Operations Management Facility Visit Report Operations Management – Mahou

IE BUSINESS SCHOOL

Operations Management Facility Visit Report

Mariana Amorim, Gabriel Reusche, and Dominik Speich

07/10/2013

Operations Management – Facility Visit Report Mariana Amorim, Gabriel Reusche,

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1. Introduction: The Mahou Factory Alovera Mahou is the leader in the brewery market in Spain and it is responsible to export 75% of the Spanish beer. This report will start by explaining Mahou´s operations at Alovera plant which is the largest beer factory in Spain.

2. The Alovera Process

2.1 The Different Alovera Process Stages A typical flow at Alovera Plant has four stages:

1- Brew House – The Brew House is the stage in which the beer is actually made. This process can take from 4 to 5 hours, depending on the different recipes of the end beer. There are 3 processes in the Brew House:

• First process in the Brew House is the milling in which malt is added to the liquid. The malt is already grinded and it is mashed with water to extract sugar. It is necessary in this process that 100% of sugar is extracted to have the desired level of alcohol in the liquid. After the milling, comes the mashing part in which water is added to one of the tanks in a temperature of 45 to 95 degrees Celsius. This process takes 45 minutes to 1 hour. The plant needs 3.8 liters of water to make one liter of beer. In contrast, the industry average is 4.5 liters of water per liter of beer.

• Second process is the filtering that occurs in another tank. In this process, the solid is separated from the liquid. This process can be compared to the process of making tea. This process takes 30 to 45 minutes.

• Third process in the Brew House is the boiling in which Hops are added to the liquid for the bitterness of the beer. This process takes 1.5 to 2.5 hours.

In addition, it takes 30 minutes cleaning the tanks and 10 minutes to transfer the fluids between the tanks.

2- Fermentation – In this second stage, the fluid goes through a cooling process in which sterilized air is used to make the temperature reach 10 to 12 degrees. At this moment yeast is added and the fermentation process will convert the sugar into alcohol and CO2. CO2 is extracted and will be re-used in the bottling process. This process takes one week in order to make the “young” beer. The same yeast can be used more than once. However to achieve 100% quality, the yeast should be used only twice. After the fermentation, yeast is removed and the remaining liquid is called “jam” beer.

3- Maturation – This part of the process takes two weeks to finish and it occurs at the same tank as in the fermentation process. So, no transfer is required. However, the tanks get cool at a temperature of 2 degrees Celsius. The tanks


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have sensors to identify the external temperature in order to heat or cool the tanks depending on the outside temperature. There are 92 tanks and each one has a capacity of 600.000 liters. But, Mahou only fills the tanks until 480.000 liters to leave space for CO2. If Mahou would fill the tanks until 600.000, the tanks would explode.

4- Packaging – After the maturation process, the fluid is transferred to a prefilling tank in which the fluid waits to be bottled. This process can take from 5 hours to one day. In total, there are 11 packaging lines in the factory. The packaging occurs from Monday to Friday, 24 hours a day and there are three shifts a day. There are some steps within this stage: bottles are washed (applies to reusable bottles only, not new bottles and cans); bottles checked; beer and CO2 are added, a little at a time; the level of the liquid is checked; pasteurization process occurs (heated to 70C then decreases to 2C); labels are put on (bottles only).

The inventory of the final product is usually held in the warehouse for 10 days. In addition, there might be inventory of non-picked orders. The malt is kept in the silo before it is used in the process.

2.2 The Different Capacities of the Process Stages Brew House: The total capacity of the Brew House is of 15 brews a day. However, Mahou only makes 10 brews on average per day in the Alovera Plant. There are two lines and each line has a capacity of 150,000 liters. The brew house works 24 hour per day and 7 days per week. Inside the Brew House, the process that takes the longest time is the boiling process. Capacity of the Brew House is: =150,000 (liters per line) * 15 (brews per day) * 7 (days per week) * 2 (weeks) * 2 (2 lines) =63,000,000 liters / 2 weeks =31,500,000 liters / week Fermentation: This stage takes one week and there are 92 tanks with 480,000 liters. It also works 24 hour per day and 7 days per week. Capacity of the Fermentation process is:

92*480,000*2= 88,320,000 liters / 2 weeks = 44,160,000 liters / 1 week Maturation: This stage takes two weeks and there are 92 tanks with 480,000 liters. It also works 24 hour per day and 7 days per week. Capacity of the Maturation process is:

