I.

THE BUSINESS CONCEPT

Introduction
This Capstone project
History of The Coca-Cola Company
The Coca-Cola Company is the world's number one maker of soft drinks, selling
1.3 billion beverage servings every day. Coca-Cola's red and white trademark is
probably the best-known brand symbol in the world. Headquartered since its
founding in Atlanta, Coca-Cola makes four of the top five soft drinks in the world,
Coca-Cola at number one and Diet Coke, Fanta, and Sprite at numbers three
through five. The company also operates one of the world's most pervasive
distribution systems, offering its nearly 400 beverage products in more than 200
countries worldwide. Nearly 70 percent of sales are generated outside North
America, with revenues breaking down as follows: North America, 30 percent;
Europe, Eurasia, and the Middle East, 31 percent; Asia, 24 percent; Latin
America (including Mexico), 10 percent; and Africa, 4 percent. Among the
company's products are a variety of carbonated beverages (including the
aforementioned brands and many others, such as Fresca, Barq's, and Cherry
and Vanilla Coke); sports drinks (POWERade and Aquarius); juices and juice
drinks (Minute Maid, Fruitopia, Hi-C, Five Alive, Qoo, Maaza, and Bibo); teas
(Sokenbicha and Marocha); coffees (Georgia); and bottled waters (Ciel, Dasani,
and Bonaqua). Moreover, the company holds the rights to the Schweppes,
Canada Dry, Dr Pepper, and Crush brands outside of North America, Europe,

and Australia. Coca-Cola's development into one of the most powerful and
admired firms in the world has been credited to proficiency in four basic areas:
consumer marketing, infrastructure (production and distribution), product
packaging, and customer (or vendor) marketing..
Creation of a Brand Legend
The inventor of Coca-Cola, Dr. John Styth Pemberton, came to Atlanta from
Columbus, Georgia, in 1869. In 1885 he set up a chemical laboratory in Atlanta
and went into the patent medicine business. Pemberton invented such products
as Indian Queen hair dye, Gingerine, and Triplex liver pills. In 1886 he concocted
a mixture of sugar, water, and extracts of the coca leaf and the kola nut. He
added caffeine to the resulting syrup so that it could be marketed as a headache
remedy. Through his research Pemberton arrived at the conclusion that this
medication was capable of relieving indigestion and exhaustion in addition to
being refreshing and exhilarating.
The pharmacist and his business partners could not decide whether to market
the mixture as a medicine or to extol its flavor for its own sake, so they did both.
In Coca-Cola: An Illustrated History, Pat Watters cited a Coca-Cola label from
1887 which stated that the drink, "makes not only a delicious ... and invigorating
beverage ... but a valuable Brain Tonic and a cure for all nervous affections." The
label also claimed that "the peculiar flavor of Coca-Cola delights every palate; it
is dispensed from the soda fountain in the same manner as any fruit syrup." The
first newspaper advertisement for Coca-Cola appeared exactly three weeks after

the first batch of syrup was produced, and the famous trademark, white
Spenserian script on a red background, made its debut at about the same time.
Coca-Cola was not, however, immediately successful. During the product's first
year in existence, Pemberton and his partners spent around $74 in advertising
their unique beverage and made only $50 in sales. The combined pressures of
poor business and ill health led Pemberton to sell two-thirds of his business in
early 1888. By 1891, a successful druggist named Asa G. Candler owned the
entire enterprise. It had cost him $2,300. Dr. Pemberton, who died three years
earlier, was never to know the enormous success his invention would have in the
coming century.
Candler, a religious man with excellent business sense, infused the enterprise
with his personality. Candler became a notable philanthropist, associating the
name of Coca-Cola with social awareness in the process. He was also an
integral part of Atlanta both as a citizen and as a leader. Candler endowed Emory
University and its Wesley Memorial Hospital with more than $8 million. Indeed,
the university could not have come into existence without his aid. In 1907 he
prevented a real estate panic in Atlanta by purchasing $1 million worth of homes
and reselling them to people of moderate income at affordable prices. During
World War I, Candler helped to avert a cotton crisis by using his growing wealth
to stabilize the market. After he stepped down as the president of Coca-Cola, he
became the mayor of Atlanta and introduced such reforms as motorizing the fire
department and augmenting the water system with his private funds.

1891-1919: Rapid Growth Under the Candlers

Under Candler's leadership, which spanned a 26-year period, the Coca-Cola
Company grew quickly. Between 1888 and 1907, the factory and offices of the
business were moved to eight different buildings in order to keep up with the
company's growth and expansion. As head of the company, Candler was most
concerned with the quality and promotion of his product. He was particularly
concerned with production of the syrup, which was boiled in kettles over a
furnace and stirred by hand with large wooden paddles. He improved
Pemberton's formula with the help of a chemist, a pharmacist, and a
prescriptionist. In 1901, responding to complaints about the presence of minute
amounts of cocaine in the Coca-Cola syrup, Candler devised the means to
remove all traces of the substance. By 1905, the syrup was completely free of
cocaine.
In 1892, the newly incorporated Coca-Cola Company allocated $11,401 for
advertising its drink. Advertising materials included signs, free sample tickets,
and premiums such as ornate soda fountain urns, clocks, and stained-glass
lampshades, all with the words "Coca-Cola" engraved upon them. These early
advertising strategies initiated the most extensive promotional campaign for one
product in history. Salesmen traveled the entire country selling the company's
syrup, and by 1895 Coca-Cola was being sold and consumed in every state in
the nation. Soon it was available in some Canadian cities and in Honolulu, and
plans were underway for its introduction into Mexico. By the time Asa Candler left

the company in 1916, Coke had also been sold in Cuba, Jamaica, Germany,
Bermuda, Puerto Rico, the Philippines, France, and England.
An event that had an enormous impact on the future and very nature of the
company was the 1899 agreement made between Candler and two young
lawyers that allowed them to bottle and sell Coca-Cola throughout the United
States: the first bottling franchise had been established. Five years later, in 1904,
the one-millionth gallon of Coca-Cola syrup had been sold. In 1916 the now
universally recognized, uniquely contour-shaped Coke bottle was invented. The
management of all company advertising was assigned to the D'Arcy Advertising
Agency, and the advertising budget had ballooned to $1 million by 1911. During
this time, all claims for the medicinal properties of Coca-Cola were quietly
dropped from its advertisements.
World War I and the ensuing sugar rationing measures slowed the growth of the
company, but the pressure of coal rations led Candler's son, Charles Howard, to
invent a process whereby the sugar and water could be mixed without using
heat. This process saved the cost of fuel, relieved the company of the need for a
boiler, and saved a great amount of time since there was no need for the syrup to
go through a cooling period. The company continued to use this method of
mixing into the 1990s.
Although Candler was fond of his company, he became disillusioned with it in
1916 and retired. One of the reasons for this decision was the new tax laws
which, in Candler's words, did not allow for "the accumulation of surplus in

excess of the amount necessary for profitable and safe conduct of our particular
business." (It has also been suggested that Candler refused to implement the
modernization of company facilities.)
1919-55: The Woodruff Era
Robert Winship Woodruff became president of the company in 1923 at the age of
33. His father, Ernest Woodruff, along with an investor group, had purchased it
from the Candler family in 1919 for $25 million, and the company went public in
the same year at $40 a share. After leaving college before graduation, Woodruff
held various jobs, eventually becoming the Atlanta branch manager and then the
vice-president of an Atlanta motor company, before becoming the president of
Coca-Cola.
Having entered the company at a time when its affairs were quite tumultuous,
Woodruff worked rapidly to improve Coca-Cola's financial condition. In addition to
low sales figures in 1922, he had to face the problem of animosity toward the
company on the part of the bottlers as a result of an imprudent sugar purchase
that management had made. This raised the price of the syrup and angered the
bottlers. Woodruff was aided in particular by two men, Harrison Jones and Harold
Hirsch, who were adept at maintaining good relations between the company and
its bottling franchises.
Woodruff set to work improving the sales department; he emphasized quality
control, and began advertising and promotional campaigns that were far more

sophisticated than those of the past. He established a research department that

became a pioneering market research agency. He also worked hard to provide
his customers with the latest in technological developments that would facilitate
their selling Coca-Cola to the public, and he labored to increase efficiency at
every step of the production process so as to raise the percentage of profit from
every sale of Coca-Cola syrup.
Through the 1920s and 1930s such developments as the six-pack carton of
Coke, which encouraged shoppers to purchase the drink for home consumption,
coin-operated vending machines in the workplace, and the cooler designed by
John Stanton expanded the domestic market considerably. Also, by the end of
1930, as a result of the company's quality control efforts, Coca-Cola tasted
exactly the same everywhere.
Considered slightly eccentric, Woodruff was a fair employer and an admired
philanthropist. In 1937, he donated $50,000 to Emory University for a cancer
diagnosis and treatment center, and over the years gave more than $100 million
to the clinic. He donated $8 million for the construction of the Atlanta Memorial
Arts Center. Under his leadership the Coca-Cola Company pioneered such
company benefits as group life insurance and group accident and health policies,
and in 1948 introduced a retirement program.
Woodruff was to see the Coca-Cola Company through an era marked by
important and varied events. Even during the Great Depression the company did
not suffer thanks to Woodruff's cost-cutting measures. When Prohibition was

