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
Efes 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 beer
The 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 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 Market Size
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
Surveys indicate that around 48% of the adult population in Turkey consumes alcoholic beverages
2000, per capita consumption 16.8 liters (global average: 22.7)
Population 65 million
50% of the current population is below age 25.

6. Who drinks the most beer?
Beer Trivia
Who drinks the most beer?
Annual Beer Consumption
USA billion liters
China 20.73
Germany 10.46
Brazil 7.88
Japan 7.15

7. Who drinks the most beer?
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
Markets in Western Europe and North America are saturated
Emerging 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 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

10. 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

11. Analysis Improve the current distribution system
Analyze Efes’distribution 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 1,000 years 2,000 years 7,000 years 20,000 years
How long have we been drinking beer?
1,000 years
2,000 years
7,000 years
20,000 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:
Malt
provides beer its body and color.
Water
95 % of beer, mineral content influences quality and flavor
Hops
used in small amounts
prevents the brew from going sour
brings a characteristic bitter flavor and a pleasant aroma +
H2O +
yeast =

15. Beer Production Process
malting barley
Mashing
Boiling
Fermentation
Aging
brewing
distilling
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.
bottling

16. Production and Distribution System

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

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 distributor
Istanbul brewery supplies all the beer demand of Antalya distributor
Total shipment costs can be reduced by optimizing the shipment plan

19. 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.

20. 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

21. 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.

22. Analysis Optimize Objective:
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.