Panama Beer Company

Panama Beer Company (PBC), which is a subsidiary of a multinational organization, has been in beer business for over 100 years and currently is the biggest brewery in the country. It

4

manufactures six worldwide recognized brands of soft drinks, three brands of beers, and one brand of malt and water. Additionally, distributes two international beer brands, two milk brands, and juices. Its market share was 68% in the beer segment, 33% in soft drinks segment and 89%

in malt segment in 2012 (Cerveceria Nacional S.A., 2012).

PBC has a Vision of being the leaders in the beverage market by having the highest growth potential and profitability brand portfolio, working with the best talent and always being a market-oriented organization. Its Mission is to own and promote the local and international brands preferred by the consumers.

PBC’s manufacturing plant is located in Panama City, and it has an annual capacity of 2,295,412 hectoliters for beer products and of 1,223,722 hectoliters for carbonated soft drinks (CSD). It consists of three critical departments: brewing, packaging and utilities.

Brewing Department consists of a “kitchen” area, fermentation tanks, conditioning tanks and the filtering process. All these areas are managed by Brew House Director, and reports directly to Plant Director.

Utilities Department is in charge of supply indispensable utilities to brew house and packaging lines such as treated water, steam, pressure, electricity, etc. The head of this department is the Utilities Director, who also reports directly to Plant Director.

PBC Packaging Department is the largest beer bottling plant in Panama. This area packs beer products and soft drinks products, in different types of containers such as returnable bottle, cans, kegs and pet. These production lines are under Packaging Director’s supervision. Since this project is focus on Packaging Department the structure of it is briefly described.

It consists of six production lines divided into two areas: beer and CSD. Both areas together have one director, two managers, six shifts’ team leaders and around seventy two

5

operators.

The beer packaging area is formed by four production lines, each having different capabilities. Below is a brief description of each:

 Line 1: bottles 2 SKUs from the beer segment and 1 from the malt segment in returnable bottle. This line has the highest throughput rate.

 Line 2: bottles 5 SKUs from the beer segment and 1 from the malt segment in returnable bottle. This line has the greatest flexibility for beer packaging.

 Line 3: packs 8 SKUs from the beer segment, 17 SKU from the CSD segment and 2 from the malt segment in aluminum cans. This is the only production line for cans.

 Line 4: packs 2 SKUs from the beer segment in kegs. This line is operated mainly by hand. It is also the smallest and simplest of the factory.

CSD packaging area consists of two lines:

 Line 5: bottles 7 SKUs from the CSD segment in returnable bottle.

 Line 6: bottles 33 SKUs from the CSD segment in PET, 3 from the malt segment and 3 from the water segment. Currently this line works at full capacity, 7 days per week, 24 hours per day.

In the last two years sales volume of beer and soft drinks packed in returnable bottles (RB) started to go down; presenting a decrease of 18% in sales in the first quarter of the last fiscal year (April ‘13 ~ July ‘13) compared to the same period of previous year (April ‘12 ~ July

‘12), also referring to Figure 1. Until the end of August 2013, the total demand had been covered using seven full dedicated teams divided between the three RB lines, working together seven shifts per day and six days per week. The change in demand from RB to cans and PET packages resulted in low utilization of the three RB lines, causing an increment of idle time in lines and

6

personnel.

Figure 1 - Sales of Glass Returnable Bottles (Hl are not shown due to confidentiality issues)

Plant managers decided to make a radical change in the production plans of the three RB lines and a head count reorganization. Through a capacity vs. demand analysis, PBC estimated that six shifts per day (six days per week) were enough to meet RB products’ demand. Due to reduction in production requirement, managers calculate that six teams and one special team for line cleaning and changeover periods, are capable to cover the changes. With this new scheme some teams are required to work alternately between the lines.

Currently the plant is working with three crews assigned full time to line 1, and three teams working alternately between lines 2 and 5. Planning Department had to re-define the planning parameters and proposed new approaches to schedule production lines. The planners usually employ spreadsheet-based tools (e.g., MS-Excel) to generate production plans with mostly manual adjustments from their subjective judgment. So, following their intuition and experience, they have decided that Line 1 will bottle all demand requirements of three SKUs from beer and malt segment, and Line 2 will fulfil the other three SKUs from beer segment. In

7

Appendix B shows a flow diagram indicating the information flow of the detailed scheduling planning process currently used in PBC.

This thesis is mainly concerned about the lot sizing and production scheduling encountered in PBC’s packaging lines for returnable bottles. These are Line 1, Line 2 and Line 5, which are in charge of bottled 13 different SKUs. For practical purposes, we name Line 5 as named Line 3 for our following presentation.