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

International Operations:

Efes Breweries International

Soft Drinks:

Coca-Cola

Sales and Distribution:

Efes Marketing

Efes’ Domestic Beer Market Share

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

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100

200

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1986

1988

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1998

2000

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55

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Sales Volume (millionliters)

Market Share (%)

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

Beer Trivia

Who drinks the most beer?Annual Beer Consumption

1. USA 23.00 billion liters2. China 20.73 3. Germany 10.464. Brazil 7.885. 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 Efes’distribution 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

a) 1,000 years

b) 2,000 years

c) 7,000 years

d) 20,000 years

How long have we been drinking beer?

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

Barley Malt

Hops

+

+ H2O + yeast =

Beer Production Process

malting barley

distilling

brewing

bottling

•Mashing•Boiling•Fermentation•Aging

Production and Distribution System

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

BrewerySupply / Capacity

49

103

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2

20

0

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50

0

0

0

0

25

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60

102

13

24

Current

Malt Transportation

Current

Beer Transportation

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 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

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.