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Pepsi Productivity Framework

Key Definitions Critical to Understanding Cost Savings​

    1. DEFINITION OF “PRODUCTIVITY”​

    “Productivity” refers to cost reduction initiatives which lead to YOY real P&L savings in fixed & variable costs, excluding the impact of leverage. There must be a historical baseline in order for an initiative to qualify as a Productivity initiative.​

    2. DEFINITION OF “COST AVOIDANCE”

    “Cost Avoidance” refers to cost reduction initiatives that do not lower the cost of products & services when compared to historical results but do prevent cost increases in the future. There is no historical baseline to consider for a cost avoidance initiative.​

    3. YOY PRODUCTIVITY DRIVERS​

    Two Levers Drive YOY Directs Productivity:​
    Reduction in Conversion Cost Rates YOY and/or​
    Reduction in input costs through Value Engineering initiatives ​

    4. PRODUCTIVITY SAVINGS AMOUNT​

    Productivity Savings amount:​
    = (YOY change in cost per unit) * (# of units purchased in the Current Year)​
    Conversion Calc. = (YOY change in PET Conversion rate Cost per Bottler) * (# of bottles in Current Year) ​
    Value Engineering Calc. = (YOY change in Input Material Cost per Unit) * (# of units produced in Current Year)​

    5. TOTAL COST OF OWNERSHIP​

    The YOY Productivity includes Total Cost of Ownership (TCO) and must be validated by Business Finance. TCO is the guiding principle of productivity Net of inflation & incremental costs.​

    6. PRODUCTIVITY SAVINGS PERCENTAGE​

    Productivity Savings Percentage:​
    = (Productivity Savings) / (Prior Year Calculated Conversion Spend)​
    ​
    PY Calculated Conversion Spend:​
    = (Current Year Conversion Spend) + (Current Year Conversion Cost Savings)​

Principles of Productivity

What are the key principles of recognizing Productivity?​

 

  • Ensure YOY Productivity​
    • Based on tangible cost reductions over comparable Prior Year (PY) baseline​
    • Follow Total Cost of Ownership (TCO) as a guiding principle​
    • Net of inflation & incremental costs to achieve productivity​
    • Includes total delivered costs (e.g., Duties, Freight & Taxes), Rebates and Penalties​
  • Record 12 months rolling Productivity​
  • Validate Productivity calculations with Business Finance​
    • Must be in PowerSteering (productivity reporting system)​
    • Volume reduction in value engineering/total project cost/efficiency/optimal use of resources due to intentional changes and action taken can be counted as productivity. Fluctuations in volumes due to simple business changes/supplier mix is not productivity

Types of Productivity​

Productivity is generated across almost all lines within P&L?