A Case Study of Location, Distribution, and Capacity Expansion Decisions at Anadolu Efes*Murat Köksalan1and F. Sibel Salman2Abstract: This case addresses decision-making problems arising frequently in production and logistics. The multiperiod strategic planning problem at Anadolu Efes requires the optimization of brewery location and capacity expansion decisions in addition to malt and beer distribution decisions. The objective is to minimize the present value of location, transportation and capacity expansion costs over the planning horizon while satisfying the beer demand at the distribution centers in each year. The case has been used in undergraduate and MBA level Management Science courses to improve students’ skills on modeling, solving and interpreting the outputs of linear programs and mixed integer programs. *This case won the first prize in the 2002 Case Competition of the Institute for Operations Research and the Management Sciences (INFORMS). 1Industrial Engineering Department, Middle East Technical University, 06531 Ankara, Turkey. Murat Köksalan was a visiting professor at the Krannert School of Management, Purdue University, during a part of the preparation of this case. 2Krannert School of Management, Purdue University, West Lafayette, IN 47907, USA. This material cannot be copied, distributed or used without the permission of the authors. 1
Presentation on theme: "Anadolu Efes Case Optimization of Location, Distribution and Capacity Expansion Decisions."— Presentation transcript:
1 Anadolu Efes CaseOptimization of Location, Distribution and Capacity Expansion Decisions
2 Company Background Anadolu Efes
Leading beer producer and distributor in TurkeyEmerging international presence in Eastern Europe and Central Asiaoperates 9 breweries and 4 malteries in 5 countriesannual beer production capacity: 1.4 billion literssells its products in over 30 countriesdomestic market - 77% of total sales volume
3 Organization Anadolu Holding Anadolu Efes (Beverage Group)
Production Group:Brewery and MalteriesSoft Drinks:Coca-ColaEfes is the largest business unit of Anadolu Holding, named after the Turkish peninsula Anatolia.The principal activities of Efes Beverage Group are in the production and distribution of malt and beerThe group also conducts Coca-Cola operations in Turkey and 5 CIS countries(The marketing and distribution company of the group is responsible for the direct distribution of Efes Pilsen, Efes Light, Efes Dark, Efes Extra, Everest, Miller and Beck’s products in six main regions of Turkey, and works through distributors in 300 districts.)(Efes has seen outstanding consumer response in Russia, Eastern Europe, the Caucasus and Central Asia. The company has been active in these markets via its subsidiary Efes Breweries International after the construction of breweries in the Romanian city of Ploiesti and Moscow, and the acquisition of breweries in Kazakhstan and Ukraine in late 1990s. The sales volume of Efes Breweries International almost tripled in 2000, during which the Moscow brewery became fully operational )International Operations:Efes Breweries InternationalSales and Distribution:Efes Marketing
4 Efes’ Domestic Beer Market Share
In 2000, Efes’ share in the Turkish beer market reached a record high of 78%
5 Domestic Beer Market Market Size
Potential for market growthPer capita beer consumption in Turkey increased by more than 50% from 1995 to 2000Annual population growth of 1-2% over the years increases the adult population each yearMarket Size730 million liters sales and around $294 million sales value in 2001Turkey ranks as the tenth largest beer-consuming nation in EuropeSurveys indicate that around 48% of the adult population in Turkey consumes alcoholic beverages2000, per capita consumption 16.8 liters (global average: 22.7)Population 65 million50% of the current population is below age 25.
