Anadolu Efes Case

Optimization of Location, Distribution and Capacity Expansion Decisions

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

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

Efes Domestic Beer Market Share

700 600 500 400 300 200 100 0 80 75 70 65 60 55 50 Sales Volume (million liters) Market Share (%)

19 86

19 88

19 90

19 92

19 94

19 96

19 98

In 2000, Efes share in the Turkish beer market reached a record high of 78%

20 00

Domestic Beer Market

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 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

Beer Trivia
Who drinks the most beer?
Annual Beer Consumption
1. 2. 3. 4. 5. USA 23.00 billion liters China 20.73 Germany 10.46 Brazil 7.88 Japan 7.15

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

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

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

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

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.

Beer Trivia
How long have we been drinking beer?

a) 1,000 years b) 2,000 years c) 7,000 years d) 20,000 years

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.

Beer Production

+
Hops Barley Malt

+ H2O +

yeast

Beer Production Process

malting barley
brewing distilling
Mashing Boiling Fermentation Aging

bottling

Production and Distribution System

Distribution System - Current

Malt Supply / Capacity
Current Malt Transportation

Brewery

Supply / Capacity

Current Beer Transportation

Beer
Demand Istanbul 103

24 / 30
Afyon
0

Izmir Istanbul
50

74

24

202/ 220 2 / 68 Konya

0

Antalya

0 0 60 0 102

50

Ankara 20 / 20 Import

Bursa

60

200 / 200

0 13

Kayseri

102

Export

13

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

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.

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

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.

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.