Frito-Lay is the snack food division of Pepsico and the largest supplier of potato and corn chips in the

world, currently holding 60% of the market share domestically, 40% globally, and selling its products in 120 countries. Frito-Lay sells eight of the top 10 selling snack chips nation-wide, and as a global player, Frito-Lay is succeeding against a multitude of competitors in a fierce, yet slow-growth industry, selling approximately 4.5 billion packages of snacks per year. In order to achieve this, the company has learned how to masterfully create, innovate and manage all aspects of its supply chain using high-tech IT systems that allow it greater control over its production processes and distribution network.

Frito-Lays supplier network for potato chip production has fewer than 100 individual suppliers. Several years ago, Frito-Lay approached its potato suppliers to seek those farmers willing to concentrate on cultivating a limited number of potato varieties, with a focus on producing the most appealing taste and quality potato chip for the consumer. Frito-Lay then offered these farmers long-term contracts, which made it easier for the farmers to get financing and for Frito-Lay to achieve more efficient, profitable economies of scale in other areas of the value chain. It is noteworthy to mention that steps like these that insure a stable supply of raw material are important to a company who purchases 2.3 billion pounds of potatoes and 775 million pounds of corn annually. Furthermore, Frito-Lay tracks the logistical movement of products throughout the supply chain, from acquiring the raw materials to final delivery, by utilizing its 848 tractors, 2,251 trailers, and a fleet of thousands of local computer-equipped delivery trucks. As this example shows, Frito-Lay has gone to extensive lengths to incorporate information technologies throughout its organizations value chain, further empowering its regional managers with access to vast amounts of information on their databases that can be used to effectively guide them in their distribution decisions. In the next step, Frito-Lay takes the raw materials of potatoes, corn, and packaging materials to one of there 41 manufacturing plants in 26 states, including the worlds largest snack food plant in Frankfort, IN. Together, these plants produce 30,000 packages of snacks per minute. Because Frito-Lays operates at such economies of scale, their high volume allows for the company to invest in the most efficient, low-cost equipment available to the market, insuring that maximum value is added to the product without relinquishing time or quality. After this, Frito-Lay traditionally relied upon its in-house fleet of trucks to transport products from its plants to its 1,900 warehouses or 200 distribution centers. However, as the company expanded, operations managers realized that it was not economical to produce every product at every plant, and thus began specializing at particular locations. On the other hand, logistics became increasingly difficult and distances grew longer, and thus, Frito-Lay learned to exploit the benefits of truck carrier services, employing Menlo Logistics to handle route planning. Menlo was able to reduce the carrier base by 50% and negotiate nation-wide discounts with other carriers. The last stop involved is the 400,000 stores across the nation that carry Frito-Lays snack food products. The company utilizes their own technological systems to show stores how reallocating shelf space, for example, can produce larger profits. Retailers are also provided with Frito-Lays Profit-Vision

Program, which allows retailers to analyze their sales and compare it to national performance statistics. At the same time, Frito-Lay benefits from the program because it convinces retailers to allocate more shelf-space to their products. The supply chain execution process is the cornerstone of Frito-Lays success. In managing its supply chain, Frito-Lay is able to correctly assess demands across all of its products due to the availability of point-of-sale data and an impeccable IT system, giving planners the ability to discern consumer trends and appropriately prepare production plans. Consequently, Frito-Lays managers can be proficient in determining levels of inbound supplies, raw materials, the allocation of the companys production capacity, and logistical details for truck routing. The companys ability to target local demand patterns with effective promotion and delivery systems results in continuously optimizing profit margins and reducing inventory and unneeded costs. In general, observations and analysis demonstrate that Frito-Lay strongly believes that the value in their services for grocery stores and third-party distribution centers stems from the companys ability to utilize innovative information technologies to efficiently and effectively deliver their products to the appropriate markets with maximized demand and minimized costs. According to Mr. Thurgood, Director of Strategic Sourcing at Frito-Lay: whether purchasing freight, negotiating contracts or working through a difficult marketing proposition, logisticians are at the core of the connected economy and are increasingly looked to as the innovators that drive great business resultsThey lead integrated teams that provide new sources of logistics value add (LVA) via their re-conceptualization of the business system. Mr. Thurgoods perspective gives us insight into Frito-Lays competitive advantage over its adversaries. First, the company tries to captivate its customers by developing extensive databases that record who their customers are and exactly what they want. Then, they focus on being the most reliable, quality-driven suppliers who provide services through the retail channel by means of collecting as much information along the way and utilizing it to address their weaknesses and capitalize on their strengths. Frito-Lay, despite only delivering potato and corn chips, relies on its ability to add unparalleled value in its distribution channel. Its customers know that when they do business with FritoLays, they arent simply buying a product to shelve in their stores, but incorporating an advanced information system with hopes of increasing sales and profits.