IE 341 Transportation & Logistics Engineering, Fall 2014 PROJECT #1

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IE 341 Transportation & Logistics Engineering, Fall 2014
PROJECT #1
Due on 11 December 2014, Thursday, 23:59 (through
Blackboard)
You should work as a team (3 members at most)
A Case Study of Anadolu Efes – Transshipment Problem
Adapted from: Köksalan, M., & Salman, F. S. (2003). Beer
in the Classroom: A Case Study of Location
and Distribution Decisions. INFORMS Transactions on
Education, 4(1), 65-77.
Anadolu Efes has dominated the Turkish beer market in the
last two decades as a result of careful
planning and successful strategies in distribution, pricing
and marketing. Consequently, Efes has become
synonymous with beer in Turkey and has reached an impressive
78% market share in 2000 (Exhibit 1).
The company has also extended its business line by buying
the right to bottle Coca-Cola in Turkey in
1998, and has been transforming into a multinational
identity by building up international brewing
operations mostly in Eastern Europe, Russia and Central
Asia. The two main challenges faced by the
company in the new millennium are to succeed in its business
diversification efforts and to maintain its
market position in its core Turkish brewing business.
Emre Yaman, who was hired as the Chief Executive Officer of
Efes nearly one year ago, has a couple of
major issues in mind as he shapes the business plan of the
company for the years to come. In terms of
domestic operations, an immediate issue is that the
anticipated increase in beer demand will surpass
Efes’ total production capacity in a couple of years. A
capacity expansion plan has to be prepared
carefully to address this problem. Such a plan will also
prove useful to deter any foreign entries to the
attractive Turkish beer market. In fact, increasing
competition is the other major issue in Emre Yaman’s
agenda. He has already seen the first signs of pressure when
Efes’ main competitor Turk Tuborg was
acquired by the Danish Carlsberg Breweries in September 2001
and subsequently launched the
“Carlsberg” branded beer against Efes’ own
“Miller Genuine Draft”. Although Emre knows that Efes’
long-time brand “Efes Pilsen” has a very loyal
customer base, he believes that the strength of Efes’
production-distribution network will play a key role in the
competition.
Emre Yaman mentions some of his concerns to Ali Yurtoglu,
the Vice President for Logistics and Defne
Kutay, the Vice President for Marketing over a game of golf
by the Bosphorus.
Emre Yaman (CEO): “The latest figures in the annual
activity report show that our distribution costs
constitute about 25% of our cost of goods sold. I wonder if
we can do better.”
Ali Yurtoglu (Vice President for Logistics): “I have
also been looking into this recently and assigned
our new employee Selin Baydar to analyze our distribution
system. She thinks that there is room for cost
reduction if we optimize our malt and beer shipment
plan.”
Defne Kutay (Vice President for Marketing): “If we aim
to lower costs, we may have to compromise
from the efficiency of our supply chain. Our breweries may
be reluctant to damage the loyalties that they
have worked hard to develop. Ankara brewery has been
supplying all the beer for the distributor in
Bursa and Istanbul brewery has been supplying all the demand
of the distributor in Antalya for a long
time. Both of these breweries and distributors have built
strong relationships and would prefer to keep
the existing relationships.”
Emre: “Why don’t we first look into the potential
savings and decide later whether it is worth making
any changes.”
Ali: “Actually, we already have most of the data to
make this analysis. We have estimates of the costs of
malt and beer shipments between various locations. We know
all malt plant and brewery capacities and
can obtain projected beer demand figures for the next
year.”
Emre: “That sounds great. Once you obtain the results
of the analysis, we can meet and decide on how
to proceed.”2
Company Background
Efes Beverage Group is the largest business unit of Anadolu
Holding, which was founded in 1969 in
Istanbul and named after the Turkish peninsula Anatolia. The
two founding families who still hold 55%
of the shares control the holding. The remaining 45% of the
shares are traded on the Istanbul Stock
Exchange. In addition to the beverage sector, Anadolu has
diversified interests in the automotive, office
supplies, packaging and financial sectors and has joint
ventures with international companies such as
Honda, Isuzu, Itochu and Faber-Castell.
The principal activities of Efes Beverage Group are in the
production and distribution of malt, beer and
plastic crates. Beer sales accounted for 96% of 2000 gross
revenues; the remaining 4% came from malt,
plastics and other. Efes Beverage Group operates nine
breweries and four malteries in five countries and
also conducts Coca-Cola operations in five CIS countries.
Efes Beverage Group, together with its parent,
Anadolu Holding, is the largest local shareholder in the
Turkish Coca-Cola franchise, controlling 40% of
the shares. In June 2000, the production companies of Efes
Beverage Group merged into a single entity:
Anadolu Efes Brewery and Malt Industry Corporation.
According to Finansinvest Research Group of
Istanbul, the value of Anadolu Efes was $1.143 million in
November 2001. As of May 2002, the
company was the eighth largest Turkish company by market
capitalization.
