Procurement services improvement and simplification pocess at pepsico foods vietnam company master final project

MBQPM6 LUU HONG PHUONG PROCUREMENT SERVICES IMPROVEMENT AND SIMPLIFICATION PROCESS AT PEPSICO FOODS VIETNAM COMPANY MASTER FINAL PROJECT MASTER IN BUSINESS QUALITY AND PERFORMANCE MA

MBQPM6

LUU HONG PHUONG

PROCUREMENT SERVICES IMPROVEMENT AND

SIMPLIFICATION PROCESS

AT PEPSICO FOODS VIETNAM COMPANY

MASTER FINAL PROJECT

MASTER IN BUSINESS QUALITY AND PERFORMANCE MANAGEMENT

Ho Chi Minh City (2018)

MBQPM6

LUU HONG PHUONG

PROCUREMENT SERVICES IMPROVEMENT AND

SIMPLIFICATION PROCESS

AT PEPSICO FOODS VIETNAM COMPANY

MASTER FINAL PROJECT

MASTER IN BUSINESS QUALITY AND PERFORMANCE MANAGEMENT

Tutor: Professor Jacques Martin

Ho Chi Minh City (2018)

DECLARATION OF AUTHENTICITY

I, the undersigned, Luu Hong Phuong, declare that this master project titled” Procurement Services Improvement and Simplification Process at PepsiCo Foods Vietnam Company” is my original work, gathered and utilized, especially to fulfil the purpose and objectives of this study, and has not been submitted to any other organization or university for assessment The materials which have been used in this project are acknowledged or referred

Signatures:

Name: Luu Hong Phuong

Date:

ACKNOWLEDGEMENT

This project and the final out-come have been done in an extremely effort and knowledge that I have got from the professors and lecturers with different professional and academy backgrounds, that help a lot for my career development, enrich useful knowledge so that I can contribute more added value for the business of my company

I would like to take this opportunity to send my special thanks to Professor Jacques Martin, who has provided the great support and guidance which made me completed the project duly, as well as the good advice on how to have a better restructure of this project

I respect and thank to all of the lecturers who have given guidance by each step of the learning progress, that helped me to formalize an overall picture and a thorough understanding of the quality and performance management of the business

I heartily thank to all of my classmates, who have advised and shared the experience and knowledge from different businesses for my understanding and approach

Also, I would like to extend my sincere esteems to Ms Le Thi Ngoc Hien from Solvay school for your timely and kind support for all of information during the course

ACADEMIC TUTOR AND PRACTICAL TUTOR’S COMMENT AND APPROVAL SIGNATURE

ABSTRACT

From an observation and involvement on services performance deficiencies, procurement services performance is a critical importance to the business, especially in this VUCA (Volatile, Uncertain, Complex, Ambiguous) world, when there are lots of uncertainties happen every day, this has changed the way we make decisions, plan for the future, manage risks and solve problems

For this project, we have been facing with the pain points on how to support the stakeholders (requesters) to meet the business’s demand, we also have internal issues related to functional process, deliver the aggressive target, build the strong team capability and build up the people development plan for talent sustainability

The methodology we have applied here is to process a satisfaction survey for the stakeholders as well as the team member’s feedbacks and expectation We also have data analysis process to identify the root causes and deficiencies of procurement services performance

In the result of survey, most of the root causes came from: the working environment, procurement procedure, the workflow and work load from internal procurement side; there is also lack of the understanding about the policy and process from the stakeholders, the business needs in an urgent basis which are mostly unplanned, and the issues from the product quality justification

At a proposal for improvement, we have recommended some solutions to resolve the issues and for further services improvement in collaboration with the stakeholders to resolve the urgent basis, review and simplify the current procurement process and reduce the work load for the team; continue the 360 survey feedbacks from the stakeholders, also improve the working environment with a sufficient people development frame work

