outsourcing bottling operations - silver peak brewery

Outsourcing Beer Bottling

Presented by:Ann McKenzieJeff BennettDaniel Herr

OVERVIEW & HISTORYAnn McKenzie

Overview

• History/Background• Process/operation to outsource• Challenges• Outsourcing Analysis• Conclusion

History

• Silver Peak Brewery• Founded 1999 • Three Reno locations• Owners: Trent Schmidt, Brewmaster, and Dave

Silverman, Chef

Process to Bottle

• Pump beer from storage tanks into bottles• Cap, label and pack bottles • Refrigerated storage facility• Refrigerated distribution trucks

Bottling Options

1. Build facility:• Bottling equipment• Refrigerated storage facility

2. Outsource to a bottler

3. Mobile bottling provider• Build refrigerated storage facility

CHALLENGES & SETUPJeff Bennett

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.

Challenges

• 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.

Assumptions

WHAT SHOULD WE DO?To outsource bottling or not to…

• 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

Outsourcing Solutions

THE PROBLEM; THE SOLUTIONDaniel Herr

To Outsource or Not to…

• 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

Break Even

Built it

• Act. cost of $287k in yr 1• Zoning & Permitting• Building Construction• Bottling Equipment• Full Time Employee

• + Annual Costs• Assumes virtually

unlimited production capacity

Outsource it

• $0.045 / bottle

• Limited no. bottling operation times per year

• Inconvenience for customers

• Needs more warehousing

Break Even

• Outsource if:• < 361,352 six-packs per year

0 2 4 6 8 10 12 $-

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

Build It

Outsource

Year

Cos

t of B

ottl

ing

Research

Research

Research

Research

?

?

%

$

#

7up Pricing

34%

30%

15%

11%

10%

Cost of Canning / Bottling

Cans

Syrup

Overhead (Water, Labor, Prod.)

Can Lids

Cardboard Cases

Silver Peak Pricing

10.0 100.0 1,000.0 10,000.0 $-

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

Silver Peak Pricing

Price / oz

Profit / oz

Volume

$ / V

olum

e

Production Optimization

Variables Constants

Inventory Turns 18.00 /year 31.00 gallons / barrel

Cold Storage (Usable) 250.00 sq-ft 15.50 gallons / keg

Increase Product Capacity 7,000.00 barrels 12.00 oz / bottle

Kegs in Circulation 6,000.00 kegs 128.00 oz / gallon

Local Store Shelf Space 60,000.00 sq-ft 6.00 bottle / pack

Cans / Pallet 8,169.00 cans / pallet

Pallet Size 11.06 sq-ft

Pattlet Stack Height 2.00 pallets

Keg Stack Height 3.00 kegs

Standard Keg Footprint 2.04 sq-ft

Buffer Arround Storage 6%

Pack Footprint 0.17 sq-ft

Profit - Kegs $ 0.065 /oz

Profit - Bottles $ 0.020 /oz

Production Optimization

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

0 50000 100000 150000 200000 250000 300000 350000 400000 450000 -

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

Production

Storage

Max Kegs

$900,000 Profit Line

6-Packs

Keg

s (#

)

Feasible Area

Results

Bottle 6-Packs KegsProduce 243,907.15 5,148.53 per yearMaximize $ 1.44 $ 128.96 profits / itemTotal Profits $ 351,226.30 $ 663,954.53 $ 1,015,180.83

Recommendations

• Outsource if:• Less than 361,352 six-packs per year

• Results

• Outsource = YES!!!• For Now..

Bottle 6-Packs KegsProduce 243,907.15 5,148.53 per yearMaximize $ 1.44 $ 128.96 profits / itemTotal Profits $ 351,226.30 $ 663,954.53 $ 1,015,180.83

QUESTIONS?Ann, Jeff & Dan