David Level John O’Mara

Kiko Zhao Abdulrahman Alhamidi

ISQA 458 25 November 2014

1

Background

The craft brewery business is a $14.3 billion industry seeing 10.4% growth in the past

decade. In Oregon alone, during 2012 craft breweries produced 1,296,000 barrels of beer.

Many of these breweries struggle with the growth of their business and weigh the costs

and benefits of investing in equipment such as bottling and canning lines. Oftentimes it

makes business sense to outsource that activity. This is where companies like Craft

Canning and Bottling come into the picture. Craft provides the small craft brewers the

opportunity to can and bottle their beer efficiently without having to invest in expensive

canning equipment.

Owen Lingley started Craft Canning and Bottling in 2012 to capitalize on the his

knowledge of food and beverage packaging and the growing craft brew industry. He

identified a need for a mobile canning service focused on quality control. His business

uses a Wild Goose MC-250 canning line and 16 foot truck to service his customers with

mobile bottling and canning. The business operates within a three-hour radius of

Portland, and has nine employees. The business typically operates for 9 days

consecutively, then take one “spa day” off for equipment maintenance.

Craft brewers find it cost effective to work with mobile canning and bottling

operations because, “for a brewery to purchase a modest canning system, you’re looking

at around a $200,000 investment,” according to oregonbeergrowler.com. That expense is

for equipment only. Additional expenses include operator’s salaries and space to house

the machines, and warehouse space for the empty cans; then there are maintenance costs

over time. With this in mind, local companies hire Craft Canning to come to their facility

and can or bottle their beer.

The canning line is capable of producing 36 to 40 cans per minute. Craft Canning

estimates their line “has produced three million cans of beer and is now averaging 1200-

1500 barrels per month” (oregonbeergrowler.com). In fact, "Craft Canning Owner Owen

Lingley is optimistic that mobile canning will play an increasingly important role in the

transition to cans. ‘Breweries don’t have to buy equipment, invest time in training,

maintain equipment or have it sit idle,’ he explains." (centraloregonmagazine.com/a-can-

do-attitude/). Along these lines, the mobile canning industry is expected to grow 140% in

2013, and 100% in 2014. To that end, Craft Canning is planning to expand, with the

2

purchase of a second canning line and development of a yeast lab – additionally, they

may perform more quality control services for their growing clientele.

Regulation

Bottlers like Craft Canning are not regulated in terms of food safety. However, individual

breweries are responsible for regulation. Pathogens are destroyed in two ways, when the

during the brewing process when beer is cooked and then dropped to a chilly 1 degree

Celsius just prior to bottling, and the alcohol and yeast in beer are an inhospitable place

for bacteria to grow. In terms of regulation of the beer industry, the FDA plays a minimal

role. In fact, recent regulations were made on the tracking of spent grain. The grain left

over from the brewing process has been recycled for centuries by using the material as

feed for cows. Recent regulations require breweries to track each batch of spent grain, the

containers used to transport the grain to the farmers, and make sure it does not come into

contact with chemicals or garbage during distribution to farms. Brewers are also

regulated by the Alcohol Tobacco Tax and Trade Bureau to make sure they are paying

tax for what is produced. In that way, every bottle or can that Craft Canning processes for

their clients are tracked and counted. At the end of each bottling run, the machine is

cleaned out chemically to destroy any pathogens.

Products and Forecasts

Since the business model of Craft Canning does not involve production, they are

not directly involved in product recall. Though, when they have been involved the

process was very informal. The brewer asked them to pour the questionable product

down the drain and credited them for the expenses. However, along those lines there was

a recent recall by Bend brewer, 10 Barrel Brewing Co. that presented an interesting case.

The bottles of beer produced in this recall had gone through a process of secondary

fermentation that increased the CO2 pressure in the bottles, creating a situation where the

bottles could explode. The brewer used media to ask consumers to dispose of the beer.

They pulled the product from the shelves of retailers and wholesalers, crediting them.

In terms of forecast, Craft Canning uses a Naïve forecast, essentially guessing that

they will do the same amount next year plus a growth factor. Because of the nature of this

3

firm, the size of the market, and the expenses – this is probably sufficient. There is

typically a relatively stable demand, though growth is projected to be high. Moreover,

because of economies of scale, they tend to overstock inventory. Sourcing is done in with

a combination of local and international vendors. The firm purchases glass bottles from

Taiwan and aluminum cans and lids from Olympia Washington. Cleaning chemicals are

sourced from Sandy Oregon, and the Wild Goose machine is made in the US.