TABLE OF CONTENT

Contents

INTRODUCTION: 1

1 About PepsiCo Foods Vietnam Company: 1

2 Information of the organization: 2

2.1 Organization chart of local business: 2

2.2 Operation model - In connection with global team: 2

3 Introduction of APAC Global Procurement & Indirect Procurement Department - Organization and Scope of Work 3

3.1 APAC Global Procurement team: 3

3.2 Indirect Procurement team: 3

PART 1 ANALYSIS OF PROCUREMENT SERVICES 7

CHAPTER 1 CRITICAL PROBLEMS IDENTIFICATION IN VIETNAM CU INDIRECTS PROCUREMENT DEPARTMENT: 7

1 Functional target and issues: 7

2 Purchase request of Indirect Categories: 8

3 Services delivery: 10

CHAPTER 2 DEFINE ROOT CAUSES OF PROCUREMENT DEFICENCIES: 11

1 Internal procurement root causes: 11

a Working Environment: 11

b Procurement procedure: 13

c Workflows and work load: 16

2 External root causes from stakeholders: 25

PART 2 IMPROVING PROCUREMENT PERFORMANCE AND SIMPLIFICATION PROCESS: 28

CHAPTER 1 Possible solutions for improvement: 28

1 Resolve the urgent basis: 28

2 Resolve the issue of product quality and improve efficiency: 31

3 Partnership with stakeholders and communication improvement 33

4 Improvement on the workload and system support: 40

5 Process review and improvement: 41

6 Policy review and alignment: 42

7 Improve the working environment and people development: 43

CHAPTER 2 Performance improvement 46

1 Build up the collaboration and partnership with the stakeholders: 46

2 Process review and improvement: 46

3 Promote a cherish working environment and talent sustainability: 46

CONCLUSION: 48

SOURCE OF REFERENCE: 50

LIST OF ABBREVIATIONS

BOM: Build of Materials

PR: Purchase Request

PO: Purchase Order

POSM: Point Of Sales Materials

TOT: Tool of Trade

FMCG: Fast Moving Cost of Goods sold

ACE: Aspiration – Competency – Expectation

ABCDEF: Agile – Bold – Cohesive – Decisive – Each accountable – Fun

GP: Global Procurement

MKT: Marketing

MRO: Maintenance, Repair and Operation

SG&A: Sales and General Administration

OEM: Original Equipment Manufacturer

3PL: Third-party Logistics

INTRODUCTION:

1 About PepsiCo Foods Vietnam Company:

PepsiCo Foods category has been invested in Vietnam from 2005, 11 years after the penetration of PepsiCo beverage in Vietnam market, we became the “power of one” business

In 2008 – 2009, the Foods manufacture was set up in Binh Duong, the company developed the local potatoes sourcing in Lam Dong

In 2013, when the joined venture Suntory PepsiCo Vietnam was established between Suntory Holdings Limited and PepsiCo Inc (51% - 49%), PepsiCo Foods Vietnam was extracted and became a 100% PepsiCo investment The two entities have been established independently from 04/2013

PepsiCo Foods Vietnam is one of the leading companies in manufacturing food with the main brand ''Poca'' and a team of over 300 employees present all over Vietnam in over 10 years

Currently the Foods business size is still limited at the moment but the fast growth rates

of Vietnam snack market every year has bring potentials promise for good benefits Our product is Snack in Savory category (Potato chip and Non potato chip) We are currently strong in Potato chip share with strong advantage in potatoes supply chain

Our mission:

 Become the #1 Savory player in Vietnam market

 Become the #1 Agronomy partner for farmer in Central highland, as a part

of the Performance with Purpose commitments to serve as a catalyst for the development of game-changing solutions for our communities around the world

 “Genzila” Talent workforce who aspire to outgrow themselves in a style working environment that nurtures and develops their full potent Our Vision:

free- Seeking and creating positive financial outcome for our investors,

 Development opportunity and many economic benefits to employees, business partners and the communities where we operate

 We always strive to operate on the foundation of honesty, fairness and integrity in all our actions

2 Information of the organization:

2.1 Organization chart of local business:

2.2 Operation model - In connection with global team:

Every associate plays an essential part in our organization

 For front line associates: delivering high levels of quality in all that we do and operating as efficiently as possible

 For marketing: looking across the company to find the best ideas, and building on them, instead of creating something from nothing every time

