Case Study: The Pepsi Challenge - ' Taking Stock '

But Pepsi's wireless strategy isn't just about PDA-driven sales growth. It's also about PDA-driven cost-cutting, too. Haulbacks—the unsold soda that Jacks and other drivers have to bring back to the warehouse at the end of each day—can run as high as 30 percent to 40 percent of what's been loaded, says Johnsen. Not only is this a symptom of bad information—or no information at all—it represents millions of dollars of lost sales. Haulbacks also raise handling, inventory and storage costs that result when soda has to be double-loaded, stored somewhere longer or replaced when damaged in the turnaround. If bottlers fully switch over to a pre-order system, Johnsen says, haulbacks should become a thing of the past.

Overguessing demand, though, isn't the whole story. Both Hamilton and Johnsen say that "out-of-stocks"—when stores sell out of a particular Pepsi product-also cost big bucks. Pepsi products are out of stock roughly 9 percent of the time, on average, Johnsen says, another problem he believes the wireless system can eliminate. According to the Grocery Management Association, 40 percent of consumers who go to the store intending to buy an item only to find it's been sold out either don't buy anything at all (bad for PepsiCo), or go somewhere else to find what they want (bad for Pepsi's retailers). Overall, says the GMA, increasing product availability can boost the average supermarket's sales by as much as $200,000 per year. "Think about it," says Johnsen, "somebody wants a Pepsi but all they've got in stock is Coke—nine times out of 10, Coke or somebody else will get that sale."

And the problem only gets worse during a promotion. Stanford University supply-chain expert Hau Lee says a recent Swiss study of 50 U.S. retailers shows the average out-of-stock rate nearly doubles during special sales. Moving to a wireless model, Lee says, can solve the problem. "A wireless PDA is the first step toward a real-time supply chain," Lee says, "enabling you to have real-time information and the ability to do real-time intervention. With wireless, you can actually get both a good eye and a good arm. The eye is to see things first and the arm is to act fast on what you see."