4. History
• Silver Peak Brewery
• Founded 1999
• Three Reno locations
• Owners: Trent Schmidt, Brewmaster, and Dave
Silverman, Chef
5. Process to Bottle
• Pump beer from storage tanks into bottles
• Cap, label and pack bottles
• Refrigerated storage facility
• Refrigerated distribution trucks
6. Bottling Options
1. Build facility:
• Bottling equipment
• Refrigerated storage facility
2. Outsource to a bottler
3. Mobile bottling provider
• Build refrigerated storage facility
9. Challenges
• Production Capacity
• Refrigeration / Storage Capacity
• Distribution Channels
• Forecasting / Demand Management
• Product Mix
• Fermentation Lead Times
• Capital financing
• Sales and Marketing
10. 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.
11. 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.
16. • 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 Bottles
To Outsource or Not to…
17. 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 warehousing
Break Even
18. $1,200,000.00
$1,000,000.00
$800,000.00
Cost 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 year
Break Even
26. 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 900,000.0000
Production Optimization
27. 16,000.00
14,000.00
12,000.00
10,000.00
Kegs (#)
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-Packs
Production Optimization
28. Bottle 6-Packs Kegs
Produce 243,907.15 5,148.53 per year
Maximize $ 1.44 $ 128.96 profits / item
Total Profits $ 351,226.30 $ 663,954.53 $ 1,015,180.83
Results
29. • Outsource if:
• Less than 361,352 six-packs per year
• Results
Bottle 6-Packs Kegs
Produce 243,907.15 5,148.53 per year
Maximize $ 1.44 $ 128.96 profits / item
Total Profits $ 351,226.30 $ 663,954.53 $ 1,015,180.83
• Outsource = YES!!!
• For Now..
Recommendations
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