repealed, Coca-Cola continued to experience rising sales. It was World War II,
however, that catapulted Coca-Cola into the world market and made it one of the
country's first multinational companies.
Woodruff and Archie Lee of the D'Arcy Advertising Agency worked to equate
Coca-Cola with the American way of life. Advertisements had, in Candler's era,
been targeted at the wealthy population. In Woodruff's time the advertising was
aimed at all Americans. By early 1950, African Americans were featured in
advertisements, and by the mid-1950s there was an increase in advertising
targeted at other minority groups. Advertising never reflected the problems of the
world, only the good and happy life. Radio advertising began in 1927, and
through the years Coca-Cola sponsored many musical programs. During World
War II, Woodruff announced that every man in uniform would be able to get a
bottle of Coke for five cents no matter what the cost to the company. This was an
extremely successful marketing maneuver and provided Coke with good
publicity. In 1943, at the request of General Eisenhower, Coca-Cola plants were
set up near the fighting fronts in North Africa and eventually throughout Europe in
order to help increase the morale of U.S. soldiers. Thus, Coca-Cola was
introduced to the world.
Coke was available in Germany prior to the war, but its survival there during the
war years was due to a man named Max Keith who kept the company going
even when there was little Coca-Cola syrup available. Keith developed his own
soft drink, using ingredients available to him, and called his beverage Fanta. By

selling this beverage he kept the enterprise intact until after the war. When the
war was over the company continued to market Fanta. By 1944, the Coca-Cola
company had sold one billion gallons of syrup, by 1953 two billion gallons had
been sold, and by 1969 the company had sold six billion gallons.
1955-81: Diversification, New Products, and Foreign Expansion
The years from the end of World War II to the early 1980s were years of
extensive and rapid change. Although Woodruff stepped down officially in 1955,
he still exerted a great amount of influence on the company over the coming
years. There were a series of chairmen and presidents to follow before the next
major figure, J. Paul Austin, took the helm in 1970; he was followed by Roberto
Goizueta in 1981. In 1956, after 50 years with the D'Arcy Advertising Agency, the
Coca-Cola Company turned its accounts over to McCann-Erickson and began
enormous promotional campaigns. The decade of the 1950s was a time of the
greatest European expansion for the company. During this decade Coca-Cola
opened approximately 15 to 20 plants a year throughout the world.
The company also began to diversify extensively, beginning in 1960, when the
Minute Maid Corporation, maker of fruit juices and Hi-C fruit drinks, was acquired
by Coca-Cola. Four years later the Duncan Foods Corporation also merged with
the company. In 1969 Coca-Cola acquired the Belmont Springs Water Company,
Inc., which produced natural spring water and processed water for commercial
and home use. The following year the company purchased Aqua-Chem, Inc.,
producers of desalting machines and other such equipment, and in 1977 Coca-

Cola acquired the Taylor Wines Company and other wineries. These last two
companies were sold later under Goizueta's leadership.
In addition to its diversification program, the Coca-Cola Company also expanded
its product line. Fanta became available in the United States during 1960 and
was followed by the introduction of Sprite (1961), TAB (1963), and Fresca (1966),
along with diet versions of these drinks. One reason that Coca-Cola began to
introduce new beverages during the 1960s was competition from Pepsi Cola,
sold by PepsiCo, Inc. Pepsi's success also motivated the Coca-Cola Company to
promote its beverage with the slogan "It's the Real Thing," a subtle, comparative
form of advertising that the company had never before employed.
Things did not always run smoothly for Coca-Cola. When Coke was first
introduced to France, the Communist party, as well as conservative vineyard
owners, did what they could to get the product removed from the country. They
were unsuccessful. Swiss breweries also felt threatened, and spread rumors
about the caffeine content of the drink. More consequential was the Arab boycott
in 1967 which significantly hindered the company's relations with Israel. In 1970
the company was involved in a scandal in the United States when an NBC
documentary reported on the bad housing and working conditions of Minute Maid
farm laborers in Florida. In response, the company established a program that
improved the workers' situation. In 1977 it was discovered that Coca-Cola, for
various reasons, had made $1.3 million in illegal payments over a period of six
years, mostly to executives and government officials in foreign countries.

During the 1970s, under the direction of Chairman J. Paul Austin and President
J. Lucian Smith, Coca-Cola was introduced in Russia as well as in China. To
enter the Chinese market, the company sponsored five scholarships for Chinese
students at the Harvard Business School, and supported China's soccer and
table-tennis teams. The beverage also became available in Egypt in 1979, after
an absence there of 12 years. Austin strongly believed in free trade and opposed
boycotts. He felt that business, in terms of international relations, should be used
to improve national economies, and could be a strong deterrent to war. Under
Austin, Coca-Cola also started technological and educational programs in the
Third World countries in which it conducted business, introducing clean water
technology and sponsoring sports programs in countries too poor to provide
these benefits for themselves.
Austin's emphasis was on foreign expansion. Furthermore, under Austin's
management the company became more specialized. Where Woodruff was
aware of all facets of the company, Austin would delegate authority to various
departments. For instance, he would give general approval to an advertising
scheme, but would not review it personally. Smith was responsible for the
everyday operations of the company, and Austin would, among other things, set
policies, negotiate with foreign countries, and direct the company's relations with
the U.S. government.
1981-97: The Goizueta Era

Roberto Goizueta became chairman in 1981, replacing Austin. The Cuban

immigrant immediately shook up what had become a risk-averse, traditionobsessed, barely profitable company. Less than a year after becoming chairman,
he made two controversial decisions. First, he acquired Columbia Pictures for
about $750 million in 1982. Goizueta thought that the entertainment field had
good growth prospects, and that it would benefit from Coca-Cola's expertise in
market research. Secondly, without much consumer research, Goizueta
introduced Diet Coke to the public, risking the well-guarded trademark that until
then had stood only for the original formula. Something had to be done about the
sluggish domestic sales of Coca-Cola and the intense competition presented by
Pepsi. In 1950, Coke had outsold Pepsi by more than five to one, but by 1984
Pepsi had a 22.8 percent share of the market while Coke had a 21.6 percent
share. Goizueta's second 1982 gamble paid off handsomely when Diet Coke
went on to become the most successful consumer product launch of the 1980s,
and eventually the number three soft drink in the entire world.
In 1985 Goizueta took another chance. Based on information gathered from blind
taste tests, Goizueta decided to reformulate the 99-year-old drink in the hope of
combating Pepsi's growing popularity. The change to New Coke was not
enthusiastically greeted by the U.S. public. Apparently Goizueta did not take into
account the public's emotional attachment to the name "Coca-Cola" and all that it
stood for: stability, memories, and the idea of a "golden America." Within less
than a year the company brought back the "old" Coke, calling it Coca-Cola
Classic. New Coke was universally considered the biggest consumer product

blunder of the 1980s, but it was also viewed in a longer term perspective as a
positive thing, because of the massive amount of free publicity that the Coke
brand received from the debacle.
In September 1987, Coca-Cola agreed to sell its entertainment business to
TriStar Pictures, 30 percent of which was owned by Coca-Cola. In return, CocaCola's interest in TriStar was increased to 80 percent. Coca-Cola's holding in
TriStar was gradually distributed as a special dividend to Coca-Cola shareholders
until the company's interest was reduced to a minority, when TriStar changed its
name to Columbia Pictures Entertainment and sought its own listing on the New
York Stock Exchange. Although the company's flirtation with entertainment
appeared to be ill-advised, Coca-Cola ended up with $1 billion in profits from its
short-term venture.
In a 1984 article in the New York Times, Goizueta stated that he saw CocaCola's challenge as "continuing the growth in profits of highly successful main
businesses, and [those] it may choose to enter, at a rate substantially in excess
of inflation, in order to give shareholders an above average total return on their
investment." Goizueta projected that by 1990 his new strategy would nearly
double the company's net income to $1 billion. His prediction came true in 1988.
Two years later revenues surpassed the $10 billion mark.
In the mid-1980s, Coca-Cola reentered the bottling business, which had long
been

dominated

by

family-operated

independents.

Coca-Cola

began

repurchasing interests in bottlers worldwide with a view toward providing those

bottlers with financial and managerial strength, improving operating efficiencies,

and promoting expansion into emerging international markets. The trend started
domestically, when the parent company formed Coca-Cola Enterprises Inc.
through the acquisition and consolidation of two large bottlers in the South and
West in 1986. The parent company acquired more than 30 bottlers worldwide
from 1983 to 1993. By then, the market value of the company's publicly traded
bottlers exceeded the company's book value by $1.5 billion.
Called "one of the world's most sophisticated and powerful marketing
organizations," the company's schemes for the 1990s included the 1993 global
launch of the "Always Coca-Cola" advertising theme. The new campaign was
formulated by Creative Artists Agency, which took over much of the brand's
business in 1992 from longtime agency McCann-Erickson Worldwide. In addition
to the new campaign, a 32-page catalog of about 400 licensed garments, toys,
and gift items featuring Coke slogans or advertising themes was released. The
1994 introduction of a PET plastic bottle in the brand's distinctive, contour shape
resulted from corporate marketing research indicating that an overwhelming 84
percent of consumers would choose the trademarked bottle over a generic
straight-walled bottle. But the company's primary challenge for the last decade of
the 20th century came in the diet segment, where top-ranking Diet Coke was
losing share to ready-to-drink teas, bottled waters, and other "New Age"
beverages, which were perceived as healthier and more natural than traditional
soft drinks. Coca-Cola fought back by introducing its own new alternative drinks,
including POWERade (1990), the company's first sports drink, and the Fruitopia

line (1994). In 1992 the company and Nestl S.A. of Switzerland formed a 50-50
joint venture, Coca-Cola Nestl, Refreshment Company, to produce ready-todrink tea and coffee beverages under the Nestea and Nescaf, brand names.
Also during this time, Coca-Cola purchased Barq's, a maker of root beer and
other soft drinks.
Goizueta died of lung cancer in October 1997, having revitalized and awakened
what had been a sleeping giant. Goizueta had turned the company into one of
the most admired companies in the world, racking up an impressive list of
accomplishments during his 16-year tenure. Coca-Cola's share of the global soft
drink market was approaching 50 percent, while in the United States Coke had
increased its share to 42 percent, overtaking and far surpassing Pepsi's 31
percent. Revenues increased from $4.8 billion in 1981 to $18.55 billion in 1996;
net income grew from $500 million to $3.49 billion over the same period. Perhaps
Goizueta's most important--and influential--contribution to the storied history of
Coca-Cola was his relentless focus on the company's shareholders. The
numbers clearly showed that he delivered for his company's owners: return on
equity increased from 20 percent to 60 percent, while the market value of the
Coca-Cola Company made a tremendous increase, from $4.3 billion to $147
billion. Perhaps most telling, a $1,000 investment in Coca-Cola in 1981 was
worth, assuming that dividends were reinvested, $62,000 by the time of
Goizueta's death.
Challenging and Stormy Times in the Late 1990s

