The document describes a decision problem of whether to open a craft brewery that would ship beer to three states. The goal is to maximize annual profit while maintaining low inventory and minimizing delivery costs with an annual budget of $100 million. An influence diagram model is formulated to determine the optimal brewery location and production/shipment amounts. Excel is used to simulate costs of raw materials, utilities, labor, land, and distance-based delivery to evaluate total costs against the annual budget and identify the highest profit solution. The conclusion is to open the brewery in Newark, DE to initially deliver to DE and ME based on an annual profit of $183 million.

1. Craft Brewery Supply Chain
By
Anand Gautam
Nathalie Sacre

2. Problem Description & Goals
 Decision: Should we open a brewery that
will ship our new craft brew to three
different states with highest consumption of
alcohol per capita?
 Goal: Maximize annual profit while
maintaining low stocks and minimizing
delivery costs.
 Annual Budget - $100 million for initial
investment in factory, buying land and other
variable costs

3. Model Formulation
Influence Diagram

4. Model Formulation Continued

5. Model Implementation
 Find a Location for Brewery
 Determine the Brewery Equipment and Supplies
 Determine the Brewery Employees and Staff (Labor cost)
 Determine the Brewery Annual Budget
 Determine Misc. Inputs
STATE
PER CAPITA BEER
CONSUMPTION
(GALLONS)
Per Capita Beer
Consumption
(Ounces)
% CHANGE IN
SHIPMENTS
2003 - 2011
Delaware 34.3 4390.4 10.80%
Louisiana 34.1 4364.8 -6.10%
Iowa 33.7 4313.6 0.80%
Maine 33.5 4288 12.50%
Hawaii 31.2 3993.6 1.90%
Colorado 30.9 3955.2 8.40%
Alaska 29.8 3814.4 8.90%
Arizona 29.8 3814.4 -1%
Illinois 28.9 3699.2 -5.80%
Idaho 28.3 3622.4 6.50%
Kansas 28.2 3609.6 -2%
Florida 27.8 3558.4 -4.90%
Arkansas 26.3 3366.4 4.30%
Indiana 26.1 3340.8 -0.50%
Georgia 25.9 3315.2 -0.20%
California 25.4 3251.2 5.30%
Kentucky 23.9 3059.2 -2.80%
Maryland 23.3 2982.4 -2.90%
Connecticut 21.8 2790.4 -3%

6. Selected States

7. Distances & Costs
Wilmington Dover Newark Bangor Lewiston Portland Denver Fort Collins Colorado Springs
Wilmington 15 51.2 13.4 568 471 441 1722 1718 1703
Dover 51.2 12 49.4 608 511 480 1747 1750 1728
Newark 13.4 49.4 15 574 477 447 1722 1700 1704
Bangor 568 608 574 10 107 129 2198 2175 2267
Lewiston 471 511 477 107 12 36.1 2103 2080 2172
Portland 441 480 447 129 36.1 15 2071 2048 2139
Denver 1722 1747 1722 2198 2103 2071 10 65.1 68.4
Fort Collins 1718 1750 1700 2175 2080 2048 65.1 15 133
Colorado Springs 1703 1728 1704 2267 2172 2139 68.4 133 10
Variable Costs Units per Barrel Cost per Unit Cost per Barrel ($)
Raw Material
Grain Bill/ Malted Barley (lbs) 50 $0.50 $25
Hops (lbs) 1 $10.00 $10
Yeast(gallons) 1 $10.00 $10
Utilities
Water(gallons) 248 $0.01 $2
Electricity(KWH) 40 $0.15 $6
Natural Gas(therms) 4 $1.00 $4
Labor $2.69
Total Variable Cost $60.17

8. Model Implementation continued:
DecisionVariable: N i j - Amount of barrel produced from brewery i to demand point j, X i - Optimal location of
brewery
Objective Function: Annual Profit = Revenue – Total Cost
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑁 𝑖 𝑗 (𝑏𝑏𝑙) × 𝑈𝑛𝑖𝑡 𝑃𝑟𝑖𝑐𝑒(
$
𝑏𝑏𝑙
)
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
= 𝑁 𝑖 𝑗 (𝑏𝑏𝑙) × (𝐶𝑜𝑠𝑡 𝑜𝑓 𝐿𝑎𝑛𝑑
$
𝑎𝑐𝑟𝑒
× 𝐹𝑎𝑐𝑡𝑜𝑟𝑦 𝑆𝑖𝑧𝑒(
𝑎𝑐𝑟𝑒
𝑏𝑏𝑙
) + 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡
$
𝑏𝑏𝑙
+ 𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝐶𝑜𝑠𝑡
$
𝑏𝑏𝑙
)
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 = 𝑁 𝑖 𝑗 ( 𝑏𝑏𝑙) × [
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙
$
𝑏𝑏𝑙
+ 𝑈𝑡𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐶𝑜𝑠𝑡
$
𝑏𝑏𝑙
+ 𝐿𝑎𝑏𝑜𝑟 𝐶𝑜𝑠𝑡
$
𝑏𝑏𝑙
+ PCR
(
$
𝑏𝑏𝑙
)]
𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝐶𝑜𝑠𝑡 𝐷𝐶 = 𝑁𝑖 𝑗 (𝑏𝑏𝑙) × 𝑑 𝑖 𝑗 (𝑚𝑖) × 𝐷𝐶𝑅($/mi/bbl) Where: dij is the distance traveled from the
factory to demand locations in miles
Constraints:
Total Cost ≤ Annual budget ($100M)
𝑗=1
𝐽
𝑁𝑖𝑗 = 𝑁 × 𝑥𝑖 (∀𝑖)
𝑖 𝑁𝑖𝑗 ≤ 𝑇𝐷𝑗 ∀𝑗
𝑁𝑖𝑗 ≥ 0
Total costs ≤ 𝐴𝑛𝑛𝑢𝑎𝑙 𝑏𝑢𝑑𝑔𝑒𝑡
𝑖=1
𝐼
𝑋𝑖 = 1.0
Xi = 1 if location is selected
Xi = 0 otherwise

9. Excel Simulation & Decision Analysis

10. Conclusions
 Based on an annual profit of $183M; we have
made the decision to open a craft brewery.
 The brewery will be located in Newark, DE.
 As a startup, we will only deliver to the states
of Delaware & Maine.
 The brewery will produce 12 Oz bottles and
package them in a 30 pack case

11. Q/A