Innovations Required in Reverse Logistics as PepsiCo Feels the Impact of Quaker Recall

Earlier this month, food conglomerate giants PepsiCo reported mixed quarterly results as North American demand for its food and drinks weakened. This was the first time PepsiCo’s net sales declined since 2020. Its leadership hinted that a major reason behind dwindling sales is the recent fall in consumer disposable income. In addition, consumers are also shifting their behavior from eating and drinking at home to picking up more of their snacks from convenience stores. The earnings call also shed light on the massive losses faced by one of its major subsidiaries, Quaker Foods North America, due to product recalls as a result of food contamination.

Due to PepsiCo’s extensive portfolio in the food and beverage space, this has resulted in a wider group of line items contributing to even more supply chain complexity. This has made returns and recall management especially more complicated due to the intricate nature of reverse logistics. During Manifest 2024, a supply chain conference in Las Vegas, PepsiCo’s head of Supply Chain highlighted PepsiCo’s initiatives for supply chain transformation:

• Foster a Culture of Innovation: PepsiCo works a lot with startups to tap new sources of innovation. It launched a business incubator-like initiative called “PepsiCo Labs” 5 years ago to help the company become a leader in technology innovation by integrating emerging solutions into its operations. Since then, it has evaluated more than 2,500 startups and ushered in over 200 pilots. This way, it actively seeks out promising solutions that address a diverse range of industry challenges faced by the Consumer Packaged Goods (CPG) industry.
• Efficiency through Sustainability: In terms of sustainability and harnessing that for logistical efficiency, PepsiCo has included setting a goal to make every resource consumption measurable, including water and energy. Another initiative it has taken is a 7-year collaboration with Walmart focused on regenerative agriculture and the deployment of hundreds of Electric Vehicles (EVs) to minimize its carbon footprint.
• Consolidate Partnerships: PepsiCo has chosen to opt for supply chain transformation with the help of its many partners, which is a huge part of the company's success. For example, partnering with logistics providers with specialized expertise in areas like cold chain management helps PepsiCo optimize its reach and reduce costs. In addition to logistics providers, partnering with solutions vendors has enabled integrating data platforms and systems. This has helped PepsiCo’s supply chain enhance its visibility in areas like inventory management and transportation.

Although PepsiCo has built robust operations, thanks to a strong partnership network strategy and dynamically embracing innovations to transform its supply chain, reverse logistics is one area in which it seems to be lagging behind. This is justified as for CPG companies like PepsiCo, handling returns involves a lot of nuances due to the vast range of products and the need for specialized handling and disposal methods. Issues arising from the Quaker recall are a testament to this. Lack of visibility might be another pain point. This can lead to inefficiencies such as delays in processing returns or difficulty in forecasting recall volume. Optimizing reverse logistics for PepsiCo can almost be a double-edged sword. The level of resources dedicated to sorting, processing, and disposing of returned goods not only adds one more layer of complexity, but also causes a hindrance in reaching sustainability goals.

In terms of addressing the dilemma of reverse logistics with innovations, PepsiCo can lean on leveraging big data analytics and Artificial Intelligence (AI) to aid with predicting returns, optimizing routes for return management, and overall improving decision-making for disposing or recycling returned products. It has both the tools and a large stakeholder network that it can lean on for this, so this is a low-hanging fruit for PepsiCo. Leveraging digital twins to simulate the reverse logistics network can help identify bottlenecks, optimize processes, and test the impact of alterations as well, without disrupting actual operations. Furthermore, investing in either dedicated return centers or enabling logistics partners to embrace automation and robotics to streamline sorting and processing in return centers can be another area of improvement for the company. Extended Producer Responsibility (EPR) tools like iWaste, Ecochain, and GreenTrax are another way to streamline reverse logistics, as well as sustainability, by tracking metrics such as take-back and recycling rates. Managing reverse logistics is always difficult, especially for a CPG giant like PepsiCo, but there are clear short-term and long-term initiatives that can be undertaken to address issues.