Goizueta's right-hand man, Douglas Ivester, was given the unenviable task of
succeeding perhaps the most admired chief executive in the United States;
Ivester's reign turned out to be both brief and stormy. Although Coca-Cola
remained steadily profitable, it was beset by one problem after another in the late
1990s. Having restructured its worldwide bottling operations under Goizueta, the
firm moved into a new phase of growth based on the acquisition of other
companies' brands. Its already dominant market share and a sometimes arrogant
and aggressive approach to acquisition led some countries, particularly in
Europe, to take a hard line toward the company. In late 1997, for example, CocaCola announced it would acquire the Orangina brand in France from Paris-based
Pernod Ricard for about $890 million. French authorities, who had fined CocaCola for anticompetitive practices earlier that year, blocked the purchase. In
December 1998 Coca-Cola announced that it would purchase several soft drink
brands--including Schweppes, Dr Pepper, Canada Dry, and Crush--outside the
United States, France, and South Africa from Cadbury Schweppes plc for $1.85
billion. After encountering regulatory resistance in Europe, Australia, Mexico, and
Canada, the two companies in July 1999 received regulatory approval for a new
scaled-down deal valued at about $700 million, which included 155 countries but
not the United States, Norway, Switzerland, and the member states of the
European Union with the exception of the United Kingdom, Ireland, and Greece.
Later in 1999 separate agreements were reached that gave Coca-Cola the
Schweppes brands in South Africa and New Zealand.

With nearly two-thirds of sales originating outside North America, Coca-Cola was
hit particularly hard by the global economic crisis of the late 1990s, which moved
from Asia to Russia to Latin America. In Russia, where the company had
invested $750 million from 1991 through the end of the decade, sales fell about
60 percent from August 1998, when the value of the ruble crashed, to September
1999. Rather than retreating from the world stage, however, Ivester viewed the
downturn as an opportunity to make additional foreign investments at bargain
prices, essentially sacrificing the short term for potentially huge long-term gains.
While the economic crisis was still wreaking havoc, Coca-Cola was faced with
another crisis in June 1998 when several dozen Belgian schoolchildren became
ill after drinking Coke that had been made with contaminated carbon dioxide.
Soon, 14 million cases of Coca-Cola products were recalled in five European
countries in the largest recall in company history, and France and Belgium placed
a temporary ban on the company's products. The crisis, though short-lived, was a
public relations disaster because company officials appeared to wait too long to
take the situation seriously, admit that there had been a manufacturing error, and
apologize to its customers. Meanwhile, around this same time, four current and
former employees had filed a racial discrimination suit against the firm in the
United States, a suit that was later granted class-action status.
Despite the seemingly endless string of challenges the company faced in the late
1990s, Coca-Cola was also moving forward with new initiatives. In February
1999 the company announced plans to launch its first bottled water brand in
North America. Dasani was described as a "purified, non-carbonated water

enhanced with minerals." In October 1999 the company announced that it would
redesign the look of its Coca-Cola Classic brand in 2000 in an attempt to
revitalize the flagship's stagnant sales. Labels would continue to feature the
iconic contour bottle but with a cap popped off and soda fizzing out. In addition,
the Coke Classic slogan "Always," which had been used since 1993, would be
replaced with the tag line "Enjoy," which had been used on Coke bottles
periodically for decades. The company also planned to increase the appearances
of the eight-ounce contour bottle, in a particularly nostalgic move.
The renewed emphasis on this classic brand icon and the resurrection of the
"Enjoy" slogan seemed to be a fitting way for a U.S.--if not global--institution to
launch itself into the new millennium. But the company ended 1999 with the
surprising news that the beleaguered Ivester would retire in early 2000 after just
two and a half years at the helm--a tenure marked perhaps most tellingly by
seven straight quarters of earnings declines. Taking over was Douglas N. Daft, a
native Australian and 30-year Coke veteran who had headed the company's
operating group covering the Middle and Far East and Africa; he was named
president and chief operating officer in December 1999 before becoming
chairman and CEO the following February.
Continuing Struggles in the Early 2000s
Daft's first year was a hectic one. In January 2000 the company announced a
drastic restructuring based on a plan drafted by a Daft-led team. Coca-Cola said
it would lay off about 6,000 employees, representing a slashing of the workforce

by 20 percent--the largest cutbacks in Coke history. The cuts were later scaled
back to about 5,200, but the company still took about $1.6 billion in one-time
charges for a plan that aimed to save $300 million in operating costs per year.
The restructuring, which centered on marketing, sales, and customer support
jobs, was envisioned as a slashing of bureaucracy in an attempt to create a more
decentralized company, one in which ideas could more readily bubble up from
managers in the field rather than those at the Atlanta headquarters. In November
2000 Daft engineered a tentative deal to take over the Quaker Oats Company for
$15.75 billion. This would have added to the Coke portfolio the Gatorade brand,
which dominated the sports drink sector, a perennial Coke weakness, and would
also have complemented the company's strategy of strengthening its lineup of
noncarbonated beverages. But at the last minute, Coca-Cola's board pulled the
plug on the deal, mainly concerned that the price was too high. The company's
arch-rival PepsiCo quickly swooped in to complete a $13.4 billion acquisition of
Quaker Oats. Also in November, Coca-Cola reached an agreement to settle the
race-discrimination class-action lawsuit that had been brought against it. The
company agreed to a $192.5 million settlement and also to have certain of its
employment practices overseen by an outside task force. About 2,000 current
and former African American employees were eligible for settlement awards.
Another of Daft's main objectives was pumping up an arid new product pipeline,
but he garnered only mixed results. The company found moderate success with
the 2001-debuting Diet Coke with Lemon, before making a much bigger splash
with Vanilla Coke one year later. The latter received the firm's largest new

product launch since the New Coke debacle. To supplement these meager
advances--and particularly to try to capture a greater share of the noncarbonated
beverage sector, which was growing at a much faster clip than the stagnant
carbonated sector--Daft turned to partnerships as a potential source of renewed
growth. In January 2001 an agreement was reached with Nestl S.A. to form a
joint venture called Beverage Partners Worldwide. Within a couple of years, this
venture was marketing ready-to-drink tea (Nestea, Belt, Yang Guang, and
several other brands) and coffee (Nescaf, Taster's Choice, and Georgia Club)
products in the United States and about 45 other countries. Coca-Cola and the
Procter & Gamble Company (P&G) agreed in March 2001 to create a $4 billion
joint venture that would have joined Coke's Minute Maid brand and distribution
network with P&G's snack and juice brands. However, Coca-Cola pulled out of
the deal just a few months later, having decided to try to build the Minute Maid
brand on its own. Then in July 2002 Coca-Cola and Groupe Danone formed a
joint venture to produce, market, and distribute Danone's Dannon and Sparkletts
bottled-water brands in the United States. In a separate deal, Coke took over the
U.S. marketing, sales, and distribution of Danone's Evian water brand, the
French firm's biggest seller.
In March 2003 the company slashed another 1,000 jobs from the payroll, half of
them at headquarters. Also that year, Coca-Cola was the recipient of more
negative publicity when it was revealed that several midlevel employees had
rigged a marketing test for Frozen Coke done three years earlier at Burger King
restaurants in the Richmond, Virginia, area. The scandal led to the departure of

the head of Coke's fountain division, and the company issued an apology to
Burger King and its franchisees and offered to pay them $21 million. An early
2004 launch of the Dasani brand into the European market was aborted when
bottles in Britain were found to contain elevated levels of bromate, a substance
that can cause cancer after long-term exposure.
This latest product recall came as Coca-Cola was in the midst of yet another
change at the top. In February 2004 Daft announced his intention to retire
following a search for a new chief executive. After considering a number of
outside candidates, the company hired a semi-outsider, E. Neville Isdell, in June
2004. An Irish citizen who had grown up in Africa, Isdell was a former senior
executive at Coke who had led the company's push into a number of new
markets around the globe in the 1980s and 1990s. He left the company in 1998
to become chairman of Coca-Cola Beverages, a major Coke bottler, and then
retired in 2001. The new leader was faced with many of the same challenges that
his predecessor struggled with little success to overcome: improving marketing,
forging better relations with the company's bottlers, and satisfying consumer
demand for more healthful beverage products, particularly of the noncarbonated
variety.
Principal Subsidiaries: The Minute Maid Company.
Principal Divisions:Foodservice and Hospitality; North & West Africa; Southern
& East Africa; East & South Asia; China; India; Southeast & West Asia;
Philippines; Japan; South Pacific & Korea; Central Europe, Eurasia & Middle

East; Central Europe & Russia; Italy & Alpine; Southeast Europe & Gulf;
Germany & Nordic; Northwest Europe; Iberian; Brazil; Latin Center; Mexico;
South Latin.
Principal Competitors: PepsiCo, Inc.; Nestl S.A.; Cadbury Schweppes plc;
Groupe Danone; Kraft Foods Inc.
Chronology

Key Dates:

1886: Pharmacist Dr. John Styth Pemberton concocts Coca-Cola, a

mixture of sugar, water, caffeine, and extracts of the coca leaf and the kola
nut.

1891: Asa G. Candler, a druggist, gains complete control of Pemberton's

enterprise.

1892: Candler incorporates The Coca-Cola Company.

1899: The first bottling franchise is established.

1905: Coca-Cola syrup is completely free of cocaine.

1916: The unique, contour-shaped Coke bottle is introduced.

1919: Ernest Woodruff and an investor group buy the company for $25
million; the company goes public at $40 per share.