92*480,000= 44,160,000 liters / 2 weeks = 22,080,000 liters / 1 week Packaging: The capacities of the 11 packaging lines in the Alovera Plant are the following: Line Capacity of bottles amount of beer 1 100,000 bottles/hour 25,000 liters/hour 2 15,000 bottles/hour 15,000 liters/hour 3 50,000 bottles/hour 12,500 liters/hour 4 50,000 bottles/hour 12,500 liters/hour


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5 50,000 bottles/hour 12,500 liters/hour 6 1,000 barrels/hour 50,000 liters/hour 7 240 barrels/hour 4,800 liters/hour 8 50,000 bottles/hour 12,500 liters/hour 9 50,000 bottles/hour 12,500 liters/hour 10 100,000 bottles/hour 25,000 liters/hour 11 90,000 cans/hour 30,000 liters/hour

Thus, in total the packaging has a capacity of 212,300 liters/hour (212,300*5*24=25,476,000 liters / week).

2.3 Bottleneck Considering the process as a whole the bottleneck should be the Maturation. According to our calculation in 2.2 the Brew House has the lowest capacity.

However, considering maturation and fermentation happen in the same tank, we consider them as the same process. Thus, the capacity of the combined maturation and fermentation process is: =92*480,000= 44,160,000 / 3 weeks =14,720,000 / week As a result, the bottleneck is the combined fermentation and maturation process.

2.4 Throughput Time The throughput time is the time the beer stays in the whole process. In the case of Mahou, the throughput time is about 20 to 25 days. The difference results from the fact that the length of the process depends on the recipe of the different beers, and on the waiting time for packaging.

2.5 Quality According to the handbook received during the Mahou visit, the beer is made in a traditional manner and developed using the most up-to date technology for making beer. First of all, Alovera employs a control office which controls the whole beer making process. The control office has all the recipes on a computer and the office can access the beer quality being produced through the sensors. In particular, the control office needs to make sure that the liquid has the desirable level of quality when the beer reaches the fermentation process. Mahou also checks the quality of the malt when received to start the process. Furthermore, Mahou checks the bottles before filling with beer. If there were a problem with the liquid the process would need to be restarted. For instance the most common problem is the sugar level when it is low the brew process has to be done again.

In addition, Mahou cleans the tank between every brew that takes 30 minutes. In doing that, Mahou makes sure that the quality of the beer meets the factory’s standards. Another important point is that Mahou controls the quality of the water because the water quality affects directly the quality of the beer. To guarantee better quality, Mahou uses 3.8L of water to make 1L of beer while the European beer average uses 4.5 L to produce 1L. Without these controls, Mahou wouldn´t be able to keep the high standard of the beer. Furthermore, the production at the fermentation and maturation process is checked every 24 hours. It is clear that Mahou incurs in prevention (training their employees),


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appraisal (making sure everything is in the right track), and end internal (checking the product costs before the beer leaves the packaging line so that Mahou can meet or exceed customers satisfaction and not incur in external customer costs).

2.6 People /Workers Mahou´s factory employs people that really knows how beer is made and how the beer making process works. Without these trained employees, Mahou wouldn´t be able to deliver the quality that its customers expect. Although the factory uses up-to-date technology, it needs people to ensure that the processes run smoothly and faultlessly. For instance, in the control office, the employees check the whole process. The Alovera factory has 550 employees and in Spain Mahou has around 3000 employees. In conclusion, although there are not many people working in the factory, those people who are working are essential.

2.7 Variability in the Process The variability of the process is due to 23 different types of beers included in major brands (like Mahou, San Miguel, Allambra) and Mahou also produces beers of other brands for example Carlsberg (tailor made contracts). However, the basic ingredients are the same (malt, water, yeast and hops). The recipe varies due to the type and amount of malts and hops, the level of alcohol and the bitterness.

2.8 Customers Mahou´s customers are basically wholesalers, retailers, small shops, restaurants and bars. However, those people sell to the final customer who is the one who has the expectations about the product. Mahou - San Miguel not only sells in Spain but also is responsible for 75% of Spain´s exports of beer. The strict quality control at Alovera assures that the product expectations of customers are met.

