PepsiCois an American multinational beverage, snack, and food corporation formed in1965. PepsiCo is the second largest company in the global food and beverageindustry. For many years, PepsiCo maintained continuous international growthand expansion with its exceptional operations, marketing and managementstrategies. However, the company suffered huge losses due to critical issues inits operations management division.
In India in 2003, the Center for Science andEnvironment (CSE) claimed that based on its research findings, 12 brands ofPepsi and Coca-Cola contain pesticides levels up to 24 times higher than thepermissible limits set by the Bureau of Indian Standards (PTI, 2004, para. 2).The pesticides allegations affected PepsiCo’s public image and hit its salessubstantially.
In fact, a few years after the release of the groundbreaking news,Pepsi and Cola’s soft drinks’ production and sale were banned for a few monthswithin Kerala, India in 2006, and in many schools and colleges around the world(Gentleman, 2006, para. 13). To the twolarge company’s relief, the problem came to an end in 2010 in their favor.Luckily, the Supreme Court of India ruled out that the percentage of pesticidesdid not exceed the tolerance limits, since there were no standards forpesticides adulteration prescribed at the time of the accusations (BusinessStandard, 2013, para. 2). Cause of The Problem Thecompany’s investigation committee unfolded the operational problems that leadto the pesticides contamination. While PepsiCo assured customers the use ofhigh-tech machinery to purify the water used in beverages, tests showed thatthe ground water being used for the production of the soft drinks in India washighly contaminated (Gentleman, 2006, para. 30).
In addition, the storage roomsthat were used to store the beverages before they were packaged were not of therequired hygiene and degree of cold temperature. Both of these factors dangerouslyaltered the beverages’ chemical composition and allowed for the growth ofmicrobes, which ultimately lead to contamination. Lastly, results show thatPepsiCo lacked in proper quality training of its employees and staff (para.
22).This is also shown by their negligence in storing the beverages within theparticular required environment, temperature, and pressure. Areas of OperationsManagement AffectedTheallegations affected many areas of operations management, one of which is the productdesign. The contamination impacted the quality promised to customers, andin return created customer distrust. In addition, the Quality Management areawas under questioning as the quality of production caused the contamination.
Another area affected is the process design, since the productionprocess and equipment used to produce the soft drinks required revaluation. Humanresources also got affected, as better quality training of employees andstaff was later on required to ensure product safety. After the allegationsbegan, all stocks of the soft drinks were in custody, therefore affecting the inventoryarea of the operations management.
In addition, machinery and equipmentused in the product required reassessment and maintenance to prohibitany contamination. Lastly, thecontroversy caused by the contamination of the beverages affected the locationin which the company operates, and forced for relocation as a result ofKerala’s ban of Pepsi’s production and sales. Addressing theproblemPepsiCorefused to address the allegations, and claimed that the CSE’s report wasinaccurate. The company also formed committees in India and the U.S. to work onlegal and public relations issues.
However, the company’s unresponsiveness tothe allegations was ineffective and created customer suspicion instead. Thecompany then attempted to decrease backlash by advertising its products’safety, and inviting Indians to visit its plants to see how the products aremade (Gentleman, 2006, para. 29). Those measures were found ineffective since mostcustomer trust and loyalty was not retrieved until many years later, after thecourt ruled out the allegations.
Ideas for futureimprovementsSincethe company’s operations management was fully responsible for the issue, PepsiCoshould show its customers that it is undergoing assessments and evaluation ofits existing OM areas to ensure customers of the products quality and safety,and restore customer trust. A little more communication and transparency on howthe company plans to solve the problem would have increased credibility amongstIndia and toned down the backlash. Most importantly, the company shouldincorporate more quality checks and higher monitoring at all of the productionlevels. ConclusionOperationsmanagement is a key part in any business, and any problem in the OM divisioncan obstruct the growth, development, and image of a company.
This is proven bythe allegations that PepsiCo faced of having pesticides contamination in itssoft drinks due to the lack of proper operations management and monitoring andthe tremendous impact that the company endured towards its sales figures and brandimage. Similar problems in other organizations are easily observed in many casestudies where major issues stem out of neglect for the key role that operationsmanagement plays within any company’s process. The implication out of suchsituations is that more care should be given to constant monitoring andupdating of the operations management strategy to improve the company’s propergrowth, development, and image.