Assumptions:That beer bottles and cans are similar in production ability, fill-ability, and profitabilityWe are obviously simplifying many things in this analysisAt the end of the day what we are really looking for is: do the dollars and cents line up? Should we outsource?How do we decide?Strictly monetary?Quality Control?Bad-Press Risk?
We made some assumptions…We want to know at what point will the annualized cost of the bottling equipment and cost of personnel make more sense than outsourcing. For any sufficiently small bottling we see that it likely make much more sense to outsource.For the purposes of analysis we will look at a 5-year life for the bottling operations
So after a visit to the 7up bottling operations,…
Some painstaking research at their facilities
A little digging into things at SilverPeak
We got some numbers…Not these kind…
More like these numbersAnd after some Pricing Analysis from our 7up tour
You can see profit and price per ounce
And along with some Constants and Variables
And did a little optimization
Based upon our constraints, our optimum solution is to Produce 243,900 6-Packs and 5,150 Kegs
Challenges• Production Capacity• Refrigeration / Storage Capacity• Distribution Channels• Forecasting / Demand Management• Product Mix• Fermentation Lead Times• Capital financing• Sales and Marketing
Challenges• Bottling process is specific to beer• Distribution costs are highly variable• Shelf space is a premium and negotiated on a high level• No glass bottles. Plastic and can bottling only.• Typically only subcontract for distribution and private labels.
Assumptions• 1 U.S. Gallon = 128 oz.• 1 Barrel = 31 Gallons• 1 Barrel = 3,968 oz. (330.67 - 12 oz. Beers) (55.11 – 6 pack 12 oz. Beers)• Estimated bottled beer demand would require between 6000 and 8000 additional barrels to be produced.
WHAT SHOULD WE DO?To outsource bottling or not to…
Outsourcing Solutions• Mobile Bottling Solution - .045 cents per bottle• Includes bottles, caps and labels.
Outsourcing Solutions• Eliminates new facility (Estimated Cost $65.00 per sq. ft)• Eliminates the entire bottling line (Estimated cost $50,000) Rotary Rinser Long Tube Filler Head Crowner Exterior Bottle Rinser Air Wash Dryer Rotary Labeler
• We’ve established: • We want to grow market penetration • We want to bottle the beer • There are many factors & decisions involved• Determine Outsourcing with Break Even analysis • Based upon number of BottlesTo Outsource or Not to…
Built it Outsource it• Act. cost of $287k in yr 1 • $0.045 / bottle • Zoning & Permitting • Building Construction • Limited no. bottling • Bottling Equipment operation times per year • Full Time Employee• + Annual Costs • Inconvenience for• Assumes virtually customers unlimited production capacity • Needs more warehousingBreak Even
$1,200,000.00 $1,000,000.00 $800,000.00Cost of Bottling $600,000.00 Build It Outsource $400,000.00 $200,000.00 $- 0 2 4 6 8 10 12 Year • Outsource if: • < 361,352 six-packs per yearBreak Even
Bottle 6-Packs Kegs Produce 243,907.15 5,148.53 per year Maximize $ 1.44 $ 128.96 profits / item Total Profits $ 1,015,180.83 X = 6-packs Y = Kegs Maximim Current Value Production Cap (gal) 0.5625 15.5000 217,000.0000 217,000.00 Cold Storage * Turns (sq-ft) 0.0041 0.6816 4,500.0000 4,500.00 kegs available - 1.0000 6,000.0000 5,148.53 local store space 0.1667 - 60,000.0000 40,651.19 Minimum Kegs - 1.0000 - 5,148.53 Bottle 6-Packs 1.0000 - - 243,907.15 Example Profit Line 1.4400 128.9600 900,000.0000Production Optimization
16,000.00 14,000.00 12,000.00 10,000.00Kegs (#) 8,000.00 Production Storage Max Kegs 6,000.00 $900,000 Profit Line 4,000.00 2,000.00 - 0 50000 100000 150000 200000 250000 300000 350000 400000 450000 6-PacksProduction Optimization