The Six Ts of Best Safety Practices

Food safety plays an important role for any enterprise that deals with food related

issues. As the food supply chain becomes longer from a global perspective, managers

must ensure that food safety standards are implemented in order to meet an increase in

demand for quality food. Roth, Tsay, Pullman, & Gray (2008) have developed a list of

six standardized qualitative measurements that food supply professionals can follow in

order to increase quality in the food supply chain: traceability, transparency, testability,

time, trust, and training.

Traceability

First, traceability is a company’s ability to track a product’s flow throughout the supply

chain, all the way to the original source. Traceability must be considered when

determining where the food that is consumed originates. For food itself, traceability plays

an important role food quality. In Craft’s case, packaging ingred ients should still be

traceable. Expected levels of quality are important when determining suppliers because

the consumed product is still packaged and transported in a vessel that is capable of being

contaminated. Owen demonstrated his knowledge of where his packaging components

come from. Owen was able to provide geographical glass suppliers (Taiwan), caps and

lids are sourced relatively closer from Olympia, Washington, and chemicals used in

cleaning and maintenance are sourced locally from Sandy.

Transparency

Next, transparency draws on the openness of a supply chain and the degree to which

the public is aware of internal business practices. Attempts to find a company that was

4

willing to divulge internal information was quite the challenge. Several attempts to

contact select companies resulted in missed opportunities. Craft Canning and Bottling lies

on the other side of the transparency gradient. Not a single question went without

receiving an open answer. Owen’s operation was relatively small, so there was certainly a

lack of safeguards in place to protect information. Owen was satisfied with this level of

transparency because he seemed to be happy with an open and honest business which was

apparent with his relaxed demeanor, even as the business owner. Not only was he open to

questions, but he allowed the interviewers unsupervised access to the facility with the

allowance to take pictures. This level of transparency may also be related to the craft

brew industry ideals compared to large-scale beer conglomerates. Craft breweries are

popular because of their support of local communities.

Testability

Testability has to do with the ability to detect defective attributes within a product.

Testability plays an important role in the beer that is packaged, as well as the packaging

itself. Packaging components such as glass and caps can still be defective, which may

lead to loss of quality and food safety. On a customer level, Craft provides various

reports to its customers relating to the packaging process. These reports contain

information such as seam inspections, O2 levels, and ATP sterility. Miller and Galston

(1988) describe ATP bioluminescence detection as a process that requires knowledge of

microscopy, but provides quick and accurate information at a low cost in order to detect

possible spoilage. This level of testability ensures that defect detection is reinforced

throughout the supply chain. OLCC regulations ensure that this information is accurate

and honest for Craft’s customers.

Time

Next, time relates to the duration of processes that emphasizes the consideration of

time between discoveries of problems. Once a batch of beer has been completed, the

consumer may be able to drink the product within the same day depending on who the

customer is and what the customer’s needs are. If Owen bottles at the site of a brewery

that is open to the public, the product may be consumed immediately after bottling. Craft

5

utilizes a Wild Goose MC-250 that has the capability to package 60 barrels of beer in 8-9

hours. Craft Canning and Bottling and the customers that they support are relatively small

companies so lead times from initial brewing to consumption generally is shorter than

national companies that may have long warehousing and transportation times. As soon as

a problem arises, there are few points along the supply chain, which allows the craft

brewery industry to recall products relatively quickly. Another aspect that benefits the

beer industry is the shelf life that beer has. Subjective to various factors, beer can last for

about a year if it is properly packaged. This is a long time compared to other drink

products.

Trust

Fifth, trust is an important aspect of the craft beer supply chain; Craft is an important

intermediary of trust within industry participants. Trust is the expectation that all parties

will stay to their commitments, conduct honesty and integrity in negotiations, and remain

fair toward suppliers and buyers. Craft has a high level of trust with brewery customers

because they provide on-site packaging capabilities. Breweries trust that Owen and his

employees will do a proper job during the packaging process while working within their

facilities, and will readily provide accurate information from the packaging process.

Owen specifically stated that he has a high level of trust from his suppliers that provide

packaging components. However, the majority of trust in the supply chain lies within the

relationship between the consumer and craft breweries. Consumers trust that the craft

beers that they consume come from honest breweries that conduct ethical business

practices. Consumers are still allowed the opportunity to build trust with Owen by being

given tours and free product to test. Owen gives consumers and brewery customers the

same ability to build trust in his company. Craft’s website invites anyone to meet for a

beer at the company.