 For functional experts: spending the company’s money as if it were their

own and collaborating with teams to deliver the most value for our business

3 Introduction of APAC Global Procurement & Indirect Procurement Department - Organization and Scope of Work

I am currently working in Indirect Procurement team This is to introduce the organization of local Indirects procurement team in connection with the APAC regional Procurement team:

The APAC Global Procurement (GP) team will ensure we continue to leverage PepsiCo’s global scale fully through the GP Centers of Excellence (COEs), while continuing to provide focused support to the Commercial Units (CUs) through site leaders Site leaders are the GP points of contact for our businesses and will leverage the COEs to continuously deliver value to their business

3.2 Indirect Procurement team:

- The Indirect procurement structure is in line with the Global and Sector GP structures and aligns our teams to a category-based structure to build subject matter expertise and maximize spend leverage and financial delivery

Packaging Executive Ingredients Executive Indirect Procurement Manager

Indirect Procurement Executive - Move, SG&A

Indirect Procurement Executive - Make

- Indirect Roles & Responsibility:

 Indirect - APAC team:

The Indirects team will be mainly responsible for setting the strategic direction of the

GP Indirects agenda for APAC and providing transformational leadership to CU teams and functional leadership in partnership with the Sector and Global COEs to deliver trajectory-changing productivity in this area

Indirect APAC Lead: leads the Indirects team in his role as GP Director, Indirects, APAC, managing our spends across the Make, Move, and Selling, General and administrative (SG&A) categories Reporting to this position will be:

 GP Manager, Indirects, Move – APAC

 GP Manager, Indirects, SG&A - APAC

 GP Associate Manager, Indirects, Make - APAC

 Indirects - Vietnam CU team:

Each CU Indirects team also have functional category person in charge for Move, SG&A and Make categories, report directly to the APAC category team and dotted line

to the CU market site lead Each CU category lead will manage the category spend and corporate with the regional category team to leverage the advantage to optimize the cost, protect the P&L of CU business and get in line with the regional (APAC) Indirects strategy

Indirect Procurement Manager: leads the Vietnam Indirects team, manage all Indirect Spends across categories (Move, SG&A, Make), covered all of activities of Freight, Logistic, Sales & Marketing, Office supply & IT supply, MRO and other Operation services Besides, cause of the team’s workload, Indirect Procurement Manage have

to support the team to manage Move category for most of transaction

Indirect Procurement Executive – Move, SG&A: to be in charge of the categories Move, SG&A for Vietnam CU

Indirect Procurement Executive – Make: to be in charge of the category Make for Vietnam CU

 Vietnam Supply chain mapping:

PART 1 ANALYSIS OF PROCUREMENT SERVICES

INDIRECTS PROCUREMENT DEPARTMENT:

1 Functional target and issues:

- The team is getting the pressure to deliver the services on-time, cost efficiency and product quality with limited resources

- Besides, we have to deliver the target on initiative projects to deliver productivity year on year (based on managed spend) and to ensure the cash flow improvement

- We also need to ensure getting compliance with procurement process and policy, which requires multiple steps and cannot skip any step in the progress

- We have to conduct self – test for all of key controls by picking up samples for testing and report the result by quarterly with action plan to mitigate the risk as per request for risk control management, not count for internal audit and corporate audit happen once or twice per year

Indirects Procurement target and focus:

 Executive summary:

Market over view/ Challenges:

- Moderate inflation 3% to 5%

- VN Snack Business is getting to break even with many challenges

- Small volume bundle with fragmented spend and limited resources

- Manual transactions create workloads and in-efficiency

 Key areas to focus:

a Productivity and Value Creation:

- Strategy developed: 6.2% productivity per annual on managed spend (Transport, Facility Services, Maintenance Repair & Operation - MRO, Point

of Sales - POS and Others)

- Improve cash flow to 60 days across the categories in charge

- Penetration to new categories (2018): White Collar, Merchandiser and OEM MRO

- White space to extend the coverage (2019): Legal Services, Capital

b Organization Effectiveness:

- Continue with strong support from Sector COEs (Travel, Freight and MRO)

- Continue to align on Vietnam Indirect Organization to Category Operating Model

- Skills and capability building (through Global Procurement Framework)

c Creating Efficiency:

- Oracle up-grade system for Indirect to process Purchase Request  Purchase Order automatically

- Simplify and effective process

2 Purchase request of Indirect Categories:

While “Direct” purchasing (packaging and ingredients) have the specific items which are identified in the BOM (Build of Materials) and mostly have the plan ahead during the year, also have the system support from PR to PO and automatic tracking report; Indirects purchases are more complicated with complex kind of categories by different physical items and services It requires a broaden category knowledge as well as functional procurement skills in managing and dealing with internal and external stake holders

The requests happen at last minutes and in urgent basis supported to push sales The team got the pressure in a situation of limited resources and in a transition of organization transformation

Ad-hoc requests happen quite often cause of low sales forecast accuracy and the nature of FMCG is to react quickly in the market This has caused the hidden cost impacted cause of losing the power of volume bundles and the insufficient cost of procurement operation

SG&A - including Sales & Marketing, Office supply, IT supply and Other services:

- Some items were not in plan and were required ad-hoc purchases more often New specifications are required for each campaign which have taken long time for processing at beginning Some are almost at urgent basis

- Sales & Marketing:

Including all of the POSM, TOT, Promotion Gifts for physical items and Marketing services for Consumer Insight and Marketing activation campaigns

- IT Supplies:

Including all of the laptops, desktops, Printer, Cartridge, other IT supplies (UPS, monitor, …), software and license

- Office Supplies:

Including postage, stationery, uniform, drinking water, pantry stuff, employees’ gifts, office cleaning, team building, outsource services, health check, health care insurance

MAKE – including MRO (Maintenance & Repair and Operations), Production, and Operation services (security, canteen, 3rd party, shuttle bus):

- MRO and Production:

 The maintenance team has the pressure to control the inventory on quarterly basis, most of the spare parts are purchased for ad-hoc requirement, some cases are at urgent basis supported for the production

in sudden cases

 There are thousands of items required for maintenance and production, but most of transaction are manually processed and don’t have an automatic system support from PR to PO, report and documentation

 Unclear specification and inconsistent brands requirements for most of spare parts

- Other operation services:

 Stake holders are even not clear on the scope of the services they want

 Requests are always come at last minutes

 No tracking on contract expiry date cause high risk of business interruption if the contracts are not in place

MOVE – including transportation, warehouse and logistic:

- Transportation:

 The logistic managed spend contribute more than 50% spending of total Indirects managed spend and is the most important category to get the productivity initiatives year on year

 The cost of transportation plays an important part in the total cost of goods sold, however the current process of sales order is still not strictly standardized The distributors can place order any time in a week that cause difficulty in sales operation and production plan The current minimum quantity order is flexible as Sales team wants to push sales,

especially with modern trade channel, so even order less than 1 cubic meter is still acceptable That has created a huge work load for operation team

 Before that, we used to leverage the order combination with beverage team, but when there was foods business extraction from the power of one, we do the transportation separately

 Besides, to avoid the cost of services fees, we have removed 3PL model

in the South We are having more than 10 transporters decentralize across the country That cause complicated in supplier management and services management

 With limited warehouse capacity, we just have only 6 dockings currently that allow a limitation of truck loading per day Normally it takes 2 hours per truck loading time, now even some cases it comes up from 6 to even

12 hours to complete the loading We have to pay cost for truck waiting time if it is over 3 hours or there is hidden cost occur that have been buffered in transporters’ quotation

 The distributors are not stable, many new requests for new routes or route combination create more workload for negotiation and proceed extra annex with transporters more often

3 Services delivery:

- While there are multiple requests with different items and services in a very tight schedule and budget control; most of the requests are urgent, unplanned and some are repeated items, Procurement team has hardly processed but still cannot meet all of timeline

- Our procurement team is getting complaints from the stake holders on the time delayed and poor quality of product purchases

CHAPTER 2 DEFINE ROOT CAUSES OF PROCUREMENT DEFICENCIES:

1 Internal procurement root causes:

a Working Environment:

From employees’ perspective, the team have been demotivated as they have tried the best but still getting the negative feedbacks and poor KPI performance And with all of the circumstances, they get stuck in execution, many fighting with stakeholders made them not active and are not getting engaged in the working environment