1923: Robert Winship Woodruff becomes president of the firm.

1943: Coca-Cola plants are set up near fighting fronts in North Africa and
Europe, helping boost American GI spirits and introduce Coke to the world
market.

1960: The Minute Maid Corporation is acquired.

1961: Sprite makes its debut.

1981: Roberto Goizueta becomes chairman.

1982: Columbia Pictures is acquired for $750 million; Diet Coke is

introduced to the market.

1985: Coca-Cola is reformulated; New Coke is rejected by consumers,

and the company brings back the original formula, calling it Coca-Cola
Classic.

1987: Company sells its entertainment business to Tri-Star Pictures.

1990: Sales surpass the $10 billion mark for the first time.

1997: Douglas Ivester succeeds Goizueta as chairman and CEO.

1999: Company acquires the rights to sell Schweppes, Canada Dry, Dr

Pepper, and Crush brands in 157 countries, not including the United
States, Canada, Mexico, and most of Europe.

2000: New CEO Douglas N. Daft launches major restructuring involving

job cuts of 5,200.

2002: Company launches Vanilla Coke.

2004: E. Neville Isdell is named chairman and CEO.

Additional Details

Public Company

Incorporated: 1892

Employees: 49,000

Sales: $21.04 billion (2003)

Stock Exchanges: New York Boston Chicago National (NSX) Pacific

Philadelphia

Ticker Symbol: KO

NAIC: 312111 Soft Drink Manufacturing; 311930 Flavoring Syrup and

Concentrate Manufacturing; 311411 Frozen Fruit, Juice, and Vegetable

Manufacturing; 311920 Coffee and Tea Manufacturing; 312112 Bottled

Water Manufacturing

Coca-Cola Bottlers Philippines, Inc.

Coca-Cola Bottlers Philippines, Inc. (CCBPI) is a Philippines-based company
engaged in bottling and distribution of Coca-Cola soft drink brands.
CCBPI is among the ten biggest Coca-Cola bottlers globally and one of the top
100 Philippine corporations. CCBPI operates 23 plants and 42 sales offices with
over 7,800 direct employees offers the widest selection of beverages for different
needs like soft drinks, water, juices, teas, sports and energy drinks. [1][2][3]
Since 2013, CCBPI became jointly owned by Mexico-based Coca-Cola FEMSA,
S.A. de C.V. and The Coca-Cola Company.
Beginnings
In 1927, San Miguel Corporation (then known as the original San Miguel
Brewery, Inc.) became the first international bottler of Coca-Cola. In 1981, San
Miguel spun off its soft drink businesses to a new company named Coca-Cola
Bottlers Philippines, Inc. (CCBPI). The company was established as a jointventure between San Miguel Corporation (70%) and The Coca-Cola Company
(30%).

Ownership changes
Coca-Cola Amatil (1997)
In April 1997, CCBPI was merged into the Australia-based Coca-Cola Amatil
Limited (CCA). In effect, San Miguel exchanged its 70% interest in a Philippineonly operation (CCBPI) for a 25% stake in CCA, which had operations in 17
countriesboth in the Asia-Pacific region and in Eastern Europe. Shortly after,
CCA demerged the Eastern European operations into a UK-based firm called
Coca-Cola Beverages plc (resulting in a reduction of San Miguel's stake in CCA
to 22%). Seeking to maintain its focus on the Asia-Pacific region, San Miguel sold
its stake in the new UK entity in mid-1998.
Reacquisition by San Miguel and The Coca-Cola Company (2001)
In July 2001, San Miguel joined forces with The Coca-Cola Company (TCCC) to
reacquire CCBPI, with San Miguel taking a 65% stake and TCCC the remaining
35%. As part of the deal, San Miguel sold its CCA shares back to CCA. Later in
2001, San Miguel sold its bottled water (Viva! and Wilkins) and juice businesses
(Eight O Clock), amalgamated under Philippine Beverage Partners, Inc., to
CCBPI. In February 2002, San Miguel completed the acquisition of an 83% stake
in rival Cosmos Bottling Corporation in a P 15 billion ($282 million) deal,
completed through CCBPI. Cosmos specialized in low-priced soft drinks and held
the number two position in the Philippine market. The combination of Coca-Cola
Bottlers Philippines and Cosmos Bottling Corporation gave the San Miguel group
control of more than 90% of the Philippine soft-drink market. [4]

The Coca-Cola Company (2007)

In February 2007, The Coca-Cola Company (TCCC) purchased San Miguels
65% shareholding in CCBPI and subsidiaries for $590 million acquiring the full
ownership.[5][6] In September 2010, TCCC announced its plan to invest US$1
billion in its business in the Philippines over the next five years. [7] Part of this
investment is the completion of its newest and technologically advanced Mega
Plant in Misamis Oriental in January 2012.[8]
Coca-Cola FEMSA (2013)
On December 14, 2012, TCCC signed a definitive agreement to sell its 51%
stake in CCBPI to Mexico-based Coca-Cola FEMSA, S.A. de C.V., the world's
second largest bottler of Coca-Cola, with operations across Central- and South
America.[9] The all-cash transaction became effective January 25, 2013. The deal
price represented a $1,350 million valuation of CCBPI. Coca-Cola FEMSA will
have an option to acquire the remaining 49% of CCBPI at any time during the
next 7 years and will have a put option to sell its ownership back to TCCC any
time during year six.[10]
Brands
Carbonated:

Non-carbonated:

Formerly available:

Coca-Cola

Hi-C

Barq's

Coca-Cola Life

Minute Maid

Sprite Ice

Eight

OClock

Coca-Cola Light

Coca-Cola Zero

(instant juice drink)

Lift

Real

Nestea

Leaf

(tea

drink)

Sprite

Royal Tru-Orange

Royal Tru-Grape

Samurai

(energy

Sarsi

Sarsi Light

Cheers

Pop Cola

Jaz Cola

Schweppes

Viva!

water

Wilkins
water)

and

(soda
tonic

Earth & Sky (tea

drink)
(mineral

Royal Tru-Lemon

Sparkle

under

drink)

water)

license

Powerade

Sprite Zero

drink)

(ready-to-

(distilled

Mello Yello

Royal (soda water

and tonic water)

water)

under

license
Mission, Vision & Values
By: The Coca-Cola Company
The world is changing all around us. To continue to thrive as a business over the
next ten years and beyond, we must look ahead, understand the trends and
forces that will shape our business in the future and move swiftly to prepare for
what's to come. We must get ready for tomorrow today. That's what our 2020
Vision is all about. It creates a long-term destination for our business and
provides us with a "Roadmap" for winning together with our bottling partners.
Our Mission
Our Roadmap starts with our mission, which is enduring. It declares our purpose
as a company and serves as the standard against which we weigh our actions
and decisions.

To refresh the world...

To inspire moments of optimism and happiness...

To create value and make a difference.

Our Vision
Our vision serves as the framework for our Roadmap and guides every aspect of
our business by describing what we need to accomplish in order to continue
achieving sustainable, quality growth.

People: Be a great place to work where people are inspired to be the best
they can be.

Portfolio: Bring to the world a portfolio of quality beverage brands that

anticipate and satisfy people's desires and needs.

Partners: Nurture a winning network of customers and suppliers, together

we create mutual, enduring value.

Planet: Be a responsible citizen that makes a difference by helping build

and support sustainable communities.

Profit: Maximize long-term return to shareowners while being mindful of

our overall responsibilities.

Productivity: Be a highly effective, lean and fast-moving organization.

Our Winning Culture

Our Winning Culture defines the attitudes and behaviors that will be required of
us to make our 2020 Vision a reality.

Live Our Values

Our values serve as a compass for our actions and describe how we behave in
the world.

Leadership: The courage to shape a better future

Collaboration: Leverage collective genius

Integrity: Be real

Accountability: If it is to be, it's up to me

Passion: Committed in heart and mind

Diversity: As inclusive as our brands

Quality: What we do, we do well

Focus on the Market

Focus on needs of our consumers, customers and franchise partners

Get out into the market and listen, observe and learn

Possess a world view

Focus on execution in the marketplace every day

Be insatiably curious

Work Smart

Act with urgency

Remain responsive to change

Have the courage to change course when needed

Remain constructively discontent

Work efficiently

Act Like Owners

Be accountable for our actions and inactions

Steward system assets and focus on building value

Reward our people for taking risks and finding better ways to solve
problems

Learn from our outcomes -- what worked and what didnt

Be the Brand

Inspire creativity, passion, optimism and fun

Objectives
The main objectives for the Coca-Cola Company are to be globally known as a
business that conducts business responsibility and ethically and to accelerate
sustainable growth to operate in tomorrow's world. By having these objectives, it
forms the foundation for companies in the decision making process.

