SermsukPublic Company Limited

Company Background

Founded in 1952 and the head office was located in Bangkok Operate 5 factories 1) Patumtani 2) Chonburi

3) Nakornratchasrima 4)Nakornsawan 5) Surattani In 2011, Serm Suk became a subsidiary of Thai Beverage Logistics company

Products and Services

Pepsi-Cola International Ltd., New York

Must obtain the supply of concentrate from Pepsi-Cola Trading Company Must maintain the product quality according to Pepsi standards

Manufacture and distribute: 1) Crystal drinking water and soda

2) Lipton Ice Tea (returnable bottles) for Pepsi Lipton International Ltd3) Tropicana Twister (returnable bottles) for Pepsi-Cola (Thai) Trading Co., Ltd.4) Gatorade Sport Drink under license from Strokely-Van Camp Inc. USA.

Manufacturing and DistributionPepsi, Pepsi Max, Pepsi Twist, Mirinda, Seven-Up

• In November, 2012, Serm Suk Plc (SSC) introduced “Est”,

its own cola drink• First cola brand in Thailand• Suffix “great-est, new-est or cool-est"

ROLE PLAYING

• Red Carabao for Carabao Tawandang Co., Ltd.• Oishi ready-to-drink green tea for Oishi Trading Co., Ltd.• Lipton ready-to-drink tea in cans and PET bottles• Tropicana Twister ready-to-drink orange flavoured fruit

juice(non-returnble bottles) for Pepsi-Cola (Thai) Trading Co., Ltd

Distributor

Soft drink

DrinkingWater

Juice SportDrink

Energy drink

Tea

- Est- Pepsi- Mirinda- Seven-up

- Crystal - Crystal Soda

Tropicana Twister

Gatorade Red Carabao

-Lipton ice tea- Oishi green tea

Product line

Financial Overview

Source: Serm suk’s Annual Report 2011

Estimated Market share of soft drink (38 Billion)

Including Cola and colored drinks (Fanta/Mirinda)

Expected Market Share

ESTPepsiCokeBig ColaOthers

25%?

?? ?

Inbound Process

Raw Materials• Ingredients• Packaging materials

Non Alcohol Beverages• Raw materials are– Water– Concentration– Sugar, and fructose

Concentration• Cola and other flavor drinks

– Switzerland• Many sources

– Brazil• One of the best cola ingredients

• Comes in barrel with a specific amount– Ship

• Sermsuk have their personal sugar supplier

Packaging Materials• Raw materials are– Bottles– Can– Bottle Cap

Bottles• Glass bottle• PET bottle

Glass bottle• Returnable bottle– Domestic supplier

• Thaiglass

– Foreign supplier• Vietnam• China

PET bottle• 4-5 Suppliers

– Domestic supplier• PET pack• PET form

– Domestic supplier• Depends on product types

– What drink?– What size?

Bottle cap• Crown Seal Public Company Limited

Choosing the suppliers• Do not rely on one supplier• Location• Relationship• Reliable• Cost

Warehousing

Overview of Warehouse Strategies

• Just-in-time• No big warehouses• “Small distribution centers”– No dead stock

 PET 1 litre

Cool Hand 250 ml

PET 455 ml

PET 480 ml

Can 325 ml

12 ounces in returnable bottle glass

Outputs7 SKU’s

Post-mix dispenser

Inventory Management• FIFO• Push strategy

Raw Material

Work-in-Process

Finished Goods

Raw Material Management• Just-in-time

– reach the manufacturing facility shortly before they are required

– stock levels are minimized– Warehouse costs are therefore reduced– less cash is tied up in stock– Suppliers take responsibility – depends on punctuality

• penalties for late delivery

– delegation of responsibility• make the production department’s job easier.

Finished Good Management• Staging areas– At the end of production line– Keep products for no more than 3 days

Storage Design• Cases

– Maximum space utilization• Full heighted permitted by warehouse dimensions

• Forklifts– Receiving– Storing– Picking

• Loading process– Manual by drivers

Manufacturing Process

Water from natural resources

Clarifying the water

Filtering, Sterilizing, de-chlorinating

Sugar to be dissolved

Cola concentrates

Proportioner to mix the ingredient

Carbonating the mixed bevarages

Filling at 4°C Sealing the caps

Manually picking out defects

Finished products into cases

No incubationneeded

• Diew add manufacturing vdo here

Outbound Process

• Near Just-in-Time. Little Inventory, Few Dead stocks

• Motor as the main type of transportationSales Truck and Large transport truck

• Two business model : Two types of distribution channelTraditional Trade and Modern Trade

DistributeProcesses

Factory

Small Warehouse

Sale Truck Distributes

Customers

Returned Used Bottle by Sale

Trucks

Traditional Trade

Modern Trade

• Large trucks

Sermsuk’sPlant

• Third Party Logistics

Warehouse Owned by

Major retailers

Modern Retails

Large Truck is used to distribute goods from Plant to distribution centers of Major Retailers For examples, Tesco, Tops, BigC

The warehouse management, however, is the retailers’ responsibilities.Serm Suk only receives orders from Retailers.

