Anadolu Efes Case

1
Anadolu Efes Case
Optimization of Location, Distribution and
Capacity Expansion Decisions
2
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

3
Organization
Anadolu Holding
Anadolu Efes (Beverage Group)
Production Group Brewery and Malteries
Soft Drinks Coca-Cola
International Operations Efes Breweries
International
Sales 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

• 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

• USA 23.00 billion liters
• China 20.73
• Germany 10.46
• Brazil 7.88
• Japan 7.15

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Beer Trivia

• Czech Republic has the largest per capita beer
  consumption in the world 156 liters
• Global average is around 25 liters

• Who drinks the most beer?
• Per Capita Beer Consumption

8
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
• Increasing competition due to new entries into
  the domestic beer market
• Anticipated increases in beer demand that will
  surpass the available beer production capacity

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Plans

• Optimize malt and beer distribution network to
  provide leverage against increasing competition
• Open new breweries and possibly expand the
  capacity over the next several years to supply
  for increased demand

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Analysis

• Improve the current distribution system
• Analyze Efesdistribution strategy and develop a
  malt and beer shipment plan that minimizes total
  transportation costs
• 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.

12
Beer Trivia
How long have we been drinking beer?

• 1,000 years
• 2,000 years
• 7,000 years
• 20,000 years

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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.

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Beer Production

Hops
Barley Malt

H2O

yeast

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Beer Production Process
malting barley

• Mashing
• Boiling
• Fermentation
• Aging

brewing
distilling

• bottling

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Production and Distribution System
17
Distribution System - Current
Beer Demand
Brewery Supply / Capacity
Malt Supply / Capacity
Current Beer Transportation
Current Malt Transportation
Istanbul
103
103
Afyon
0
Izmir
24 / 30
Istanbul
74
49
0
25
Antalya
50
24
50
Konya
202/ 220
0
2
2 / 68
0
Bursa
Ankara
0
60
60
0
20
Import
102
Kayseri
0
20 / 20
200 / 200
102
0
13
Export
13
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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.