Strategies and Tactics

The Coca-Cola company aims to be globally known, they do this by targeting
different areas across the globe with different products, gaining their brand name
and popularity. All the bottling partners work closely with their customers such as
convenience stores, grocery stores, movie theaters and street vendors to create
and use localized strategies developed in partnership with the Company. Their
competition with other beverage companies are also narrowed down as they own
various brands that could be possible competition. For example, the company
sells Coke without the competition of other popular soft drink brands like Sprite
and Fanta because the company owns those brands as well. The company often
reviews and evaluates their business plans and performance to improve their
earnings and analyze their competitive position in the market. They make
decisions in realigning their business models to match the objectives of the
company by using strategies and tactics in the analysis of their performance.
Adherence to Unique Quality

Coca- Cola Company measure key product and package quality attributes by
focusing on ingredients and materials, and regulating manufacturing, bottling and
distribution, of its products to ensure those products meet Company
requirements and consumer expectations in the marketplace.
As The Coca-Cola Company expands beverage portfolio and supplier base to
meet the increasing demands of growing and developing markets around the
world, customer and consumer expectations and regulatory scrutiny continue to
rise. The global nature of our business requires that the Coca-Cola system has
the highest standards and processes to ensure consistent quality -- from the
concentrate production to the bottling and product delivery.
To ensure such consistency and reliability, the Coca-Cola system is governed by
the Coca-Cola Operating Requirements (KORE), a new management system
which replaced The Coca-Cola Management System (TCCMS) in January 2010.
KORE enables the Coca-Cola system to address the changing business
landscape while supporting the Company's strategic growth plans by creating an
integrated quality management program which holds all of the operations, system
wide, to the same standards for production and distribution of the beverages.
KORE guarantees the highest standards in product safety and quality,
occupational safety and health and environmental standards across the entire
Coca-Cola system by outlining clear requirements for the policies, specifications
and programs that guide the operations. With endorsement from leadership
throughout the Coca-Cola system, KORE integrates business and quality

objectives and aligns them with consistent metrics to monitor performance;

integrates preventive action as a management tool with more rigorous demands
when introducing new products and services; incorporates Hazard Analysis and
Critical Control Points (HACCP) into our system standards; manages risk in the
Company, bottling operations and across the supply chain; and defines problemsolving methods and tools to drive consistent quality with improvements.
To stay current with new regulations, industry best practices and marketplace
conditions, it consistently reassess the relevance of the requirements and
guidelines not only in manufacturing, but throughout the entire supply chain. It
continually refine the requirements to further ensure that KORE embodies the
most recent and stringent manufacturing processes.
To establish a governance process, each business within the Coca-Cola system
implements, documents and maintains a safety and quality system in accordance
with KORE requirements. Compliance to KORE requirements and guidelines is
monitored system wide to further support the integrity of our products.
Ensuring the safety and quality of products has always been at the core of our
business and is directly linked to the success of The Coca-Cola Company. Our
Company's Global Product Quality Index rating has consistently reached
averages near 94 since 2007, with a 94.3 in 2010, while our Company Global
Package Quality Index has steadily increased since 2007 to a 92.6 rating in
2010, our highest value to date.

Quality and Food Safety Policy

Coca-Cola believes that success depends on the supply of high quality products,
packages and services that meet or exceed customer and consumer
expectations of premium brand products. Fundamental to this belief is the
responsibility to ensure the food safety of all products that the Company
manufactures. The Company is committed to continually enhance the reputation
of the brands it produces and maintain consumer confidence in its products
through the development and implementation of quality and food safety systems,
standards and practices. All Coca-Cola operations commit to continuous
improvement, which is measured, evaluated and validated for effectiveness
through internal and external audits. The Company believes that theresponsibility
for achieving quality commitments lies with each Coca-Cola employee in the
execution of their jobs and their relationship with stakeholders. Food safety is the
responsibility of all employees that have direct influence on ingredients,
packaging, manufacturing, storage and the transport of products. The following
food safety and quality principles are the foundation of the Coca-Cola Hellenic
commitment to quality:

Manufacture and deliver products that meet the highest food safety and
quality standards.

Meet or exceed all statutory and regulatory requirements for quality and
food safety.

Ensure sustainable food safety and quality performance through

implementation and certification of effective quality management systems
compliant with ISO 9001:2008, ISO 22000:2005, FSSC 22000 and The
Coca-Cola Management System standards in all operations and PAS
223:2011 where applicable.

Validate the effectiveness of the food safety and quality management

systems through internal and external audit processes recognised by the
International Standards Organisation and The Coca-Cola Company.

Build food safety and quality capability through structured programmes

that develop technical skills, increase awareness, manage risk and drive
increasing levels of excellence.

Continually review food safety policies, standards and procedures to

effectively manage food safety risks associated with changes in products,
processes and technologies.

Include food safety and quality strategies in the annual business planning
process to ensure that food safety and quality remains an integral part of
operations.

Set annual measurable food safety and quality objectives for all
operations, and at group level, to ensure continuous improvement and
compliance with all standards.

Ensure that suppliers and contractors embrace the same food safety and
quality commitments, and monitor the materials and services they supply
through audits and incoming goods inspections.

Communicate food safety requirements to suppliers, contractors,

customers and consumers by establishing specifications for ingredients
and packaging materials, product storage and consumer guidelines.

Communicate
performance

food
to

safety

associates,

and

quality

consumers,

aspects,
customers

strategies
and

and

principal

stakeholders that have an impact on, or are affected by the Companys

food safety and quality management systems.

II.

SITUATIONAL ANALYSIS
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________________________________________________________

________________________________________________________
________________________________________________________

OPERATIONAL AND PRODUCTION ANALYSIS

Design of goods and services
When planning on producing a new product and/or service, the key
factor is the product and service design. Successful designs come down to these
basic principles: translate customers' wants and needs, refine existing
products and services, develop new products and services, formulate quality
goals, formulate cost targets, construct and test prototypes, document
specifications, and translate products and service specification into process
specifications. The process of design has certain steps that include motivation,
ideas for improvement, organizational capabilities, and forecasting. In the product
process innovations, research and development play a significant role. Because of
the influence a product and service design can have on an organization, the
design process is encouraged to be tied in with the organization's strategy and
take into account some key considerations.

Technological changes, the competitive market, and economic and demographic

changes are some market opportunities and threats that all organizations must be

aware of when planning a product and service design.Computer-aided

design (CAD) and Computer-aided manufacturing (CAM) are important tools in
the design process because they can anticipate what the design will look like, as
well as allow for better manufacturing. Businesses also must take in account
environmental and legal concerns when designing a new product. Most
importantly, the manufacturing process must ensure the product's safety.

Product and Service Design

Companies choose various ways to design their products and the type of services
they provide. Which include:standardization, mass customization, delayed
differentiation, modular design, and robust design. Deciding which method to
use is very important along with deciding the company's target market. Deciding
the right method, establishes good productivity and efficient way fo operations.

Service design is an activity of organizing and planning people, communication

and material components in order to improve service quality. It is the interaction
between the service provider and customers and the customers' experience. A
service is anything that is done to or for a client and is created and delivered
simultaneously. The two most important issues in service design are the degree of
variation in requirements and the degree of customer contact in which
determines how standardized the service can be. The greater the degree of
customer contact, the greater the opportunity for selling. In addition, concepts and

ideas generated are captured in sketches or in service prototypes. The strong

visual element, combined with the opportunity to test and rapidly change services
and interfaces, delivers real value in today's competitive markets.

Product Design combines ergonomics with product and business knowledge to

generate ideas and concepts and convert them into physical and usable objects or
services. The discipline covers the entire range of activities from concept,
manufacturing, testing to product launch. Product Designers conceptualize and
evaluate ideas and themes they find profitable. The designers make these ideas
tangible through products using a systematic approach.

Difference between service design and product design: Service design is an

intangible aspect while product design is tangible. Services are generally created
and delivered at the same time and can not be held in inventory like actual
products. Also, services (especially quality one) are highly visible to customers.

Product and Service Life Cycle

During their useful life, many services and products go through four stages. Since
the demand can vary for each of these 4 stages, different strategies should be
applied to achieve optimum product/service performance during each stage.

The Four stages are:

1. Introduction: During the first stage, the product is introduced into the market.
Proper research and forecasting should be done to ensure the product/service is
adequate for a specific market and for a specific time. It is crucial to have a proper
amount of supply that can meet the expected demand for the product/service.
2. Growth: The second stage involves the increase in demand for the
product/service. Reputation for the product grows and an accurate forecast of
demand is needed to determine the length of time the product/service will remain
in the market. Enhancements and improvements are common in this stage.
3. Maturity: This third stage deals with the product reaching a steady demand.
Few or no improvements or product changes are needed at this stage. Forecasting
should provide an estimate of how long it will be before the market dies down,
causing the product to die out.
4. Decline: The last stage involves choosing to discontinue the product/service,
replacing the product with a new product, or finding new uses for the product.

Standardization may be great for a company creating products like mops because
there are not many things you can do to make them unique and keep the price
down. Standardization products have interchangeable parts, which increases
productivity and lowers the costs of production. Standardization has many
important benefits and certain disadvantages. Some advantages are the design
costs for standardization products are low. The scheduling of work inventory
handling, purchasing, and accounting activities are routine, making the quality

more consistent. The disadvantages with standardization are that they decrease
variety offered to consumers leading to less of an appeal. Also, the high cost of
design change makes it relentless to improve.

Mass customization is a strategy that some companies can use to incorporate

customization while practicing standardization. This strategy keeps costs low while
adding variety to a product. The two tactics that make mass customization possible
is delayed differentiation and modular design. Some companies may
consider delayed differentiation if the company chooses to not finish a product due
to unknown customer preferences. However, another tactic of modular design is a
form of standardization in which components' parts are grouped into modules to
allow easy replacement or interchangeability. Producing a computer is an example
of modular design.

Companies will also have to consider what their competitors are doing in order to
be successful. There are 3 ways of idea generation: supply based, competitor
based, and research based. Which ever a company chooses, they must consider
who is competing against them and what else is going on in the marketplace.
Product design is key to the success of the company.

Customer Satisfaction and Sustainability

Product and service design are very important factors to customer satisfaction.

Organizations need to continually satisfy their customers to be successful in the

marketplace. They are able to do this by improving current products or by
designing new ones. The design consists of the following: research, design,
production, life cycle, safety in use, reliability, maintainability, regulatory and legal
issues. Organizations also need to look at "sustainability" when designing their
product/service.

The four aspects of Sustainability are:

(1) Life Cycle Assessment
(2) Value Analysis
(3) Remanufacturing
(4) Recycling.

Life cycle assessment focuses on the environmental impact the specific product
will have over the course of its life. Value analysis looks at the parts within a
product and seeks to minimize the cost. Remanufacturing has become more
important over the past few years and involves replacing worn-out and defective
products. This is common practice in high price machinery
industries. Recycling involves recovering older materials for future use. This not
only saves money, but satisfies environmental concerns. The Kano
Model includes three aspects: Basic quality, performance quality, and excitement
quality. Basic quality is the requirements placed on a product that do not lead to
customer satisfaction when present, but can lead to dissatisfaction if

absent. Performance quality is the middle ground and can either lead to
satisfaction or dissatisfaction depending on their usefulness. Excitement quality is
the notion that an unexpected feature can cause customer excitement.

