{"id":22825,"date":"2017-11-14T20:56:35","date_gmt":"2017-11-15T01:56:35","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/water-water-everywhere-and-not-a-drop-to-source-pepsico-mitigates-the-risk-of-global-water-scarcity\/"},"modified":"2017-11-14T20:56:35","modified_gmt":"2017-11-15T01:56:35","slug":"water-water-everywhere-and-not-a-drop-to-source-pepsico-mitigates-the-risk-of-global-water-scarcity","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/water-water-everywhere-and-not-a-drop-to-source-pepsico-mitigates-the-risk-of-global-water-scarcity\/","title":{"rendered":"Water, Water Everywhere, and Not a Drop to Source: PepsiCo Mitigates the Risk of Global Water Scarcity"},"content":{"rendered":"

When we consider \u201cscarce resources,\u201d we rarely think of water \u2013 after all, we encounter it every day, with virtually limitless access and at low cost. Unfortunately, this perception is at odds with predictions that we are entering an age of increasing water scarcity.[1]<\/a> In fact, water scarcity has escalated to a crisis in many areas of the globe, driven in large part by a drastic increase in global water withdrawals in the past 50 years.[2]<\/a> This misconception \u2013 what some refer to as \u201cwater\u2019s deceptive abundance\u201d [3]<\/a> \u2013 has hindered management within companies from proactively preparing their operations for a future in which water is more difficult and costlier to source.<\/p>\n

As a global food and beverage manufacturer, PepsiCo should have great cause for concern. For one, PepsiCo\u2019s massive agricultural supply chain is particularly vulnerable to water scarcity, as one-third of all food production currently occurs in areas of high water stress.[4]<\/a> PepsiCo would feel the impact not only in higher direct costs (both through reduced crop yield and higher water prices) but also in the costs of supply chain disruption (i.e., the cost of not meeting demand or relocating operations from water stressed areas). In addition, PepsiCo\u2019s incredible scale \u2013 its products are consumed over a billion times each day[5]<\/a> – make it uniquely vulnerable to reputational risk if the company fails to move quickly enough on consumer expectations for sustainability.<\/p>\n

Fortunately, PepsiCo has already taken steps to mitigate the impacts of water scarcity on its business. First, PepsiCo has a goal of improving the water use efficiency of its agricultural supply chain by 15% and its manufacturing operations by 25% in high-water-risk areas.[6]<\/a> To achieve these goals, the company is working to provide more efficient irrigation equipment and training to growers. In India, PepsiCo has replaced flood irrigation with drip irrigation on more 2,600 acres and trained farmers in the practice of using cover crops to help the soil retain more water.[7]<\/a> In manufacturing, PepsiCo is working to uncover and disseminate best practices and new technologies (e.g., the use of membrane bioreactors[8]<\/a>) for wastewater treatment and water recycling.<\/p>\n

Second, PepsiCo is working to replenish 100% of water consumed in manufacturing operations in high-water-risk areas to the local watersheds where extraction occurred.[9]<\/a> Here, PepsiCo is focused on partnering with local organizations on projects like water harvesting and reservoir rejuvenation. For example, in Jordan PepsiCo is working with the Ministry of Water to construct a dam to collect rainwater to replenish underground water reserves.[10]<\/a><\/p>\n

While PepsiCo demonstrates a unique thought leadership in sustainability, there is room to improve. On the supply side, PepsiCo could apply similar efficiency goals to its entire supply chain, versus focusing only on high-water-stress regions. By limiting its focus, PepsiCo is missing crucial opportunities for knowledge transfer and the creation of a unified operational culture around water conservation. In the short-term, PepsiCo could undertake an audit of its water efficiency across its entire supply chain (1) to establish a baseline for performance today and (2) to provide greater opportunities for knowledge transfer across the business. Longer term, this shift could help PepsiCo to develop a unified \u201ckaizen\u201d culture of improvement around water efficiency across its entire supply chain.<\/p>\n

On the demand side, PepsiCo could increase efforts to educate consumers on the value of water efficiency in agricultural production and operations. Short-term, PepsiCo should seize the opportunity to own a powerful message around water conservation and drive mass awareness of the issue among consumers. Longer term, PepsiCo can leverage this new consumer awareness to drive internal support for investing in more sustainable products and brands, both in terms of new product development, acquisition strategy, and marketing spend.<\/p>\n

While there is clearly much to be done, this review of PepsiCo\u2019s efforts around water scarcity raises some important questions. When confronted with a problem as macro as resource scarcity, how big should a company\u2019s ambitions be? Should it triage supply chain improvements, tackling the most impactful areas first (i.e., production in high-water-stress areas), or should it work on instituting sweeping, system-wide changes? Should companies focus on improving internal operations or invest in educating consumers to drive broader demand shifts?<\/p>\n

[1]<\/a> \u201cGEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector,\u201d 2013 Report by the United Nations Environmental Programme, p. 11.<\/p>\n

[2]<\/a> \u201cGEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector,\u201d 2013 Report by the United Nations Environmental Programme, p. 11.<\/p>\n

[3]<\/a> \u201cDoes Your Supply Chain Risk Management Strategy Hold Water?\u201d, MIT Sloan Management Review, December 22, 2016, Web.<\/p>\n

[4]<\/a> \u201cFinancial Risks in Agricultural Supply Chains,\u201d Ceres Engage the Chain Report, June 1, 2017, p. 7<\/p>\n

[5]<\/a> PepsiCo 2016 Sustainability Report<\/p>\n

[6]<\/a> PepsiCo 2016 Sustainability Report<\/p>\n

[7]<\/a> PepsiCo 2016 Sustainability Report<\/p>\n

[8]<\/a> PepsiCo, Company Website, \u201cWater,\u201d https:\/\/www.pepsico.com\/sustainability\/water<\/p>\n

[9]<\/a> PepsiCo 2016 Sustainability Report<\/p>\n

[10]<\/a> \u201cPepsiCo-Jordan to build dam in Amman,\u201d Technical Review Middle East<\/em>, Web, November 13, 2013<\/p>\n","protected":false},"excerpt":{"rendered":"

The “deceptive abundance” of water makes it an especially interesting litmus test for evaluating companies and their commitment to long-term sustainability. PepsiCo is an example of a company that has taken early steps to mitigate the risks of global water scarcity to its supply chain and business strategy more broadly. <\/p>\n","protected":false},"author":10193,"featured_media":22826,"comment_status":"open","ping_status":"closed","template":"","categories":[1218,3547,17,14,427,1381],"class_list":["post-22825","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-climate-change","category-global-operations","category-supply-chain","category-sustainability","category-water","category-water-scarcity","hck-taxonomy-organization-pepsico","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-india"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nWater, Water Everywhere, and Not a Drop to Source: PepsiCo Mitigates the Risk of Global Water Scarcity - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/water-water-everywhere-and-not-a-drop-to-source-pepsico-mitigates-the-risk-of-global-water-scarcity\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Water, Water Everywhere, and Not a Drop to Source: PepsiCo Mitigates the Risk of Global Water Scarcity - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"The "deceptive abundance" of water makes it an especially interesting litmus test for evaluating companies and their commitment to long-term sustainability. 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