Tesco’s temporary Distribution Center at BITEC during the flood

Traditional Trade Model• The Strength of Serm Suk distribution interestingly lies in

Traditional method• From Serm Suk plant, products are sent to each warehouses

for each area, then distributed through sale trucks to each end-consumers, small business entity like small restaurant or food stalls on the street, deep in the soi.

Traditional Trade Model• The drivers are also the sale person who

contracts, delivers, and keeps information.

• Two persons in a sale truck: drivers and a helper

• Experiences are very important to operation: route, familiarity and relationship with customers are hard to be imitated by other distributors

• They are given commission for the sales made.

Traditional Trade Model• Most inventories are kept by the small business entity. It is

not kept in large warehouses• That includes the racks and the used bottles

Bottles waiting to be picked up by Sale Trucks

Demand Forecasting• Serm Suk will not know the demand of the major retailers’

customers, but will know the units ordered by each retailer.• For Traditional Trade channel, each factory will be responsible for

its region. The method most often used is to calculate the data backward.

• From the driver/salesperson’s record, the units sold from each truck, consolidated, will be used to plan the demand, adjusted with seasonal demand, promotion requirement, and past data.

• Combining the data, the demand can be forecasted for each region. The data will then be consolidated into demand for product, and thus the production size can be calculated

Contrasting two business model

• Modern Trade: Low margin, pays in credits with long maturity time.

• Traditional Trade: Low cost, charge lower price and earn cash. – Efficiency: Driver is also salesman; approach end users

and knows actual demand.

Reverse Logistic: Return Bottle• Sermsuk’s strength• Takes 21 days for each bottle to return. Over 72

millions bottle in the cycle.

Reverse Logistic: Return Bottle• Each truck carries spare bottle for any

replacement. Mostly for UHT products eg. Oishi green tea.

• Pepsi labeled bottle belong to Sermsuk, takes 1 year to take it out.

Customer Profile

• Aim to have largest share of cola market in Thailand

• Focus on the “traditional” market• Focus on both businesses carrying product

and the final consumer

• Greatest strength is distribution network

• Target market reflects this

• Strong relationship with traditional stores

– Reliable shipments to difficult to reach areas

• Also distributes to modern stores– Tesco Lotus– 7-Eleven – there is an Est Cola SKU exclusive to

7-Eleven

• Not where Serm Suk gets greatest sales• Purpose is for displaying product– Brand Awareness

• Most likely consumers will be “traditional” Thais– Refers to low-income, often rural people

• Not likely to travel far to shop, will purchase Est Cola at local stores, shops, and restaurants

• Use of glass bottles– Some insist upon drinking from glass bottle– Pepsi is abandoning use of returnable glass

bottles

Major Issues And Possible Solutions

• Issue 1: Loss of Control• Traditional approach for distribution• One helper and one driver/salesman• Takes charge of route, pick up time, etc• They know demand which is communicated back to headquarters

– reliance • 30+ years of experience • Cost of hiring and training, expected to start right away• Cost of lost sales• Solutions: Route management system, linear programming, time

management, etc

• Issue 2: Lack of Bottles• Machines, capacity plus human resource• Not enough bottles, millions in circulation• 1 bottle, 21 in cycle• No centralized return center, go to each shop• Forget to pick up bottles, bottles mixing with other crates• Driver help separate bottles, average stop time increase• High cost of collection• Solution: Import from other countries (may add to cost)

• Issue 3: Rusting Crow Caps, Cola backlog• Crow caps rust, unsuitable to drink• Less popular mom and pop shops where cola is kept at the back

and ignored• Sometimes kept for months – related to rusting• Health concerns – nausea, vomiting, liver damage• Solutions: Use oxygen absorbing caps (overall cost), For ignored

colas (45 days shelf life) – increase shelf life by using refrigerated trucks (partial solution)

• Other Issues:– Cost disruptions : Pepsi wants back in the game, – Going through route of modern market segment– Ready to pay high premium, increase overall cost

Thank you for your attention