6 Who drinks the most beer?
Beer TriviaWho drinks the most beer?Annual Beer ConsumptionUSA billion litersChina 20.73Germany 10.46Brazil 7.88Japan 7.15
7 Who drinks the most beer?
Beer TriviaCzech Republic has the largest per capita beer consumption in the world: 156 litersGlobal average is around 25 litersWho drinks the most beer?Per Capita Beer Consumption
8 Global Beer Market Market Size
World beer consumption was around 126 billion liters in 2000USA and China account for 36% of the global beer market; emerging markets make up 45%Growth OpportunitiesConsumption in emerging markets has been growingMajor US and Europe based brewers have been focusing on Eastern Europe, China and the CIS countriesMarkets in Western Europe and North America are saturatedEmerging markets: Africa, Asia, Eastern Europe, Middle East and Latin America (due to growth in young population and changing cultures)(US per capita consumption : 84 ltr,Adult population: over 14 or 15)Focus on East Europe:For example, Carlsberg has become more active in Eastern European markets and Turkey recently.Heineken has significant stakes in a number of Eastern European brewers but not with the Turkish companies.
9 Efes’ Strategic GoalsBusiness diversification and international presenceMaintain domestic market shareConcerns:Increasing competition due to new entries into the domestic beer marketAnticipated increases in beer demand that will surpass the available beer production capacity
10 PlansOptimize malt and beer distribution network to provide leverage against increasing competitionOpen new breweries and possibly expand the capacity over the next several years to supply for increased demand
11 Analysis Improve the current distribution system
Analyze Efes’distribution strategy and develop a malt and beer shipment plan that minimizes total transportation costsDetermine when and where Efes should build new breweries and possibly expand their capacitiesOptimize distribution, location, and capacity expansion decisions over the next three years.
12 Beer Trivia 1,000 years 2,000 years 7,000 years 20,000 years
How long have we been drinking beer?1,000 years2,000 years7,000 years20,000 years
13 How long have we been drinking beer?
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.
14 + + H2O + = yeast Beer Production Hops Barley Malt
Beer is the product of fermentation of the carbohydrates in cereals, such as maize, rice, millet, oats, rye, wheat and most commonly barley.The main ingredients of beer are malt, water and hops. Malt, the processed grain that has begun germination by being soaked in water, provides beer its body and color. Hops is used in small amounts to prevent the brew from going sour, but also brings a characteristic bitter flavor and a pleasant aroma. Water constitutes as much as 95 percent of the ingredients used in the brewing process. The mineral content in water influences the quality and the flavor of the beer.The main ingredients of beer:Maltprovides beer its body and color.Water95 % of beer, mineral content influences quality and flavorHopsused in small amountsprevents the brew from going sourbrings a characteristic bitter flavor and a pleasant aroma+H2O+yeast=
15 Beer Production Process
malting barleyMashingBoilingFermentationAgingbrewingdistillingBrewing of beer is essentially a four-stage process. The first stage requires mixing malt, sugar, hops and water into wort by means of a “cooking” procedure that involves mashing and boiling in large copper kettles. In the second stage of brewing, wort is chilled and transferred into a fermentation tank. Yeast is added in the third stage, through which fermentation takes place in three to ten days. In the final stage, flat beer is stored for slow fermentation and aging for a few weeks to several months, depending on the type of beer being produced, after which it is carbonated and bottled.bottling
16 Production and Distribution System
17 Distribution System - Current
BrewerySupply / CapacityBeerDemandMaltSupply / CapacityCurrentMalt TransportationCurrentBeer TransportationIstanbul103103AfyonIzmir24 / 30Istanbul49742550Antalya2450Konya202/ 22022 / 68BursaAnkara606020Import102Kayseri20 / 20200 / 20010213Export13
18 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 distributorIstanbul brewery supplies all the beer demand of Antalya distributorTotal shipment costs can be reduced by optimizing the shipment plan
19 AnalysisOptimize 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.
20 Analysis - continuedDiscuss the sensitivity of the model solution to changes in model parametersFor 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
21 Capacity Expansion Decisions
Multi-period strategic planning problemTotal 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.
22 Analysis Optimize Objective:
new brewery location and capacity expansion decisionsmalt and beer distribution decisions over the next three yearsObjective:Minimize the present value of the malt and beer transportation costs over a 20-year horizonand the present value of the capacity expansion costssuch that all of the beer demand at the distribution centers is satisfied in each year.