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

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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)


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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)


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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:


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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.


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ACADEMIC TUTOR AND PRACTICAL TUTOR’S COMMENT AND APPROVAL
SIGNATURE


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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.


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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


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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


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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


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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 freestyle working environment that nurtures and develops their full potent
Our Vision:
 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


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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.


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

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:
3.1

APAC Global 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.


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Packaging Executive

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Ingredients Executive

Indirect Procurement
Manager

Indirect Procurement
Executive - Move, SG&A

Indirect Procurement
Executive - Make


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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.


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 Vietnam Supply chain mapping:

.


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ANALYSIS OF PROCUREMENT SERVICES

CHAPTER 1

CRITICAL PROBLEMS IDENTIFICATION IN VIETNAM CU
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)


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-

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:


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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,


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





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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.


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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:
Area

2016 GP OHS

2017 GP OHS
internal survey

Different

Satisfaction

71%

83%

12%

Agility

69%

62%

-7%

Alignment

77%

57%

-20%

Engagement

78%

79%

1%

Commitment

52%

43%

-9%

Work Group

66%

80%

14%

Leadership & Strategy

72%

75%

3%

Job & Career

73%

64%

-9%


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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
to accomplish.
 The clarification on the role and responsibility of the individual
procurement person and of the stakeholders.
 The work group activities that is clearly aligned with the company’s
goals
 A clear understanding of their role and key accountabilities in the new
PepsiCo Operating Model (POM).
 How their immediate manager effectively communicates the company
goals and priority?

-

Commitment:
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


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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.

Career advancement opportunities (eg. Vacancies, promotions,
project teams) within the organization are clearly communicated to
all employees
 There is an equal opportunity for people to have a successful career
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:


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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):


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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
Make
Number of POs and
Contracts/ Annex
Number of physical
items/ services

374
1,028

2017

2016

2017

Move

SG&A

Make

Move

SG&A

Total

Total

138

249

449

145

299

761

893

117%

8

440

1,233

15

528

1,476

1,777

120%

Summary of POs and contracts
MAKE - MOVE - SG&A
1,400
1,200
1,000
800
600
400
200
Make

2017 vs.
2016
+/- (%)

Move
2016

Number of POs and Contracts/ Annex

SG&A

Make

Move

2017

Number of physical items/ services

SG&A