Coke's CEO Doug Daft Has to Clean Up the Big Spill"
Penny-wise but pound foolish would be the most apt characterization of Coca-Cola's supply chain management strategy until recently. For an international company like Coca-Cola, maintaining good relationships with key components of its supply chain all over the globe, like its regionally-based bottlers, is essential. However, because the last CEO stressed that showing a return on an investment below the cost of capital added financial liquidity to the company, Coke 'squeezed' its bottlers of virtually every penny it could extract from the bottler's bottom lines. This yielded short-term gains for Coke on its balance sheet and showed an impressive profit for the corporation's shareholders. But these polices that ensured that only one of the ten anchor bottlers around the globe earned a return above the cost of capital. This meant it was difficult for the bottlers to meet the new demands Coke made upon the bottlers, when Coke was seeking to expand in crucial emerging markets in the developing world.
As sales figures went down, Coke took this out on the bottlers again, rather than targeting the customers by raising prices. It could not afford to be more expensive than its key rival, and still compete in the soda market. Now that Coke's bottlers are struggling, the company itself is struggling as well because such a crucial link in its production line is suffering to meet demand and make a profit. The lessons taught by Coke, about putting the short-term over the long-term, are wisely observed by any astute financial advisor, when giving advice to a client. Furthermore, when advising a small business, even when finances are tight, the business must be advised to remember that if a supplier financially suffers so will the business itself down the road. Ironically, if only Coke had pursued a more ethically sound and generous policy towards its bottlers, it would be making a larger profit today, because it would be able to more effectively compete in international market.