Efes has an annual beer production capacity of around 1.4
billion liters. The company owns five
breweries and two malt plants in Turkey. The domestic plants
have an annual total production capacity
of 910 million liters of beer and 97,500 tons of malt. 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. In 2000, Efes’ share in the Turkish beer market
has reached a record high of 78%. Turk Tuborg
is its only significant competitor (Exhibit 2). The third
player in the market is the state monopoly, Tekel
with nearly 1% share. Imported high premium brands do not
even constitute 1% of the market.
Efes sells its products in more than 30 countries worldwide
(Exhibit 3). While a few shipping containers
make their way to the U.S. every year, 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 Kazakhistan and
Ukraine in late 1990s. The sales volume of
Efes Breweries International almost tripled in 2000, during
which the Moscow brewery became fully
operational, and has increased its sales volume to 23% of
total beer sales of the Efes Beverage Group.
Turkish Beer Market
Turkish beer market has a size of 730 million liters and
around $294 million sales value, according to a
2001 report by Finansinvest Research Group(3). Finansinvest
pointed out the potential for growth in the
market considering that an annual population growth of 1.2%
is expected and around 50% of the current
population of 65.7 million people is below the age of 25.
Turkey increased its beer intake by more than 50% to a level
of 16.8 liters per person from 1995 to 2000.
Despite this exceptional growth, the per capita consumption
is below the global average of 22.7 liters.
Turkey ranks as the tenth largest beer-consuming nation in
Europe despite its relatively low per capita
consumption. The nation of 65.7 million people imbibed more
than 1.1 billion liters of beer in 2000,
about one-eighth of what leading Germany’s 82.8 million
residents consumed.
Beer consumption is closely related to cultural and
demographic factors. Surveys indicate that around
48% of the adult population in Turkey consumes alcoholic
beverages, and around 42% percent of those
who do not drink state that their religious beliefs are the
main reason for abstaining. Although being a
predominantly Muslim nation, Turkey has been a secular state
since the establishment of the Republic in
1923 and the Turkish government imposes no restrictions on
alcohol consumption. However, the
Turkish government banned broadcast advertising for all
alcohol products in 1995, forcing Efes to
rethink its advertising strategy. Since then, Efes has
particularly increased its sponsorship of sporting
events, concerts and its own successful professional
basketball team.3
Trends in the Global Brewing Industry
World beer consumption was expected to be around 126 billion
liters in 2000. USA and China account
for 36% of the global beer market, while emerging markets
make up a significant 45%. Consumption in
emerging markets has been growing as drinking cultures of
the populations change. Major US and
Europe based brewers have been focusing on the Eastern
Europe, China and the CIS countries for
growth opportunities. In particular, 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.
Part I: Improving the Current Production and Distribution
System
Beer is produced by malting barley, brewing, distilling and
bottling. The beer production process,
described in Exhibit 4, has been going on in Anatolia for
thousands of years (Exhibit 5), and has
remained essentially unchanged to our day; now taking place
at the modern malt plants and breweries.
Efes has two malt plants, both located close to main barley
regions in Konya and Afyon (Figure 1). Malt
produced at these plants, or imported at the Izmir harbor is
transported to Efes’ breweries in Istanbul and
Ankara. Efes ships beer produced at the breweries to its
main distribution centers in Istanbul, Izmir,
Antalya, Bursa, Kayseri and to the Izmir harbor for export.
The estimates on the transportation costs
between the malt plants and the breweries; and between the
breweries and the distribution centers are
given in Exhibit 6. Exhibit 7 contains the beer demand
forecast at the distribution centers for the next
year and Exhibit 8 shows the current malt and beer
production capacities as well as the malt yield.
Exhibit 9 summarizes the current distribution plan prepared
for the next year.
Having solved a linear programming model to optimize the
production and distribution system, Selin
Baydar explains the results to her supervisor Ali Yurtoglu.
“I used the model to figure out how many
tons of malt to ship from each malt plant to each brewery
and how much beer to ship from each brewery
to each distributor. I also made sure that none of the
capacities of the malt plants or breweries is
exceeded, and all the beer demand of the distributors is
satisfied. The shipment plan that minimizes total
costs is quite different from the current plan but we can
save around 10% in our transportation costs.”
Ali is content with the results. “Great, for such
sizeable savings we may convince Defne and Emre that it
is worth the effort for changing a few of the established
relations in the distribution network.”
Selin Baydar is excited about the upcoming meeting with Emre
Yaman, Defne Kutay, and Ali Yurtoglu,
where she presents the results of her analysis of the
distribution system.
Emre: “I’m impressed by Selin’s findings on the
distribution plan, but to what extent can we implement
them?”
Defne: “We will need to work proactively with the
distributors. We need to explain them how all parties
in the supply chain will eventually benefit from pulling the
costs down. We should also go in the
direction of streamlining the information flow
electronically to enable stronger supply chain
collaboration. When we first begin to implement the changes,
we may launch a promotion campaign to
keep the distributors happy.”
Emre: “Let us aim to implement the optimal distribution
plan, and resolve the initial problems within
three months.”