Training

Consumers want to know that the products they consume are coming from people that

are properly trained to handle food safely. Systematically improving knowledge, skills,

and attitudes are becoming increasingly important as food supply chains become longer.

6

As Craft continues to rapidly expand, employees are handling more customers. Their

knowledge and abilities should grow with their increase in production. Craft is relatively

small so every employee is cross-trained among many different jobs within the company.

For the most part, everyone works on a level playing field so knowledge is evenly

distributed. New employees are trained on safety and chemical handling; equipment set-

up and takedown; and proper equipment use. The entire training process takes between 3-

4 months depending on the competency displayed during training; new employees work

with a skilled operator until the owner deems them fit for work alone. Craft has a

simplified process that would only change once the company decides to scale operations

as potential customers increase; training has remained the same since the inception of the

company.

5 S of Lean Manufacturing

Lean manufacturing is the process of reducing wastes associated with manufacturing.

Bascle et al. (2010) claim that lean manufacturing in the food industry requires little

capital expenditure and increases employee engagement; product quality can increase

with little effort. Craft has implemented limited lean manufacturing techniques in its

canning and bottling process because of the scale of operations. Large-scale companies

stand to benefit more than craft breweries simply because there is more opportunities to

be create waste in the first place. As Craft grows and increases its production capabilities,

issues relating to lean manufacturing will become more important. Currently, there are

not enough opportunities to greatly impact Craft’s manufacturing capabilities. Craft is in

the first stage of lean manufacturing: a force for modest change (Bascle et al., 2010).

Manufacturing meets expected levels of productivity and lean functions are narrow and

limited. Owen does not have a clear picture of non-value added costs associated with

canning and bottling.

Sort

Sort relates to removing unnecessary items and materials from the production facility,

while eliminating obstacles. The warehouse was slightly messy and packaging materials

were not organized as well as they could be. There was little excess in needed items and

7

materials. There were measures in place to sort various processes: there was a red and

blue container that was used to differentiate components during the canning process.

Straighten

Setting items in order relates to ensuring that workflow is smooth and easy and that

items are well organized. The facilities were sparse when we visited, but items that were

there only followed limited order. Boxes were laid out without any set location and the

equipment seemed to be randomly placed. The bottling and canning process itself is

conducted at other breweries. When employees set up the canning line, setting in order is

implemented to ensure a efficient canning line.

Shine

While facility floors were remarkably clean, the facility altogether could use

improvement. It obvious that employees clean after work is completed due to the fact that

maintenance is performed every tenth day, but the extent to which they maintain

cleanliness is unknown. In food production, a clean manufacturing space reinforces

increasing quality standards while marginally using resources.

Standardize

Standardize relates to standard procedures that everyone follows while operating

canning or bottling equipment. This is learned when employees first join the company

and work with experienced employees. Owen has developed standard operating

procedures (“SOPs”) that dictate exactly how equipment is operated, maintained, and set

up / broken down.

Sustain

The final aspect of the 5 S of lean manufacturing relates to sustaining optimal

operating conditions. Owen’s SOPs have standardized how work is completed, but there

must also be checks in place to ensure that they are followed. Owen’s solution is to fire

employees that are non-compliant with SOPs, but the definition of sustain calls for

regular audits to be performed to maintain standards and seek improvement. A key issue

8

here is that firing employees can be regressive because replacements must be trained to

the levels of existing employees; there is more time involved with sustaining standards.

Recommendations

Craft Canning and Bottling is a relatively new and small company, but the company is

expected to grow very quickly, along with all industry participants. There are many

opportunities that Owen can take advantage of in order to implement low cost lean

manufacturing techniques to his packaging capabilities and to increase value-added

capabilities of current processes. Four problems that can be addressed: (1) products are

dumped down the drain when they are recalled or when packaging is defective (2) the

distance that glass is transported make it costly – including the high cost of glass itself (3)

easy improvements to the 5 S of lean manufacturing and (4) management issues relating

to firing employees for minor issues.

First, products are dumped down the drain when breweries recall products or when the

packaging process is defective and a batch must be disposed of. This does not pose a risk

to the environment, but Craft can created added value to a output waste that otherwise

would be lost. Craft should find alternatives to dumping product. Beer can be used as an

additive to composts. Beer contains nitrogen that can aid in decomposition. Fan et al.

(2006) have found that a large influx of beer can rapidly increase decomposition from

microbes absorbing protein and digest high carbon materials, producing biohydrogen gas.

