Executive Briefings

It Seems that Not Everything Goes Better with Coke

"We live in a world where supply chains, not companies, compete for market dominance. But companies often have diverging incentives and interests from their supply chain partners, so when they independently strive to optimize their individual objectives, the expected result can be compromised."    - Hau Lee, 3 A's of Supply Chain Excellence

It has happened. The jaws of death-the loss of market share and profitability-drove the transformation. On Feb. 25, 2010, Coca-Cola announced the acquisition of Coca-Cola Enterprises (CCE) for approximately $12bn. CCE is the largest North American bottler.

In the carbonated beverage category, we now see the competition between supply chains.  Hau Lee's prediction has come true.

With the creation of Coca-Cola Enterprises in 1986, Coca-Cola was the darling of Wall Street.  The company divested assets to improve return on assets and financial fundamentals.  As a student of the Wharton School, this supply chain transformation was one of my first case studies.  I remember the professor droning on and on about Coca-Cola's brilliance. However, what was not obvious then; and, as is all too obvious now, when a company sheds assets, it must allow provisions to continuously design and retool its supply chain to drive market performance.  The more extensive the supply chain and the more third-party nodes, the greater the challenge and the more critical the ownership. Form must follow function. Alignment and strategy are essential.  For me, the Coca-Cola case study is a clear sign of this importance.

In the United States, Coca-Cola learned this the hard way.  Battered by retail feedback (five years of falling Cannondale scores (third-party surveys of retail perception of the supply chain), declining market share and rising costs, Coca-Cola declared enough. It announced the re-purchase of the bottler. 

There were three fundamental supply chain issues underlying the defeat.

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"We live in a world where supply chains, not companies, compete for market dominance. But companies often have diverging incentives and interests from their supply chain partners, so when they independently strive to optimize their individual objectives, the expected result can be compromised."    - Hau Lee, 3 A's of Supply Chain Excellence

It has happened. The jaws of death-the loss of market share and profitability-drove the transformation. On Feb. 25, 2010, Coca-Cola announced the acquisition of Coca-Cola Enterprises (CCE) for approximately $12bn. CCE is the largest North American bottler.

In the carbonated beverage category, we now see the competition between supply chains.  Hau Lee's prediction has come true.

With the creation of Coca-Cola Enterprises in 1986, Coca-Cola was the darling of Wall Street.  The company divested assets to improve return on assets and financial fundamentals.  As a student of the Wharton School, this supply chain transformation was one of my first case studies.  I remember the professor droning on and on about Coca-Cola's brilliance. However, what was not obvious then; and, as is all too obvious now, when a company sheds assets, it must allow provisions to continuously design and retool its supply chain to drive market performance.  The more extensive the supply chain and the more third-party nodes, the greater the challenge and the more critical the ownership. Form must follow function. Alignment and strategy are essential.  For me, the Coca-Cola case study is a clear sign of this importance.

In the United States, Coca-Cola learned this the hard way.  Battered by retail feedback (five years of falling Cannondale scores (third-party surveys of retail perception of the supply chain), declining market share and rising costs, Coca-Cola declared enough. It announced the re-purchase of the bottler. 

There were three fundamental supply chain issues underlying the defeat.

Read Full Article