Note: The information regarding the company background,
Turkish beer market, and trends in global
brewing industry are accurate as collected and cited from
various sources in the Internet. The
problem is a hypothetical one but is similar to problems
Efes has been facing. Efes’ real distribution
system has been simplified for the purpose of keeping the
model size manageable. All the characters
and positions mentioned throughout the case are fictional.4
Figure 1: Picture Location of Efes’ Facilities.
Exhibits
Exhibit 4: Beer Production Process
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.
Brewing 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.
Exhibit 5: A brief history of beer production in ancient
times. Source: Efes Pilsener5
How long have we been drinking beer?
Mankind has been brewing and drinking beer for thousands of
years. 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 and the Nile river valley. Four thousand
years ago in Anatolia, Hittites, who had
founded one of the biggest and most sophisticated
civilizations of its age, were drinking beer in daily life
as well as in sacred rituals. Ancient Egyptians used beer as
a remedy for various maladies.
Various civilizations around Asia and Africa produced beer
using different types of grain. After the
eighth century A.D., hops became a part of the beer
production process, enabling better preservation. In
Medieval Europe, monasteries and abbeys were where most of
the breweries were located. Monks had a
near monopoly on beer production. In the dark ages when this
old continent was in the throes of
epidemics, drinking water was one of the main culprits of
disease. Beer, on the other hand, was boiled
and hence saved many lives as a disinfected and nourishing
drink.
Exhibit 1: Efes’ domestic beer sales volume over the years
and the growth of its market share.
Source: Anadolu Efes Annual Activity Report dated 2000.
Exhibit 2: Share of major parties in the Turkish beer market
(2000). Source: Finansinvest Research
Report dated 2001.
Exhibit 3: Countries to which Efes exports beer.
Source: Anadolu Group (http://www.anadolugroup.com/)6
Exhibit 6: Malt and beer transportation costs.
Exhibit 7: Beer demand forecast at the distribution centers
for the next three years.
Exhibit 8: The current malt and beer production capacities,
and malt yield7
Exhibit 9: Current distribution plan for Year 1
Exhibit 10: Current distribution plan for Year 1 (network
diagram)8
WHAT TO DO – Improving the current distribution system: The
current shipment plan enforces certain
restrictions due to existing relations between certain
breweries and distributors. These relationship limitations
can be summarized as follows:
1) Ankara brewery has been supplying all the demand of the
distributor in Bursa and
2) Istanbul brewery has been supplying all the demand of the
distributor in Antalya for a long time.
Both of these breweries and distributors have built strong
relationships and would prefer to keep the existing
relationships. The Vice President of marketing feels that it
is important to keep some of the current shipment
routes even if they increase the costs a little bit. The
distribution system can be optimized by a linear
programming model (e.g., transshipment model), first keeping
the desired existing shipment routes (as in Exhibit
9 and 10), and then by relaxing these limitations and
summarizing the resulting savings in costs.
As input data (parameters), the transshipment (distribution)
model should use
1. capacities of malt plants and breweries,
2. beer demand at distribution centers,
3. shipment costs of malt and beer, and
4. malt yield at breweries.
The decision variables represent
1. the amount of malt shipped from each plant to each
brewery and
2. the amount of beer shipped from each brewery to each
distributor.
The constraints are:
Malt Plants: Total shipment out ? Capacity
Malt – Beer Balance: Beer brewed from received malt ? Beer
shipped out
Breweries: Total beer produced ? Capacity
Beer to Dist. Centers: Beer received ? Demand
Existing relationship limits (remove them when relaxed)
WHAT TO SUBMIT: One of the team members should submit a
SINGLE EXCEL file (.xls OR .xlsx only)
including all the TEAM MEMBERS’ NAMES/IDs in the file
through the “IE341-Project1-Fall2014-EXCEL
File Submission” available under “Assignments” in
Blackboard. Failure of submission will result in a 0 mark
for the project. You can use the “Week07-Transshipment
Problem-MCNFP-BB.xlsx” (under “Course
Materials” in Blackboard) as a template for your answer.
Note that for parts 1, 2(a) and 2(b), you should have
separate worksheets in the same file, and also include Table
1 below for cost comparison into worksheet for
part 2(b). No need to submit your answers as a printout (as
I will only mark your EXCEL file only.)
1) You are to find the total cost of the current distribution
plan for year 1. You can compute the total
cost for this plan using EXCEL.
2) Optimize the distribution system by formulating and
solving a linear programming (LP) model,
a) with existing relationship limitations,
b) by relaxing these limitations.
You can optimize the total cost for 2(a) and 2(b) by using
EXCEL/Solver and summarize the resulting savings
in costs in a table in EXCEL, as in Table 1 ((i.e., find X,
Y, Z, X-Y and X-Z in Table 1).
Table 1: Costs Savings (Current Plan vs. Optimized)
MODEL Total
Transportation Costs
Savings
(Current Plan)-(Optimized)
Current
Distribution Plan X N/A
Optimized Plan
with existing limitations Y X – Y
Optimized Plan
by relaxing these limitations Z X – Z