Reliability
Reliability is a measure of the ability of a product, a part, or service, or an entire
system to perform its intended function under a prescribed set of conditions.
Reliability can have an impact on repeat sales and reflect positively on a products
image. However, if the product is faulty, it can create legal problems. The term
"failure" is used to describe a situation in which an item does not perform as
intended. Reliabilities are always specified with respect to certain conditions, called
normal operating conditions. These conditions can include load, temperature, and
humidity ranges in addition to operating procedures and maintenance schedules.
To improve reliability, manufacturers should improve the reliability of individual
components or use back up components. A few other suggestions include
improving testing, improving user education, and improving system design. The
optimal level of reliability is the point where the incremental benefit received equals
the incremental cost.

Legal and Ethical Consideration

Many organizations are regulated by governmental agencies and these regulations
are responsible for preventing harmful substances from being used in product
design. Harm caused by the product is the responsibility of the manufacturers.

Manufacturers are liable for any injury or damages caused by their product due to
its design or workmanship, also known as product liability. When the product is
defective and potentially causes harm, manufacturers have several options to
remedy the situation. They may have to recall their products or fix the problem in
the manufacturing stage. It is also possible that they may face lawsuits if their
products cause injury to consumers. Managers must ask themselves if there is
demand for their organizations product or service. If the company develops its
products or services according to the customers demands, their product will be
successful.

Quality Management
Broadly defined, quality refers to the ability of a product or service to
consistently meet or exceed customer requirements or expectations. Different
customers will have different expectations, so a working definition of quality is
customer-dependent. When discussing quality one must consider design,
production, and service. In a culmination of efforts, it begins with careful
assessment of what the customers want, then translating this information into
technical specifications to which goods or services must conform. The
specifications guide product and service design, process design, production of
goods and delivery of services, and service after the sale or delivery.
Some of these consequences of poor quality include loss of business, liability,
decreased productivity, and increased costs. However, good quality has its own
costs, including prevention, appraisal, and failure. A recent and more effective

approach is discovering ways to prevent problems, instead of trying to fix them

once they occur.This will ultimately decrease the cost of good quality in the long
run.

There are several costs associated with quality:

Appraisal costs - costs of activities designed to ensure quality or uncover defects
Prevention costs - costs of prevention defects from occurring
Failure costs - Costs caused by defective parts or products or by faulty services
Internal failures - failures discovered during production
External failures - failures discovered after delivery to the customer
Return on quality (ROQ) - an approach that evaluates the financial return of
investments in quality

Total Quality Management (TQM) as a philosophy that involves everyone in the

organization in a continual effort to improve quality and achieve customer
satisfaction. This philosophy concentrates on continuous improvement and quality
at the source. Six sigma is a concept that stresses improving quality, reducing
costs, and increasing customer satisfaction. Lastly, this chapter gives several
examples of quality tools, which include flowcharts, check sheets, histograms,
pareto analysis, scatter diagrams, controls charts, and cause-and-effect diagrams.

Successful management of quality requires that managers have insights on

various aspects of quality. These include defining quality in operational terms,
understanding the costs and benefits of quality, recognizing the consequences of
poor quality and recognizing the need for ethical behavior. Understanding
dimensions that customers use to judge the quality of a product or service helps
organizations meet customer expectations.

Dimensions of Product Quality

Performance main characteristics of the product
Aesthetics appearance, feel, smell, taste
Special features extra characteristics
Conformance how well the product conforms to design specifications
Reliability consistency of performance
Durability the useful life of the product
Perceived quality indirect evaluation of quality
Service-ability handling of complaints or repairs

Dimensions of Service Quality

Convenience the availability and accessibility of the service
Reliability ability to perform a service dependably, consistently, and accurately
Responsiveness willingness to help customers in unusual situations and to
deal with problems

 Time the speed with which the service is delivered

Assurance knowledge exhibited by personnel and their ability to convey trust
and confidence
Courtesy the way customers are treated by employees
Tangibles the physical appearance of facilities, equipment, personnel, and
communication materials
Consistency the ability to provide the same level of good quality repeatedly

The Determinants of Quality

Quality of Design intention of designers to include or exclude features in a
product or service. The starting point of producing quality in products begins in
the design phase. Designing decisions may involve product or service size,
shape and location. When making designs, designers must keep in mind customer
wants, production or service capabilities, safety and liability, costs, and other
similar considerations.
Quality of conformance- refers to the degree to which goods and services
conform to the intent of the designer. Quality of conformance can easily be
affected by factors like: capability of equipment used, skills, training, and
motivation of workers, extent to which the design lends itself to production, the
monitoring process to assess conformance, and the taking of corrective action.
Ease of use - refers to the ease of usage of the product or services for the
customers. The term ease of use refers to user instructions. Designing a product

with ease of use increases the chances that the product will be used in its
intended design and it will continue to function properly and safely. Without ease of
use, companies may lose customers, face sales returns, or legal problems from
product injuries. Ease of use also applies to services. Manufacturers must make
sure that directions for unpacking, assembling, using, maintaining, and adjusting
the product are included. Directions for What to do when something goes wrong
should also be included. Ease of use makes a consumer very happy and can help
retain customers.
Services offered to the customer after delivery. There will be times when
products may fail or problems with usage may occur. This is when Service after
delivery is important through recall and repairs of the product, adjustment,
replacement or buys back, or reevaluation of a service.

Having good quality is a competitive advantage against others who offer similar
products or services in the marketplace.
In addition, good quality can:

Raise Company's Reputation

Rationalize Premium Prices

Decrease Liability Costs

Increase Productivity

Increase Customer Loyalty

Increase Customer Satisfaction

Consequence's include:

loss of business and existing market share

legal liability

lack of productivity

increased costs

Failure to meet quality standards can damage a company's image,

reputation or lead to external criticism. In the manufacturing field, the
quality of raw materials or equipment can affect the whole manufacturing
process. If defects or poor quality are not detected on time, companies may
face various costs to solve problems. Discovering and fixing problems on
time reduces costs. Quality costs include prevention (prevent defects from
occurring by planning system, training and control
procedures), appraisal (ensure quality or uncover defects by inspections,
testings and audits), and failure (caused by defective parts, products or by
faulty services discovered during the production process - internal or after
delivery to the customer - external).
Three well- known awards given annually to recognize quality are:
1. Baldrige Award (given by the U.S. government)
2. European Quality Award
3. Deming Prize (established by the Japanese).

There are also worldwide known quality certifications like ISO 9000 (which is a
set of international standards on quality management and quality assurance,
critical to international business) and ISO 14000 (a set of international standards
for assessing a company's environmental performance.

Total quality management (TQM) is a constant pursuit of quality that involves

everyone in an organization. The driving force is customer satisfaction; a
key philosophy is continuous improvement. The Japanese use the
termkaizen to refer to continuous improvement. Training of managers and
workers in quality concepts, tools, and procedures is an important aspect
of TQM. Teams are an integral part of TQM. Two major aspects of the TQM
approach are problem solving and process improvement. Six-sigma programs
are a form of TQM. A six-sigmaimprovement project typically has one or
more objectives such as: reducing delivery time, increasing productivity, or
improving customer satisfaction. They emphasize the use of statistical and
management science tools on selected projects to achieve business
results. There are seven basic quality tools that an organization can use for
problem solving and process improvements. A flowchart is a visual
representation of a process. As a problem-solving tool, a flowchart can
help investigators in identifying possible points in a process where
problems occur. The diamond shapes in the flowchart represent decision
points in the process, and the rectangular shapes represent procedures.

They show the direction of flow of the steps in the

process.arrows

A check sheet is a simple tool frequently used for problem identification.

Check sheets provide a format that enables users to record and organize
data in a way that facilitates collection and
analysis.

A histogram can be useful in getting a sense of the distribution of observed

values. It is a chart of an empirical frequency distribution. Pareto analysis is
a technique for focusing attention on the most important problem areas.
The idea is to classify the cases according to degree of importance, and
focus on resolving the most important, leaving the less important. A scatter
diagram can be useful in deciding if there is a correlation between the
values of two variables. It is a graph that shows the degree and direction of
relationship between two variables. A correlation may point to a cause of a
problem. A control chart can be used to monitor a process to see if the
process output is random. It can help detect the presence of correctable
causes of variation. It is a statistical chart of time-ordered values of sample
statistic. A cause-and-effect diagram offers a structured approach to the
search for the possible cause(s) of a problem. It is also known as a fishbone
diagram because of its shape, or an Ishikawa diagram, after the Japanese
professor who developed the approach to aid workers overwhelmed by the
number of possible sources of problems when problem solving. This helps
to organize problem-solving efforts by identifying categories of factors that

might be causing problems. A run chart can be used to track the values of a
variable over time. This can aid in identifying trends or other patterns that
may be
occurring.

DIMENSIONS OF QUALITY

Dimension

Example

Performance

Everything works: fit and finish, ride, handling, acceleration

Aesthetics

Exterior and interior design

Features

Convenience: placement of gauges

High tech: GPS system
Safety: anti-skid, airbags

Conformance

Car Matches manufacturer's specifications

Reliability

Infrequent need for repairs

Durability

Useful life in miles, resistance to rust

Perceived quality Top-rated

Serviceability

Ease of repair

Total Quality Management (TQM). TQM involves a continual effort for quality
improvement by everyone in an organization. So in essence, for an organization
to meet and exceed goals of quality control the entire supply chain needs to be
involved.

Consequences of poor quality

There are numerous consequences with poor quality products which can affect a
business and a customer in many different ways. Whether it is a small or large
problem, the magnitude of the problem always affects someone at some point.
When a product is designed poorly or lacks in quality, customers recognize that
very quickly, and it can quickly lead to a problem for the business. It does not
matter whether the company is a product or a service oriented company because
poor quality will always, most likely, create negative affects for the firm.

