Cost of case of yuengling

D.G. Yuengling & Son Case Study

D.G. Yuengling & Son

With beer sales dropping around the world, you should be ecstatic that sales of Yuengling beer are up 225 percent in the last six years. But as you walk through the caves and tunnels of Yuengling’s Eagle Brewery, carved into Sharp Mountain in 1831 to maintain a perfect 50-degree temperature for storing beer, you see not only the history of America’s oldest brewery everywhere you turn, but also chipped paint, rusting pipes, and an aging plant that can’t keep up with the growing demand for Yuengling beer. So far, thanks to hard work, dedicated workers, and some luck, you’ve doubled your production capacity from 250,000 to 500,000 barrels of beer a year, but if you push for more, the old brewery will break.

Yet with sales up so dramatically, the company faces a problem says CEO and owner Dick Yuengling, “We are sold out of beer. We run the risk of losing our customer base because we don’t have any product on the shelves.” Shortages are so bad that the advertising

budget has been cut from $3 to $2 a barrel. Yuengling explains, “You can’t fuel the fire when we can’t get them beer anyway.”

Ironically, with production stuck at 500,000 barrels a year, Yuengling beer has become harder to find as it has become more popular. Sales representative Diane Adams said, “It was a little hairy. People were up in arms.” So, rather than sacrifice sales in its home market of Pennsylvania, where Yuengling has its largest market share (10 percent), the company has temporarily stopped shipping beer to distributors in Maine, Massachusetts, and Rhode Island. Since that strategy won’t help Yuengling grow outside Pennsylvania, you still face the question, of how to permanently increase beer production to meet the growing demand.

You’ve identified five options. The first is to add new storage and finishing tanks to Eagle Brewery to increase production capacity by 10 percent to 550,000 barrels a year. Though doable, this is only a short-term solution. Second, you could outsource production to another company. This would be more cost-effective, but would Yuengling beer produced in non-Yuengling factories taste different? For a “specialty” beer, this could be a substantial risk. Still, outsourcing would be affordable, and Yuengling has done it before, outsourcing production of its Black and Tan beer to Pabst Blue Ribbon’s brewery in Lehigh, Pennsylvania, until Pabst closed that facility four years ago. The third option is to buy another brewery, but there aren’t many for sale and those that are would be expensive and require significant upgrades. For example, it would cost $13 million to buy and $5 million to fix Stroh’s 1.5 million-barrel brewery in Tampa, Florida, which is far from Yuengling’s northeastern markets.

A fourth option is to build a new factory capable of producing 1.2 million barrels per year, but that would cost $50 million and take three years. The fifth and final option is simply to “do nothing.” The company is already very profitable, has low overhead costs, and is very efficient. In other words, by “doing nothing” the company could still make a lot of money without incurring the risks inherent in the other options. And risk is a real consideration because everyone in the company remembers that Yuengling was losing money just a few years ago.

Questions (Each is worth 20 points for a total of 100 points on this midterm)

1. Using the information in this scenario and the three websites provided, please do a complete SWOT analysis for Yuengling. To do so, please list and fully explain three factors for each category and their importance to the company.

2. Using ONE of the historical views of management, please suggest some practices or approaches for Yuengling. You may choose from scientific management, bureaucratic management, administrative management, or human relations theory.

3. Please set up and fully describe a task force team you would use to deal with the issues facing the company. Include a full description of team membership, tasks, autonomy, design, size, goals, and any other factors important in the function of this team.

4. Describe the process you would recommend that Yuengling use to make a decision in the scenario described above – focus on how the decision should be made rather than what the decision should be (Individual or group? What are some things management should do? What are some things management shouldn’t do in making this decision?)

5. Using your answers to the previous questions, what decision do you think Yuengling should make? Recommend one of the five alternatives and justify it to Yuengling management, along with an action plan for implementing that decision.

D.G. Yuengling & Son

With beer sales dropping around the world, you should be ecstatic that sales of Yuengling beer are up 225 percent in the last six years. But as you walk through the caves and tunnels of Yuengling’s Eagle Brewery, carved into Sharp Mountain in 1831 to maintain a perfect 50-degree temperature for storing beer, you see not only the history of America’s oldest brewery everywhere you turn, but also chipped paint, rusting pipes, and an aging plant that can’t keep up with the growing demand for Yuengling beer. So far, thanks to hard work, dedicated workers, and some luck, you’ve doubled your production capacity from 250,000 to 500,000 barrels of beer a year, but if you push for more, the old brewery will break.

Yet with sales up so dramatically, the company faces a problem says CEO and owner Dick Yuengling, “We are sold out of beer. We run the risk of losing our customer base because we don’t have any product on the shelves.” Shortages are so bad that the advertising

budget has been cut from $3 to $2 a barrel. Yuengling explains, “You can’t fuel the fire when we can’t get them beer anyway.”

Ironically, with production stuck at 500,000 barrels a year, Yuengling beer has become harder to find as it has become more popular. Sales representative Diane Adams said, “It was a little hairy. People were up in arms.” So, rather than sacrifice sales in its home market of Pennsylvania, where Yuengling has its largest market share (10 percent), the company has temporarily stopped shipping beer to distributors in Maine, Massachusetts, and Rhode Island. Since that strategy won’t help Yuengling grow outside Pennsylvania, you still face the question, of how to permanently increase beer production to meet the growing demand.

You’ve identified five options. The first is to add new storage and finishing tanks to Eagle Brewery to increase production capacity by 10 percent to 550,000 barrels a year. Though doable, this is only a short-term solution. Second, you could outsource production to another company. This would be more cost-effective, but would Yuengling beer produced in non-Yuengling factories taste different? For a “specialty” beer, this could be a substantial risk. Still, outsourcing would be affordable, and Yuengling has done it before, outsourcing production of its Black and Tan beer to Pabst Blue Ribbon’s brewery in Lehigh, Pennsylvania, until Pabst closed that facility four years ago. The third option is to buy another brewery, but there aren’t many for sale and those that are would be expensive and require significant upgrades. For example, it would cost $13 million to buy and $5 million to fix Stroh’s 1.5 million-barrel brewery in Tampa, Florida, which is far from Yuengling’s northeastern markets.

A fourth option is to build a new factory capable of producing 1.2 million barrels per year, but that would cost $50 million and take three years. The fifth and final option is simply to “do nothing.” The company is already very profitable, has low overhead costs, and is very efficient. In other words, by “doing nothing” the company could still make a lot of money without incurring the risks inherent in the other options. And risk is a real consideration because everyone in the company remembers that Yuengling was losing money just a few years ago.

Questions (Each is worth 20 points for a total of 100 points on this midterm)

1. Using the information in this scenario and the three websites provided, please do a complete SWOT analysis for Yuengling. To do so, please list and fully explain three factors for each category and their importance to the company.

2. Using ONE of the historical views of management, please suggest some practices or approaches for Yuengling. You may choose from scientific management, bureaucratic management, administrative management, or human relations theory.

3. Please set up and fully describe a task force team you would use to deal with the issues facing the company. Include a full description of team membership, tasks, autonomy, design, size, goals, and any other factors important in the function of this team.

4. Describe the process you would recommend that Yuengling use to make a decision in the scenario described above – focus on how the decision should be made rather than what the decision should be (Individual or group? What are some things management should do? What are some things management shouldn’t do in making this decision?)

5. Using your answers to the previous questions, what decision do you think Yuengling should make? Recommend one of the five alternatives and justify it to Yuengling management, along with an action plan for implementing that decision.