Another popular use of beer is bait for various garden pests such as slugs. Compost

collection companies are numerous throughout the Portland area. Craft’s hardest part

would be to find a collector that handles liquid materials; products can be converted into

revenue once a plan is in place with a proper collector.

Next, Craft deals with canning and bottling for its customers, but the industry trend is

moving towards strictly canning for various reasons. Bottles are made from glass, which

is expensive to manufacture, and are heavy. The added weight increases transportation

costs, which is already one of Owen’s highest costs of sourcing materials. The problem is

that there are no glass bottle producers that are close enough to make bottling worthwhile

besides the perception of a bottle versus a can, which is changing. People enjoy bottles

because it gives their craft beer character, but the craft brew industry is slowly giving

9

cans the same consideration. Cans are superior for numerous reasons: (1) cans cost less

and are cheaper to ship (2) cans are easier to source because sheet aluminum is widely

used around the globe so can producers are easier to come by (3) inhibit light transfer to

beer (4) and is virtually 100% recycled.

Third, 5S lean manufacturing optimization can increase productivity without incurring

much cost or excess work. Owen said that lean manufacturing procedures are followed,

but our impression is that this is only conducted to a certain extent. Items can easily be

kept more orderly by simply training employees to organize equipment and components

and by showing the importance of an orderly workplace. Every tenth day the facility

undergoes maintenance and upkeep. If all employees made the facility more orderly at

the end of each business day, cleanliness would be easier to achieve by preventing

messes to accumulate.

Finally, the last issue that we noticed was how employees that do not comply with

SOPs are handled. When asked how employees are kept compliant with SOPs, Owen

replied with, “we fire them.” If a business did not require specialized skills and

knowledge, this would be more feasible (but not ethical). The solution to this is by

developing and implementing an employee improvement program that coaches

employees to improve. Employees take 3-4 months to train so disbanding someone who

might require a little help costs the company added training costs and the chance that

company secrets may move elsewhere. Instead, management can help employees to

improve which reduces costs and instill integrity in Craft.

Conclusion

Craft Canning and Bottling is a beer packaging company based out of Portland,

Oregon. The company started in 2012 and has seen tremendous growth since. If the

company considers our recommendations then they are certainly positioned well for

growth into the future.

10

References

(2013, June 26). Retrieved November 22, 2014, from http://oregoncraftbeer.org/2012-

oregon-craft-beer-production/

Bascle, I., Derieux, P., Ducasse, P., Mangent, J., Babel, S., & Edquist, L. (2014, January

1). Lean Food-and-Beverage Manufacturing: Lower Costs, Better Products,

Improved Sustainability. BCG: Focus, 1-15.

Brewers Association Announces 2013 Craft Brewer Growth. (2014, January 1).

Retrieved November 22, 2014, from http://www.brewersassociation.org/press-

releases/brewers-association-announces-2013-craft-brewer-growth/

DeJesus, E. (2014, July 30). 10 Barrel Recalls the Now-Ironically-Named 'Swill'

Retrieved November 22, 2014, from www.pdx.eater.com/2014/7/30/6178779/10-

barrel-recalls-the-now-ironically-named-swill

Fan, Y., Zhang, G., Guo, X., Xing, Y., & Fan, M. (2006). Biohydrogen-production from

beer lees biomass by cow dung compost. Biomass and Bioenergy, 30(5), 493-496.

Retrieved November 22, 2014, from ScienceDirect.

Hutchins, H. (n.d.). A Can-Do Attitude. Retrieved November 22, 2014, from

http://centraloregonmagazine.com/a-can-do-attitude/

www.oregonlive.com/health/index.ssf/2014/09/fda_backs_down_on_proposal_th

a.html

J. Inst. Brew., September-October, 1989, Vol. 95,pp. 317-319

LaRowe, A. (2014, October 10). Canning Companies Help Small Breweries. Retrieved

November 22, 2014, from www.oregonbeergrowler.com/blog/category/cime-careddu

11

(n.d.). Retrieved November 22, 2014, from www.ttb.gov

Tsay, Andy A., Madeleine E. Pullman, Aleda V. Roth, and John V. Gray.

"Reaping What You Sow?" International Commerce Review 8.1 (2008): 36-47.

Springer. Web. 12 Oct. 2014.

WGC-250. (n.d.). Retrieved November 22, 2014, from

http://www.wildgoosecanning.com/main/mc-250/