Anadolu Efes Case Optimization of Location, Distribution and Capacity Expansion Decisions

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  • Anadolu Efes Case Optimization of Location, Distribution and Capacity Expansion Decisions
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  • Company Background Anadolu Efes Leading beer producer and distributor in Turkey Emerging international presence in Eastern Europe and Central Asia operates 9 breweries and 4 malteries in 5 countries annual beer production capacity: 1.4 billion liters sells its products in over 30 countries domestic market - 77% of total sales volume
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  • Organization Anadolu Holding Anadolu Efes (Beverage Group) Production Group: Brewery and Malteries International Operations: Efes Breweries International Soft Drinks: Coca-Cola Sales and Distribution: Efes Marketing
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  • Efes Domestic Beer Market Share In 2000, Efes share in the Turkish beer market reached a record high of 78%
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  • Domestic Beer Market Potential for market growth Per capita beer consumption in Turkey increased by more than 50% from 1995 to 2000 Annual population growth of 1-2% over the years increases the adult population each year Market Size 730 million liters sales and around $294 million sales value in 2001 Turkey ranks as the tenth largest beer-consuming nation in Europe
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  • Beer Trivia Who drinks the most beer? Annual Beer Consumption 1.USA 23.00 billion liters 2.China 20.73 3.Germany 10.46 4.Brazil 7.88 5.Japan 7.15
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  • Beer Trivia Who drinks the most beer? Per Capita Beer Consumption Czech Republic has the largest per capita beer consumption in the world: 156 liters Global average is around 25 liters
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  • Global Beer Market Market Size World beer consumption was around 126 billion liters in 2000 USA and China account for 36% of the global beer market; emerging markets make up 45% Growth Opportunities Consumption in emerging markets has been growing Major US and Europe based brewers have been focusing on Eastern Europe, China and the CIS countries
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  • Efes Strategic Goals Business diversification and international presence Maintain domestic market share Concerns: 1.Increasing competition due to new entries into the domestic beer market 2.Anticipated increases in beer demand that will surpass the available beer production capacity
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  • Plans 1.Optimize malt and beer distribution network to provide leverage against increasing competition 2.Open new breweries and possibly expand the capacity over the next several years to supply for increased demand
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  • Analysis 1.Improve the current distribution system Analyze Efesdistribution strategy and develop a malt and beer shipment plan that minimizes total transportation costs 2.Determine when and where Efes should build new breweries and possibly expand their capacities Optimize distribution, location, and capacity expansion decisions over the next three years.
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  • Beer Trivia a)1,000 years b)2,000 years c)7,000 years d)20,000 years How long have we been drinking beer?
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  • The earliest recorded beer recipe was found in clay tablets written 7,000 years ago. Beer originated in Mesopotamia and then found its way to Anatolia. Four thousand years ago in Anatolia, Hittites, were drinking beer in daily life as well as in sacred rituals.
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  • Beer Production Barley Malt Hops + +H2OH2O+ yeast =
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  • Beer Production Process malting barley distilling brewing bottling Mashing Boiling Fermentation Aging
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  • Production and Distribution System
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  • Afyon Konya Import Istanbul Ankara Istanbul Izmir Antalya Bursa Kayseri Export Distribution System - Current Malt Supply / Capacity 24 / 30 2 / 68 20 / 20 Beer Demand 103 74 50 60 102 13 202/ 220 200 / 200 Brewery Supply / Capacity 49 103 0 2 20 0 0 50 0 0 0 0 25 0 60 102 13 24 Current Malt Transportation Current Beer Transportation
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  • Current Distribution System The current shipment plan enforces certain restrictions due to established relations between brewery-distributor pairs: Ankara brewery supplies all the beer demand of Bursa distributor Istanbul brewery supplies all the beer demand of Antalya distributor Total shipment costs can be reduced by optimizing the shipment plan
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  • Analysis Optimize the distribution system by formulating and solving a linear programming model, 1) with existing relationship limitations, 2) by relaxing these limitations, and summarize the resulting savings in costs.
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  • Analysis - continued Discuss the sensitivity of the model solution to changes in model parameters For example: 1) analyze how much reduction in transportation costs would justify keeping the existing brewery-distributor relations. 2) discuss other input parameter changes that would make certain shipment choices in the current distribution plan, i.e. malt import, cost-effective. 3) discuss sensitivity to demand changes
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  • Capacity Expansion Decisions Multi-period strategic planning problem Total beer production capacity can be increased by opening a new brewery at one of the identified potential three sites, and by expanding the capacity of the newly established brewery, if necessary, over the next three years.
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  • Analysis Optimize new brewery location and capacity expansion decisions malt and beer distribution decisions over the next three years Objective: Minimize the present value of the malt and beer transportation costs over a 20-year horizon and the present value of the capacity expansion costs such that all of the beer demand at the distribution centers is satisfied in each year.