The Coca-Cola Company becomes the largestbeverage company in the World. Coca-Cola history began in 1886 and continuessince then in refreshing consumers with numerous sparkling and different brands.Globally, Coca-Cola is renowned the biggest soft drink provider, having the largestbeverage distribution system within 200 countries and an average of 1.6 billiondrink sold per day. The Coca-Cola Company has achieved a local focus due to itsstrong supply chain system that links it with approximately 300 bottlingpartners worldwide. The Coca Cola Company operates with 3 bottlingpartners: NABC (North Africa Bottling Company), ABC (Atlas Bottling Company)& SBGS (Société des Boissons Gazeuses de Souss).TheNorth Africa Bottling Company (NABC) generated MMAD 2,5 in 2016 and serves over90,000 clients.
Its mainly mission is oriented to: Refresh consumers. Inspire moments of recreation and happiness. Create value and make a difference.To continue thriving the business, NABCCompany has adopted a roadmap with its partners called “The 2020 Vision”. Thisvision serves as a framework and guides every section of its business. It is anobjective that guarantees sustainable growth of the 6Ps i.e., People, Portfolio, Partners,Planet, Productivity.
Their corporate values are passion,excellence, responsibility, diversity, and sustainability.1. Production processesNABC controls full production processes withsophisticated equipment and testing programs in order to meet and exceedconsumers’ expectations. NABC commitment to producing, bottling anddistributing high-quality drinks is monitored by ISO 9001 and ISO 22000, aswell as some internal Quality and Food Safety policies such as “the globalstandards” of The Coca?Cola Company.NABC has invested in electronic bottleinspection equipment on all refillable bottling production lines in order to diagnoseand reject the tiniest irregularity that might exist in beverage industry.
Itsproduction process starts with sugar, juices, flavors and concentrated base. Itsfinished products are packaged in PET, Return Glass Bottles RGB, Cans, Bag in Boxor Tetra. During the production process, the water has specialtreatment to ensure the microbiological safety and the correct concentration ofnaturally dissolved salts, in compliance with specific compositional andsensory characteristics. The syrup is mixed in special tanks bydissolving sugar in the treated water, then filtering the water to remove any miscellaneous.After this stage, simple syrup is added to the concentrate or the variousbasic preparations used for the various drinks, thus becoming “final syrup”.For Sparkling Drinks, the cooled and treatedwater is mixed with the final syrup and the carbon dioxide that gives theproduct its characteristic effervescence. Then, the drink becomes ready to bepackaged in perfectly clean containers, hermetically sealed, labeled, coded andtested in modern automatic plants.
To satisfy its clients, NABC has four plants thatproduce and serve nearly 90 000 clients and over 26 distribution centers.The production includes sparkling and still brands in different packaging: CocaCola, Diet Cola, Fanta Orange, Fanta lemon, Hawai Tropical, Poms, Sprite,Schweppes Citron, Schweppes Tonic, Tops, Maimi Orange, Miami Mangue, MiamiMultivitamins, Miami Peche, Pulpy orange, Pulpy Tropical, Monster, Burn, Cieland Bonaqua (Water).Even if NABC has the capacity and flexibilityto produce in different plants, the production and fulfillment costs remains highfor many reasons. Production has decreased with the economic crisis, also, the sellingprice increased, and it was a must to either reduce plants or lines ofproduction to cut costs and create economies of scale. 2.
The Coca-Cola Quality System (TCCQS)& Operating Requirements (KORE). Within Coca Cola Company, the quality is in theheart of its philosophy and mission. According to an interview made with NABCQuality manager after a visit to Casablanca plant, The “TCCMS” TheCoca Cola Management System, which includes the quality system (TCCQS), shouldkeep pace with new regulations, quality managementmethods, and industry best practices.
There is a big awareness of theimportance of food safety either in plant or throughout supply chain andcommercial processes.To face the increase in needs andexpectations of partners, employees, customers and stakeholders, NABC has developedwith its partners a framework and management system model to replace the precedentmodel known as The Coca-Cola Management System (TCCMS). The new KORE operatingrequirements emphasize the importance of quality and sustainability to satisfy currentand future stakeholder expectations. Indeed, the company North Africa BottlingCompany has developed and created a perfect executive plan to inspire peoplewithin the organization to achieve the main corporate vision for 2020.Like any new operation management system thatencourages collaboration throughout different levels in the organization, CORE hasprovided more flexibility, improved creativity, innovation and learning, and supporteddevelopment and productivity within the core processes of the organization. In thisCORE, the responsibility involves that all individuals at operations both inmanufacturing and in supply chain process, promote sustainability and ensure thebest certification achievement.The Quality commitment focuses on deliveringquality excellence effectively and efficiently in the following focus areas:o Supplier Management: Giving and producing high-quality of finishedproducts,o Global Standards: consistent and high execution by the company, bottlingcompany and its suppliers,o Global Governance: assurance that all products and services exceed theexpectations of partners, consumers and stakeholders,o Continuous Improvement across the global system: proactive evaluation ofthe whole process to control all factors impacting product, equity, customersand consumers,III.
Risk ManagementIn orderto control all processes and achieve operational and strategic objectives, NABCimplements its ERM systems by creating an auditing department connecteddirectly to the Board of Directors, to the NABC Business Unit CEO, to CFO, and tothe existing audit department manager. As soon as the Risk ManagementSystem will be completely implemented, integrated Risk Rating criteria will bedeveloped covering all risks and associated controls of the company as detailedin Appendix 1:1. Risk identification Risk identification is the first step thatleads to risk assessment process.
