Directed decentralization: the Frito Lay story.

AuthorFeld, Charles S.
PositionTechnology

Back in 1930, our founder, Herman Lay, did everything. He bought and cooked the potatoes, packaged the chips and put them in his truck, brought them to the stores, and sold them. He did his own quality control: if people yelled at him when he went back the next day, he knew his chips didn't taste good. He had his accounts payable in one pocket and his accounts receivable in the other, and he could tell just by patting his pockets if he could afford to buy a few more potatoes or maybe a newer, bigger truck.

Herman was in constant touch with the marketplace. And so the company grew, took in partners, and built a group of strong regional companies, each of which put out products different from all of the others.

And then, in the 1960s, things began to change. Frito Lay merged with PepsiCo and, like other large companies at the time, emphasized its size and scale. it entered the era of national products, TV commercials, and professional management.

Built on functional excellence and high productivity, supported by national consumer polls, the company prospered. But, in the early 1980s, the competitive environment changed again. Small, regional companies geared to local tastes began to emerge, and large companies, especially those that could not move quickly, began to have problems. Because their frame of reference was national, the large companies were not focused on regional marketplaces and on the delivery outlets, or channels, for their products.

But advances in technology now make it possible for large companies like Frito Lay to return to the regional approach, to be in close touch with their customers, and to let people at every level of their organizations understand the dynamics of what they do and how what they do affects their companies' balance sheets. And they are able to do this while maintaining consistency in the quality of their products and the marketing leverage of well-known brand names.

Here's how we're doing it at Frito Lay.

Business volume and velocity One of the two most critical aspects of Frito Lay's business is volume. We sell four to five billion bags of our various products each year and move them from 40 plants through 10,000 salespeople into 400,000 stores. We had to master volume early on.

The second element critical to our business is velocity. Since we sell impulse items, we need very high service levels and penetration. If you walk by a shelf and our product is there, you'll buy it. But if it's not there, you...

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