Frito-Lay bucks the trend of supply chain simplification

When pandemic-driven lockdowns sent consumers home, Frito-Lay adjusted its inventory to meet increasing demand for its products.

The snack brand temporarily culled about 21% of its SKU portfolio to keep its supply chain as efficient as possible and deliver its most in-demand products, said Laura Maxwell, senior vice president of supply chain for PepsiCo Foods North America. By last summer, SKU counts had returned close to pre-pandemic levels.

“I’ll be the first to admit, last year, when we simplified the portfolio, from a supply chain perspective, we love that,” Maxwell said in an interview. “That gave us a lot of efficiency and velocity throughout the supply chain”

Now Frito-Lay is taking an approach that deviates from supply chain’s love of simplification. Maxwell called it “always everywhere.” It means the brand and supply chain team embrace complexity to meet consumers where they are.

“That’s been, for us, a mindset change,” she said. And it’s a change that means the full value chain must be primed for efficiency, from the inventory portfolio, to data-driven planning, and every link of the chain in between.

CPGs shift their thinking

Mindset shifts weren’t uncommon for supply chains during the pandemic.

Rationalizing product mixes and trimming the long tail have always been a consideration for consumer-facing brands, but the focus was heightened during the pandemic, said Tom Madrecki, vice president of supply chain and logistics for the Consumer Brands Association.

“COVID prompted a further conversation about what is really needed,” Madrecki said.

Several CPG brands deployed SKU cuts as they went head-to-head with elevated consumer demand. Mondelēz reduced its SKUs by 25%, and Utz eliminated 85 of what it called “Foundation SKUs.”

After the initial demand spike started to subside, some retailers and CPGs started to bring back SKUs.

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“When we simplified the portfolio, from a supply chain perspective, we love that.”

Laura Maxwell

Senior vice president of supply chain for PepsiCo Foods North America

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“We’re now running all of the SKUs that we had simplified a year ago,” Campbell Soup Company CEO Mark Clouse said in June. The company had rationalized a number of SKUs during the pandemic “to maximize our output,” with the intention of bringing back most of the varieties, a spokesperson said.

Supply chain became a natural part of CPG C-suite conversations about company goals and targets during the pandemic, and executives felt empowered to make the case for investments that improved product flow, Madrecki said.

“The consumer products companies are still doing their best to rationalize the number of SKUs,” said Mike Griswold, a research VP in Gartner’s Consumer Value Chain team.

Griswold pointed to to new products as an example, and said about 50% to 75% of new products don’t meet pre-launch objectives.

“That would lead you down the road of, maybe we’re better off providing configuration flexibility on existing products than necessarily banging our head against the wall to try to come up with new products,” Griswold said.

CPGs also rethought supply chains and labor, as companies facing staffing shortages had to make adjustments.

Frito-Lay has a mentorship program, set up pre-pandemic, that pairs students receiving an associate’s degree with mentors for job training related to industrial maintenance.

“Things like that program really helped us in the last year,” Maxwell said. Many of the students go on to work for Frito-Lay after the program.

Still, Frito-Lay was not immune to labor challenges. Staffing shortages led to forced overtime and “dismal working conditions” at a plant in Topeka, according to local news reports. Workers went on strike in early July to protest the conditions and ask for pay raises. In a statement, Frito-Lay called claims about work hours “grossly exaggerated.”

Data informs the chain

Frito-Lay has ownership over several parts of its supply chain, which provides it some leeway to operate with complexity. Manufacturing, warehousing and distribution centers are internal for the CPG brand. The company also has a direct-store-delivery system, and it recently launched a direct-to-consumer delivery channel. It operates a private fleet, in addition to using third-party carriers.

Technology and data connect the links in the chain. If manufacturing speeds up, models let the warehouse know that it will also need to speed up to push product through to trucks. The brand’s Geographic Enterprise Solution, in place at 12 U.S. sites, allows manufacturing facilities to pick store-level orders on-site.

Plants are connected to the cloud and can relay that they require maintenance. In some instances, Frito-Lay 3D prints parts for manufacturing facilities. Plus, technology helps to predict and prevent machine failures in manufacturing plants.

Frito-Lay is introducing new equipment, expanding warehouses and adding manufacturing lines for products such as Cheetos and Funyuns.

“Anything that helps us become smarter from a technology standpoint is really what we’ve been focused on,” Maxwell said.

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“Consumer data … has to flow upstream.”

Tom Madrecki

Vice president of supply chain and logistics for the Consumer Brands Association

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Technology and data were great enablers of efficiency for manufacturers during the pandemic. On the hardware side, automated systems and robotics allowed production to keep going, even if facilities reduced staffing due to COVID-19 protocols.

Meanwhile, software and data provided a comprehensive view of the supply chain — something that became increasingly important to CPGs during the pandemic, Madrecki said. That’s the case whether it’s internal manufacturing and warehousing, or between the CPG brands, their suppliers, their 3PLs and their retail customers.

Relying on historical information as a demand predictor was rendered nearly obsolete, and CPGs had to use real-time data for decision-making.

“Consumer data … has to flow upstream,” Madrecki said. “Then it can inform manufacturing operations to be that sort of rich interplay between retailers and manufacturers.”

Frito-Lay uses consumer insights overlayed with predictive modeling. And PepsiCo as a whole has a granular understanding of data at the local consumer level, Griswold said. Gartner’s most recent top supply chain rankings put PepsiCo at No. 7.

“One of the things that I think separates Pepsi from their peers, is just the amount of visibility they have to information,” Griswold said. Not only does PepsiCo mine data across its supply chain, but it converts information into insights and actions, he said.

Griswold gave a hypothetical example of various flavors of Doritos. One ZIP code might prefer Cool Ranch, while another has an affinity for Nacho Cheese. Armed with that data, Frito-Lay can position inventory in a way that matches demand.

The tactic carries the potential for more sales and reduced stockouts, but also the risk of higher inventory carrying costs.

Planning for what consumers want

Frito-Lay doesn’t stop at “always everywhere.” It piles on the inventory complexity with customization.

“Variety-seeking consumers are going to want assortment,” Maxwell said. “Ensuring throughout the supply chain we can service the needs of assortment, having SKU capability and availability throughout the supply chain, is a critical mission that we’re on.”

Maxwell said consumers are looking for different sizes, from single-serve snacks to big bags. Frito-Lay also offers a “make your own variety pack” on its direct-to-consumer site snacks.com.

“As consumers look for products in different sizes … it’s also a huge role of our team to help provide the right variety consumers are looking for,” she said.

It’s a strategy Griswold predicted CPGs would start to follow, of adding more SKU configurations rather than actual SKUs. Instead of a new flavor of Pepsi, consumers might want the option to order a six-pack with three regular Pepsis and three diet Pepsis.

Another advantage is at play for Frito-Lay here: scale.

“A company like a Frito-Lay or PepsiCo has that ability to flex and be different things to different people at different points,” Madrecki said.