It is mandatory to start with identifying allrisks by using many techniques like SWOT, check lists, interviewing, observing, brainstorming,etc. After interviewing most executive comitymembers and checking some audit and financial reports, I identified a list ofrisks in Appendix 2 including the six most important risks because of theirseverity and likelihood.o Instabilityof the market: Most production is sold in few months duringthe peak season which corresponds to summer time, but a very slow activity in winterand autumn confirming that beverage is truly a seasonal market in countriessuch as Moroccoo Instabilityof supply: Even if the S process is implemented and takes intoconsideration the capacity trends and shelf life, some raw materials supply areunpredictable like fuel, CO2, Sugar, and caps supply, which represent a real issueon high season especially in July and August just because of suppliers’capacity.o Social conflict:To negotiate more advantages and get more concession,employees are affiliated to unions and can go on strike. Sometimes employees putpressure on management and end up with many operating losses.
o UnpredictableCompetitor Challenge: NABC has high competition with its peers like Pepsi andIce Cola. Competitors are offering single serve product under a lower price (examplesof can 25cl and PET 1L)o Finishproduct damages: This risk includes all incidents that cause materialdamages in finished products that might happen during transportation inter-site,inter-agencies, and between agencies and clients. These damages occur for reasonssuch as:· Crush during loading or unloading operations,· Breakage during transportation in transit,· Partial or total theft while in transit,· Road accident,· Total loss following a fire or an explosion o Machinebreakdown: Unpredictable stop on line impacted theproduction cost and can decrease Operating Income before depreciation andamortization OIBDA in case the product does not exist in stock. 2. Risk assessmentRisk assessment is an integral part of the Enterpriserisk Management process. In other words, the types of risk vary in terms of severity,frequency and impact. Risk assessment gives management good understanding of actionsto take and risk-response to adopt.
o Instabilityof the market: The contribution margin in winter and autumn does notcover the average of fixed cost. Accordingly to Rating Categories (appendix 1),this risk is classified (High frequency/High Severity). o Instabilityof supply: Lack of raw materials, one week in the monthof August impacts the volume and OIBDA respectively for KUCs 2 500 and Keur3816.
According to Rating Categories (Appendix 1), this risk is classified as (Lowfrequency/High Severity). o Socialconflict: Using numbers from income statement, two weeks of strikecost approximately Keur 1252 or 3,6% of OIBDA. According to Rating Categories (Appendix1), this risk is classified as (Low frequency/Moderate Severity). o UnpredictableCompetitor Challenge: Competition in beverages is fierce. Tomaintain its market share and increased profits, NABC gives more specials toits customers and consumers. Also, it supports production with many marketingplans to achieve its strategic objectives.According to Rating Categories (Appendix 1), this risk israked as (High frequency/High Severity).
o Finishproduct damages: Using internal data from SAP, There were about 200 accidentsincluding those which happened in plants and agencies. Admitting averagecapacity per truck to 2000 unit cases and NSR of 3.03 per unit cases, theimpact on OIBDA is Keur 1214 or 3,5% of OIBDA. Accordingly to Rating Categories(Appendix 1), this risk is classified as (High frequency/ModerateSeverity). o Machinebreakdown:In 2016 the net impact of sales was K.Ucs 1000 generatingOIBDA for Keur 1.527 or 4.
4% (Contribution margin per case x 1000). Accordingto Rating Categories (Appendix 1), this risk is classified as (High frequency/ModerateSeverity). 3. Risk Response and MitigationSome risks identified can be controlled, eliminatedor reduced. However, most risks are very difficult to mitigate particularly thosewith high-impact and low-probability. Therefore, the risk mitigation strategy toapply needs to have long-term implication from management.o Instabilityof the market: To control this variability, the production planis adapted according to market needs.
In other words, the production isincreased in summer “high season”, and drop in other seasons. Inventory is optimizedand held to the minimum taking into consideration that beverages are perishableand should be stocked on covered warehouse. Also, controllable fixed costsshould be reduced by managing payroll and other operating expenses.o Instabilityof supply: Separation is the best option that creates more competitionbetween suppliers. The company has transformed this risk to an opportunity. Thismeans that the company makes savings on purchase and at the same time increasesquality of raw material. o Socialconflict: The cause analysis of major incidentsdemonstrates that the lack of motivation within the company kills productivityand creates many social conflicts between employees and management.
That is whyan equitable remuneration system based on annual evaluation is required tosatisfy shareholders’ objectives and employees’ needs. o UnpredictableCompetitor Challenge: Diversification is one of the options that the company canadopt to maintain volume and profitability. This means that Coca cola shoulddevelop additional channels to export finished products to other countries. A secondoption is that Coca cola has an ability to use the economy of scale advantage becauseof its big market share (approximately 80%) to reduce the price or to make morespecials. The negative impact by the drop in price can be automatically adjustedby the increase in volume.
o Finishproduct damages: (Low frequency/High Severity) The best way to cover this risk is to contractadditional insurance plans. This financial option provides adequate coveragewhen transporting goods and limit uncertain losses to fixed costs. o Machinebreakdown:The company has two choices to increase linesutilization and improve yields. First, to upgrade obsolete equipment, andsecond, to replace old lines.
This business case should confirm if ROI is reasonableor not.