There is possibility that some team members are looking for the opportunity out site and not have long commitment with the company any more

To understand the whole picture for further improvement, we have conducted an OHS (Organization Health Survey) of Procurement team on the team engagement, working environment, and the commitment… This survey is organized across the countries for Indirect procurement The results of Year 2017 vs Year 2016 specific for APAC as below:

internal survey Different

-7%-20%

-9%

-9%

From this result, there are 4 areas get the negative feedbacks from employees in 2017

vs 2016 that need for improvement:

- Agility:

The business environment in which we now operate is: Volatile, Uncertain, Complex, Ambiguous (VUCA), this has changed the way we make decisions, plan for the future, manage risks and solve problems from the feedbacks, becoming more AGILE was an area of opportunity for all of us to focus on and drive as part of our ABCDEF (Agile, Bold, Cohesive, Decisive, Each accountable, Fun) ways of working 62% feedbacks that we are having slow actions for alignment and final decision The employees also identified a couple

of areas that we need to improve in order to effectively manage change:

 Ensuring employees are properly equipped to adopt the change (awareness, training, reinforcement)

 Effectively explaining the rationale to employees (communicate consistently, frequently and through multiple channels - providing time for employees to ask questions, request clarification and provide input.)

- Alignment:

57% of the feedbacks with all aspects that the employees are concerning about:

 The leadership effectively communicates what the company is trying

With a question if the employees would like to look for another job for next year

or not The survey indicates 43% expectation of employees that they don’t, the rest of more than 50% saying that they are going to look for a new job out site This is a very high number that will need many efforts to improve the talent

sustainability as well as people’s commitment Cohesive and Fun are defined as the key aspects of the working environment that motivate the people at work

- Job & Career:

64% feedbacks have the concerns on the job and career, that related to the below aspects:

 Promotions and assignments at my company are based on a fair and objective assessment of people’s skills and performance

project teams) within the organization are clearly communicated to all employees

at the company, regardless of their differences or background.

b Procurement procedure:

The procurement procedure begins with Purchase Request (PR); Request for quotation (RFQ) converting to Purchase Order (PO) or Purchase Contract; Goods/ services receiving and end with the Report activities All should be followed the 7-Step Strategic Sourcing Process

PR / PO Flow – Current Process:

- In the current process, with the Indirect procurement policy, all of purchasing activities have to be centralized under Procurement, for all kind of amounts and products There is no threshold for the amount of purchasing that can be proceeded at stakeholders’ site This has created a heavy workload for procurement team with a very limited people to support

- With the current system, requesters prepare the PR (not approve yet), send to Procurement for sourcing Once it is finalized by procurement executive, the PR

is sent to function head for approval (on budget) PR once again is reverted into

PO by procurement executive, then it is forwarded to Procurement Manager and higher levels for final approvals as per Schedule of Authorization (SoA):

- In this process, Procurement have less chance or influence to make a final decision on the principle KPIs of the cost, quality and time of delivery

c Workflows and work load:

To analyze the work load of the employees, we have collected the data of all of transaction in one year for 3 key categories: Make, Move and SG&A

In overview, the numbers of PO and contracts/ Annex are increasing year on year at 17% In the meantime the numbers of physical items and services are also increasing

at 20%

PO TRACKING SUMMARY

2016 2017 2016 2017 2017 vs

2016 +/- (%) Make Move SG&A Make Move SG&A Total Total

Number of POs and

Contracts/ Annex 374 138 249 449 145 299 761 893 117% Number of physical

Then we deep-dive into the transaction in details to understand the root causes for each

3 Annex - Additional scope, 20 27 540

4 Customs clearance - Export 36 20 720

MOVE - WORKFLOWS

5 Customs clearance - Import 240 10 2,400

5,640

1,200

11,745

Per month 979 Per day 44

 MAKE and SG&A have similar workflows in detail as most of the transaction need to generate on Oracle to issue the POs:

align internal 5 legal term, finance, commercial, scope

align contract with supplier 5 legal term, finance, commercial, scope

align internal 5 legal term, finance, commercial, scope

MAKE/ SG&A - WORKFLOWS IN DETAILS