6/26

Last Thursday (09/24/2015) Coca-Cola announced, "the formation of a new National Product Supply System (“NPSS”) in the United States. The mission of the NPSS will be to facilitate optimal operation of the U.S. product supply system for Coca-Cola bottlers in order to:

• Achieve the lowest optimal manufactured and delivered cost for all bottlers in the Coca-Cola system
• Enable system investment to build sustainable capability and competitive advantage
• Prioritize quality, service and innovation in order to successfully meet and exceed customer and consumer requirements."

If the action and its purpose still strike you as obscure, don't feel alone.  Bureacracies, public or private, tend to all sound alike.  Maybe that's why the stock price barely budged.

Here's how Reuters interprets the announcement:

The world's largest soda maker is facing sluggish sales volumes in the U.S.. It has been selling bottling operations, which partly entail getting its products to retailers, to franchisees to shift away from the capital intensive and low-margin business of distribution.

Until now, though, it has not sold production facilities, where its concentrate is combined with other ingredients and bottled up. The sale of the plants, which produce soft drinks like Coke, Sprite and Fanta, is expected to take place between 2016 and 2018, Coca-Cola said.

"By selling production facilities, we expect (Coke) will generate higher return on invested capital as its capital base is reduced, and have incremental cash to reinvest and return to shareholders," said Bonnie Herzog, an analyst at Wells Fargo, in a note

The Wall Street Journal included the following in its report on the deal:

Tom Haynes, an industry consultant and former Coke executive, said he expects the company will sign more deals to divest U.S. manufacturing plants. “Coke’s primary expertise is sales and marketing,’’ said Mr. Haynes, who headed the Coca-Cola Bottlers’ Association from 2002 to 2012.

What I see is another move toward functional disaggregation and strategic concentration.  Supply chains tended to be vertically integrated.  Supply networks tend to be horizontally collaborative.  Each participant in the network seeks to identify and amplify its particular comparative advantage and cooperate with the best-of-class in other areas of functional expertise.