The MUSC Brewery is a regional brewery for a line of beer products. Markets for their products
Question:
The MUSC Brewery is a regional brewery for a line of beer products. Markets for their products are limited to the southeastern part of the United States, as shown in Figure 1. MUSC Brewery is a local favorite, and its demand is growing rapidly among consumers over 50 years of age. Its products are slightly lower in alcohol content and considerably lower in calories than the most popular brands. They promote themselves as a healthy option, and consumers are responding with increasing preference. To meet the increased demand for its products, Carolyn Carter, director of logistics, has been asked to evaluate the effect on operating costs of building a brewery in Jacksonville, Florida. This proposal arose from the rapid growth in the markets of the south of its region and the projected pressure on the capacity of the Montgomery brewery.
Carolyn began her analysis by noting that current breweries in Richmond, Virginia, Columbia, South Carolina, and Montgomery, Alabama, vary in their production capacities and costs. The cost of producing a barrel of beer products is different between these locations, based on variations in equipment age, local labor rates; delivery costs of raw materials to breweries, and differences in costs resulting from local property taxes, tax rates, and services.
Table 1 summarizes these costs and capacities. Each brewery produces a complete line of products MUSC maintains a uniform price already delivered to distributors of $ 280 per barrel throughout its marketing region. The annual average current sales of each brewery for each market area are provided in Table 2.
A profit margin of 20% on sales is obtained. Transportation between the breweries is handled by a private truck fleet owned by MUSC. From the truck and driver expense records and deliveries made, Carolyn formed the average transportation costs shown in Table 3.
Based on her experience with the other breweries, Carolyn estimated the costs of transportation for the proposed breweries. The main reason for suggesting a new brewery in Jacksonville is the approximate doubling of the Florida market, while the remaining markets are anticipated to grow by 15-50%. It is believed that the Jacksonville brewery would free the Montgomery brewery from serving the Florida market. The five-year anticipated demand pattern for each market and brewery area serving it is shown in Table 4. A brewery in Jacksonville with a capacity of 100,000 barrels is planned. Building a brewery of this size is expected to cost $ 10,000,000, with a shelf life of 15 years. The company's expectation for such a project is a 20% pre-tax return, and SG&A is approximately 27% sales. The new brewery is believed to be able to produce at the cost of $ 135 per barrel.
QUESTIONS:
1. If you were Carolyn Carter, would you agree to the proposal to build the new brewery? If so, what plan for distribution would you suggest?
2. If the brewery is not built, what distribution plan would you propose to senior management? 3. What additional considerations should be taken into account before reaching the final decision? Base your analysis on questions about how the supply chain behaves,
eg.: • What is the company's strategy? • How are the company's strategy and customer needs to be integrated • What physical, political limitations, among others should be considered?
Expert Answer:
1As Carolyn Carter I would agree to the proposal to build the new brewery in Jacksonville Florida Based on the data presented there is a growing deman... View the full answer
