages businesses has been declining as consumers have pushed back against years of price hikes.
Athina Kanioura, PepsiCo’s chief strategy and transformation officer, described investments in PepsiCo’s seed-to-shelf supply chain as the “glue” in the company’s future ability to deliver higher profits and revenue growth. And it all begins with the work done in the field.
PepsiCo owns more than half a million acres of land in North America alone on which it farms ingredients such as potatoes and corn for its chips and other snacks.
The thinking is that by using less water and fertilizer to produce those ingredients, the company can boost its profits in an industry that operates on thin margins. It says that it works with farmers to ensure they have the technology to harvest those ingredients efficiently and that it subsidizes some of the cost of that technology for smaller farms.
It also says it has partnered with companies including CropTrak, AgroScout, and Microsoft to monitor production, analyze crop health, track where crops go, and better understand where to plant crops so they can thrive.
Distribution workers do fewer manual tasks
PepsiCo is also rethinking how it fulfills orders and distributes its products, which is changing the work of the company’s many employees in manufacturing and distribution. With more automation, workers are doing fewer physical tasks, like driving a forklift, and far more oversight of the machines taking over those tasks.
Workers at manufacturing facilities and distribution centers and the unions that represent them often bristle at automation, which can lead to layoffs. Large food manufacturers that have announced closings and layoffs this year include PepsiCo, Tyson Foods, and Campbell Soup. Often those announcing layoffs don’t directly attribute them to automation but to soft sales, older facilities that can’t keep up with demand, or even product recalls. PepsiCo declined to comment on the reason for its layoffs.
Food producers are also confronting a generational shift. Research from McKinsey suggests that while many Gen Zers express interest in working in manufacturing, not enough of them are taking jobs at factories to fill vacancies, and that they’re more likely than older workers to leave those jobs.
PepsiCo argues that it can’t continue to have employees perform most tasks manually while cost-effectively churning out enough food and drinks to meet demand. So it trains workers to monitor autonomous machines and ensure they’re working safely and efficiently. “You are taking an analog worker, and you are making them a digital worker,” Kanioura said.
Its modernization efforts include how it puts together variety packs, such as those containing several small bags of Ruffles, Doritos, Cheetos, and Fritos: While workers used to assemble the packs, machines are increasingly taking over.
Even as it has invested in automation, PepsiCo’s total workforce has swelled: It grew by 20%, to 318,000, over the five years that ended in 2023.
Creating more intelligent warehouses
PepsiCo says it considers most of the company’s warehouses “intelligent” facilities with tech that allows employees to track and control the movement of goods.
It uses sensors and AI to help with predictive maintenance checks and quality-control measures — for example, using patterns to identify a machine or vehicle that’s likely to malfunction and cause problems later on. Rather than suffering a shutdown when a motor breaks on the tortilla-chip line, PepsiCo can preemptively replace the motor the next time the line is scheduled for downtime.
“Being able to turn that data into action is important,” Roden said.