Eventaully, the low cost input in the R&D department and the using cheaper
materials will lead to loss of business . Therefore, due to the cost associated with
satisfying the customer, it is best to fix problems in the design phase rather than
dealing with it after it's in the hands of a customer. The sooner the problem with a
product or service is identified and remedied, the better!

Methods for Generating Ideas

Additional tools that are useful for problem solving and process control include:

Brainstorming

Affinity diagram

Quality circles

Interviewing

Benchmarking

5W2H approach

Who

What

When

Where

Why

How

How much

Brainstorming is used to communicate thoughts and ideas without any criticism.

Everyone has equal input and ideas are shared in order to facilitate problem
solving.
Affinity Diagram is used to arrange data into categories that may be analyzed.
One of its uses is to group many responses to similar ideas. It uses the right side
of the brain (generates ideas) and the left side of brain (analyze and organize).
Quality Circles are usually informal meetings between employees to exchange
ideas and concerns about processes.
Interviewing is a tool used by managers to find information from employees
through Q & A sessions.
Benchmarking is tool for companies to set standards. It attempts to compare
itself to the best in the industry in order to meet or exceed the standard set.
Usually uses these steps: 1. Identify process for improvement. 2. Identify
organization that is the best at that process. 3. Study that organization. 4.
Analyze data. 5. Improve process at your organization.
5W2H approach asks the questions what, why, where, when, who, how, and how

much (5 W words and 2 H words). Its purpose is to ask the questions that will
lead to improving processes.

Responsibility for Quality

Top Management- has the ultimate responsibility for quality. While they establish
strategies for quality, they also institute programs to improve quality; guide,
direct, and motivate managers and workers; and set an example by being
involved in quality initiatives.
Design- Quality products and services begin with design.

Process And Capacity Design

Location Strategy
Every firm must use location planning techniques. There are many options for
location planning. Corporations choose from expanding an existing location,
shutting down one location and moving to another, adding new locations while
retaining existing facilities, or doing nothing. There are a variety of methods used
to decide the best location or alternatives for the corporation. Methods such as
identifying the country, general region, small number of community alternatives,

and site alternatives.

Several factors that influence location positioning include the location of raw
materials, proximity to the market, climate, and culture. Models for evaluating
whether a location is best for an organization consist of cost-profit analysis for
locations, the center of gravity model, the transportation model, and factor rating.

This chapter discusses the decision to relocate a facility by considering costs and
benefits. If you are planning on moving or acquiring a new facility, there are many
factors to consider: the size, the geographic area, culture, transportation costs
and others. After a location or locations have been chosen a cost-profit-volume
analysis is done.

The main factors that affect location decisions include regional factors,
community considerations, and site-related factors. Community factors consist of
quality of life, services, attitudes, taxes, environmental regulations, utilities, and
development support.

Company Relocating
There are many factors that contribute to a company relocating. Some of the
reasons include expanding the market and diminishing resources. For an existing
company to relocate, they must weigh their options when planning to relocate
elsewhere. They can expand their existing facility, add new ones and keep their

existing facilities open, move to another location and shut down one location, or
keep things the way they are and not do anything. Globalization has led many
companies to set up operations in other countries. Two factors that make
relocation appealing are advances in technology and trade agreements. By going
global, companies will expand their markets and be able to cut costs in labor,
transportation, and taxes. They also have gained ideas for new products and
services.
IDENTIFYING A COUNTRY, REGION, COMMUNITY, AND SITE
factors that influence location decisions are:
Manufacturing :
o Availability of energy and water
o Proximity to raw materials
o Transportation cost
Service:
o Traffic patterns
o Proximity to markets
o Location of competitors
Once important factors have been determined, an organization will narrow down
alternatives to a specific geographic region. These factors that influence location
selection are often different depending on whether the firm is a manufacturing or
service firm. When deciding on a location, mangers must take into account the
culture shock employees might face after a location move. Culture shock can
have a big impact on employees which might affect workers productivity, so it is

important that mangers look at this.

IDENTIFYING A COUNTRY
o A decision maker must understand the benefits and risks as well as the
probabilities of them occurring

IDENTIFYING A REGION- 4 major considerations

o Location to Raw Materials: The three most important reasons for a firm to
locate in a particular region includes raw materials, perishability, and
transportation cost. This often depends on what business the firm is in.
o Location to Markets: Profit maximizing firms locate near markets that they want
to serve as part of their competitive strategy. A Geographic information
system(GIS) is a computer based tools for collecting, storing, retrieving, and
displaying demographic data on maps.
o Labor Factors : Primary considerations include labor availability, wage rates,
productivity, attitudes towards work, and the impact unions may have.
o Other : Climate is sometimes a consideration because bad weather can disrupt
operations. Taxes are also an important factor due to the fact that taxes affect the
bottom line in some financial statements.

IDENTIFYING A COMMUNITY
o There are many important factors for deciding upon the community in which
move a business. They include facilities for education, shopping, recreation and

transportation among many others. From a business standpoint these factors

include utilities, taxes, and environmental regulation.

IDENTIFYING A SITE
o The main considerations in choosing a site are land, transportation, zoning and
many others. When identifying a site I]it is important to consider to see if the
company plans on growing at this location. If so, the firm must consider whether
or not location is suitable for expansion. There are many decisions that go into
choosing exactly where a firm will establish its operations. First, a company must
determine the driving factors that will influence which areas are suitable
locations. After these factors have been determined, the company will identify
potential countries and examine the pros and cons of establishing operations in
these countries. After looking at pro and cons of the different countries and
deciding on a country, then decision makers will identify a region within the
country. When identifying a region, decision makers must take the four major
factors explained above into consideration. The last two stages of the search
include choosing a community and a site.

Layout Strategy

Human Resource And Job Design

Specialization
Specialization relates with different work that concentrates on some aspect of a

product or service. Similarly, it emphasizes the ability to concentrate one's efforts

on a type of work and thereby becoming proficient in it. Examples of
specialization include college professors teaching certain courses, medical
doctors working in a specific field, and bakers who specialize in wedding cakes.
The advantages of specialized assembly line workers are high productivity and
relatively low unit costs. Consequently, these lower-level jobs are often times
described as monotonous which results in turnover and absenteeism. However,
some workers who are not capable of handling jobs with greater scopes prefer
low-level jobs that have limited requirements and responsibility.

Job Design/Specialization
This chapter explains the two basic approaches to job design and the
advantages and disadvantages of specialization. The most important topic is the
purpose of methods analysis and how these methodical studies are performed.
Job Design is the act of specifying the contents and methods of jobs. Current
practices in job design contain elements of two basic schools of thought,
efficiency and satisfaction of wants and needs. Specialization describes jobs that
have a very narrow scope. The amount of knowledge, or training required of a
specialist, and the complexity of the work, suggest that such individuals choose
such work because they are fully interrogated in the work flow of the product or
service.

Supply Chain Management

The goal of Supply Chain Management is to match supply to demand in the most
efficient manner. Companies devote large amounts of resources to effectively
manage a supply chain. The resources are as follows:
1: Product and service flow
2: Information flow
3: Financial flow

Financial flow refers to terms, payments, credits, ownership rights between

suppliers, manufacturers, retailers, and customers.

Summary of Management Responsibilities & Procurement

Management responsibilities have legal, economic, and ethical
aspects. Procurement involves the purchasing of materials, parts, and supplies in
order to produce products or provide services. Purchasing departments function
through interfaces that connect them to the company's other departments and its
suppliers. Purchasing can be handled by one special department (centralized),
individual departments, or separate locations that do their own purchasing
(decentralized). An important fact to keep in mind is that global supply chains are
increasing. With this factor, additional complexities have arisen as to the
communication and cultural differences to name a couple however, information
technology has advanced from this very change. As to purchasing with the
increasing globalization web-based auctions and managed inventory relationship

will grow.

Strategic Responsibilities
The strategies include the following: supply chain strategy alignment,
network configuration, information technology, product and services, capacity
planning, strategic partnerships, distribution strategy, and uncertainty and risk
reduction. Measuring the effectiveness of the organizational strategy, it's
extremely important to conduct a "SWOT analysis" to figure out the strengths,
weaknesses, opportunities and threats (both internal and external) of the entity in
question.

Ethics in Purchasing
Ethical behavior is important in all aspects of business. Businesses
have more power than consumers when there is less competition, which can
cause them to abuse the market for their sole gain. A set of guidelines for ethical
behavior has been established by The National Association of Purchasing
Management. Some examples of these guidelines include confidential and
proprietary information, following applicable laws and trade agreements,
professional competence, and responsibilities to your employer.

Summary of Supplier Management

Supply management deals with the important aspect of operations management
that relates to the reliability and effectiveness of a supply chain. An organization

must make vital decisions in regards to choosing suppliers, auditing, certification,

and continuing relationships/partnerships.

Inventory Management
Inventory is the key component of supply chains. The elements of inventory
management relate to the location of the supply chain, the speed at which
inventory moves through the supply chain, and the effects of demand variability .
Inventory velocity is defined as the rate at which goods move through a supply
chain. The greater the velocity, the lower the holding costs. Without careful
management, demand variations can cause inventory fluctuations. This leads to
the concept called the bullwhip effect which is another part of inventory
management that has to be paid great attention to. It means that when a
customer initially has increased demand than as that demand is related up the
supply chain, it turns into more and more demand, which in turn causes higher
inventories that aren't really needed. The last important component is Vendormanaged inventory (VMI), which is when the actual supplier keeps control of the
inventories for businesses and does the replenishing for them.

