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

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Question;1;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: K?ksalan, 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

 

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