Summary: Creating an Effective Supply Chain

An important part of supply chain is logistics which handles the
maneuvering of the flow of goods, services, cash, and information. The vital
components of having a successful supply chain are trust among partners,
effective communication, supply chain visibility, performance metrics and the

effective and efficient matching of supply to demand . To obtain effective

communication and supply chain viability, supply chain managers are investing in
Radio Frequency Identification (RFID) and Collaborative Planning Forecasting
and Replenishment (CPFR). RFID uses radio wave technology to gather and
share information. RFID is a tag-like device attached to material in the supply
chain; it allows the tracking, identifying, monitoring or locating of the material
through the chain. CPFR is an agreement among partners in the supply chain to
develop a market plan. RFID's main goal is to share information among supply
chain partners in planning, forecasting, and inventory replenishment. When
supply chain managers develop a supply chain, they must make sure that they
incorporate quality, cost, flexibility, velocity, and customer service. The use of
RFID tags ( Radio Frequency identification) is becoming an essential part of
Supply Chains.

Supply Chain Management

Supply chains are often called value chains. Supply chain management is
the strategic coordination of the supply chain for the purpose of integrating
supply and demand management. Those trends are re-evaluation of sourcing,
risk management, inventory management, lean supply chain and sustainability.
To reduce those impacts, the organization needs to reconfigure their supply
chain.
Management Responsibilities have legal, economic, and ethical
aspects. These aspects relate to the organization's strategy, tactics, and

operations. Procurement is related to the purchasing of materials, services etc. to

produce goods or provide services. The costs, quality and delivery time are very
important in purchasing of goods or services. Purchasing department functions
through interfaces that connect them with other departments in the company and
its suppliers. Purchasing cycle starts with request to purchase and ends with
receiving that purchase. Purchasing can be handled by one department
(centralized) or individual departments that do their own purchasing
(decentralized).
Creating an Effective Supply Chain
SUMMARY: To achieve an effective supply chain, we must accomplish the
following:
1. Trust Trust, confidence, and similar goals need to be established between
the trading partners.
2. Information velocity (the speed at which information is communicated in a
supply chain) the faster, the better.
3. Effective Communication - using standardized forms of communication
between partners
4. Supply chain visibility (a major trading partner can connect to its supply chain
to access data in real time) data sharing.
5. Event management (the ability to detect and respond to unplanned events)
capability monitoring, notifying, simulating, measuring.
6. Performance metrics to confirm that the supply chain is functioning as

expected and the problems are being addressed. Fill rate (the percentage of
demand filled from stock on hand) is also very importantStrategic sourcing
analyzing the procurement process to lower costs by reducing waste and nonvalue-added activities, increase profits, reduce risks, and improve supplier
performance.

Two key factors that are required by suppliers are timely deliveries and high
quality products. An organization relies on the supplier's operations meeting
business needs, and most importantly, consumer needs. Each organization must
examine the reputation, past experience, price, and quality before choosing and
purchasing from a supplier. When chosen, periodic audits must be made to
analyze performance and production capabilities. A certified supplier has met or
exceeded the demands of a buyer, which can be critical in establishing long-term
relationships. Maintaining good relationships with suppliers is increasingly
recognized as an important factor in maintaining a competitive edge.

Inverntory Management
Nature and Importance of Inventory
Inventories are necessary for a firm to operate efficiently and almost all
business transactions involve the delivery of a product or service in exchange for
currency. For this reason, inventory management is a very important part of core
operations activities. Most retail businesses and wholesale organizations acquire
most of their revenue through the sale of merchandise (inventory). In order for

business and supply chains to run effectively, and efficiently they must meet all
the listed requirements for effective inventory management. Some of the main
concerns are the level of customer service and the cost of ordering, storing, and
carrying inventory. Therefore, in order to be a successful and profitable company,
inventory management must be managed wisely.

There are two types of inventory control used- Perpetual and Periodic.
In a perpetual inventory system (usually used in supermarkets or
department stores), a continuous flow of inventory count is tracked using a point
of sale (POS) check out system. This system is perfect for companies to manage
what is sold and reorder when a reorder point is reached. Another advantage of
this system is its ability to account for shrinkage (theft) and inventory turnover.
The periodic system (used in smaller retailers) is used to take a physical count of
inventory at periodic intervals to replenish the inventory. This system would be
most beneficial for companies that do not have products with UPC or bar codes,
such as nuts and bolts and are purchased in large quantities at a time. In this
case, someone on a line would monitor the level of the bin and notify a manager
when an order would need to be placed.

Economic Order Quantity Models - the order size that minimizes annual
costs ( 3 types)
1)Basic economic order quantity model (EOQ)

used to identify a fixed order size that will minimize the sum of the annual
costs of holding inventory and ordering inventory

Assumptions:
1. Only one product involved
2. Annual demand requirements are known
3. Demand is spread evenly throughout the year so that the demand rate is
reasonably constant
4. Lead time does not vary
5. Each order is received in a single delivery
6. There are no quantity discounts
2)Economic production quantity model (EPQ)

the batch mode of production is widely used in production; the reason for
this is that capacity to produce a part exceeds the parts usage or demand rate
( the larger the run size, the fewer the number of runs needed and, hence, the

lower the annual setup cost; as long as production continues, inventory will
continue to grow; (see formulas below)

Price reductions for large orders offered to customers to induce

them to buy in large quantities; If quantity discounts are offered, the buyer
must weigh the potential benefits of reduced purchase price and fewer
orders that will result from buying in large quantities against the increase
in carrying costs caused by higher average inventories; The buyers goal is
to select the order quantity that will minimize total cost (see total cost
formula below);

Equations to know:

Annual carrying cost = (Q/2)*H [Q = Order quantity in units, H = Holding

(carrying) cost per unit]
Annual ordering cost = (D/Q)*S [ D = Demand, S = Ordering cost]
Total cost (TC) =(Q/2)*H + (D/Q)*S

Total cost curve is U-Shape

Length of order cycle = Q/D

EPQ= square root[(2DS)/H]*square root[p/(p-u)]

p=production or delivery rate

u=usage rate
Reorder Point: ROP=d*LT
d=demand rate(units per period/day/week)
LT=lead time(same units as d)
EOQ=square root of (2DS)/H

Inventory point-of-sale (POS) systems, which record items at time of sale

electronically, can help make forecasting more accurate. Knowing the lead time
of a product, which is the time interval between ordering and receiving the order,
is crucial to the success of a business. Long lead times impair the ability of a
supply chain to quickly respond to changing conditions, such as changes in the
quantity demanded, product or service design, and logistics.

Scheduling

Maintenance
MAINTENANCE
Maintenance, repair and operations [1] (MRO) or maintenance, repair, and
overhaul involves fixing any sort of mechanical, plumbing or electrical device
should it become out of order or broken (known as repair, unscheduled, or
casualty maintenance). It also includes performing routine actions which keep the
device in working order (known as scheduled maintenance) or prevent trouble
from arising (preventive maintenance). MRO may be defined as, "All actions

which have the objective of retaining or restoring an item in or to a state in which

it can perform its required function. The actions include the combination of all
technical and corresponding administrative, managerial, and supervision
actions."
Maintenance is an important factor in quality assurance, which is another basis
for the successful competitive edge. Inconsistencies in equipments lead to
variability in product characteristics and result in defective parts that fail to meet
the established specifications. Beyond just preventing break downs, it is
necessary to keep equipments operating within specifications (i.e. process
capability) that will produce high level of quality.
Good maintenance management is important for the companys cost control. As
companies go in for automation to become more competitive, they increasingly
rely on equipments to produce a greater percentage of their output. It becomes
more important that, equipments operate reliably within specifications. The cost
of idle time is higher as equipment becomes more high-tech and expensive e.g.
NC/CNC machines and robots.
Dependability of service is one of the performance measures by which a
company can distinguish itself from others. To establish a competitive edge and
to provide good customer service, companies must have reliable equipments that
will respond to customer demands when needed. Equipments must be kept in
reliable condition without costly work stoppage and down time due to repairs, if
the company is to remain productive and competitive.

Purpose of Maintenance
The main purpose of regular maintenance is to ensure that all equipment
required for production is operating at 100% efficiency at all times. Through short
daily inspections,cleaning, lubricating, and making minor adjustments, minor
problems can be detected and corrected before they become a major problem
that can shut down a production line. A good maintenance program requires
company-wide participation and support by everyone ranging from the top
executive to the shop floor personnel.

Types of maintenance
Traditionally, 5 types of maintenance have been distinguished, which are
differentiated by the nature of the tasks that they include:

Corrective maintenance: The set of tasks is destined to correct the

defects to be found in the different equipment and that are communicated
to the maintenance department by users of the same equipment.

Preventive Maintenance: Its mission is to maintain a level of certain

service

on

equipment,

programming

the

interventions

of

their

vulnerabilities in the most opportune time. It is used to be a systematic

character, that is, the equipment is inspected even if it has not given any
symptoms of having a problem.

Predictive Maintenance: It pursues constantly know and report the status

and operational capacity of the installations by knowing the values of
certain variables, which represent such state and operational ability. To
apply this maintenance, it is necessary to identify physical variables
(temperature, vibration, power consumption, etc.). Which variation is
indicative of problems that may be appearing on the equipment. This
maintenance it is the most technical, since it requires advanced technical
resources, and at times of strong mathematical, physical and / or technical
knowledge.

Zero Hours Maintenance (Overhaul): The set of tasks whose goal is to

review the equipment at scheduled intervals before appearing any failure,
either when the reliability of the equipment has decreased considerably so
it is risky to make forecasts of production capacity . This review is based
on leaving the equipment to zero hours of operation, that is, as if the
equipment were new. These reviews will replace or repair all items subject
to wear. The aim is to ensure, with high probability, a good working time
fixed

in

advance.

Periodic maintenance (Time Based Maintenance TBM): the basic

maintenance of equipment made by the users of it. It consists of a series
of elementary tasks (data collections, visual inspections, cleaning,

lubrication, retightening screws,) for which no extensive training is

necessary, but perhaps only a brief training. This type of maintenance is
the based on TPM (Total Productive Maintenance).