2.9 Improvements Although we think Mahou is doing a good job and especially they have a good control of quality, there is always space for operational improvements. First of all Mahou could work on the bottleneck by putting more tanks in the fermentation and maturation stage. However, as all processes there will be another bottleneck. So we believe that there is still space for improvements in the packaging part. Mahou should decrease the time for waiting in the packaging line. When we were at the factory we saw that one line stopped just because one bottle felt. We think that this shouldn´t be a reason for the line to stop.

3. The Process of Sinea Factory (our chosen process)

3.1 Introduction Sinea is a cap producer factory located in Lurin, 35 kms to the South of Lima city center. The factory was constituted in 2004 when the owners from Ecuador decided to sell the business to one of the most important corporations in Perú, IF-Group originated in Spain.

Sinea is the second largest 28mm cap producer in Perú and supplies the most important bottlers in Perú such as Coca Cola (Lindley), Pepsi (Ambev), Royal Crown, and KR


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(from the Añaños family) just to name a few in the local market. In the LATAM region there are two main customers; Polar (bottler of Pepsi) in Venezuela and Arca (bottler of Coca Cola) in Ecuador. This is relevant because Sinea´s process is very efficient and its costs are one of the lowest in the entire region. As a result its prices are very competitive when it comes to bid for important purchase orders.

3.2 Sinea’s Process In 2004, Sinea had only two Continuous Compression Moulding (CCM) machines that had a monthly total production of 36 Million closures. Nowadays, the plant has 8 CCM´s and a total monthly production of 170 million closures. The Compression moulding is already a well-known technology worldwide. More than 65% of the caps are produced through compression. The advantages offered from the compression technology in terms of lowering production costs and producing better quality are: shorter cycle time and therefore higher productivity, less energy consumption, high specific density, less maintenance, quick color changeovers processes, and less waste.

The flow diagram of Sinea is shown below.


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There are two chillers in the Sinea factory which work as a circulation process that consists of water being typically distributed to heat exchangers, or coils. The exchanger handles air units which cool the air in their respective spaces. Then the water is re-circulated back to the chiller to be cooled again. These chillers are crucial for the CCM machines to work without any difficulties.

The hydraulic rotary presses of the CCM are specially designed to produce thermoplastic products (in this case 28mm plastic closures or caps) by means of compression. A continuous work-cycle is carried out during which plastic material is fed from a plasticization unit, and that plastic is cut into suitably gauged pellets. The pellets are then inserted inside the cavities.

The creation process of a cap starts when the chillers are turned on. The chillers work the entire year except for two days (the anniversary day of the plant and new year´s evening). After starting the chillers, two raw materials are used and inserted into the piovan which allows for the optimum management of the required doses; these are polypropylene (PP) which is divided into polypropylene copolymer (70%), and polypropylene homopolymer (30%). Masterbatch is the second raw material added, only used to give color to the cap.

Then the extrusion process happens. In this process, the two materials are mixed, prepared correctly, and melted at 250°C for the ongoing process. The largest part of the energy required to plasticize the compound derives from the friction mechanical work of the screw-barrel-material system and not from the heating elements on the barrel.

Immediately after the materials are melted, the pellets are inserted in the cavities and the plasticizing of the cap occurs (because of the chillers) at 52°C. After inserting the pellets, the CCM generates 500 caps per minute. This process includes plasticizing the compound (creation of the cap). After that the created cap gets folded, which is when the bottom flaps of the cap take shape. Once this happens the caps go into silos to cool off and are left to rest for 10 hours. The process continues with the cutting or slitting the cap and lining the cap. These processes are crucial for a producer because it is an extremely important piece of machinery that includes crucial features such as warm up blades for better quality, flexibility on slitting settings, high slitting precision and extreme accurate and delicate cap control. On the lining side the process occurs to ensure proper sealing and retention of CO2 levels in highly carbonated beverages by moulding an EVA liner (specific type of plastic) into the cap´s shell. This technology is called “in shell moulding”.

After making the cap there are two options for packaging. Either the caps are directly inserted into a bag or are sent to the printing machine to put the customer´s logo or the CSD brand on top of the cap. If the caps do not need to be printed, the process continues when the caps fall from the machine into the box (every box has a special bag to seal the caps). The boxes are then sealed and packaging concludes when the boxes of a same product are stored in the warehouse. Each box contains 4400 caps and each pallet consists of 24 boxes, making a total of 105,600 caps per pallet. In case the caps are sent


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to the printing machine, there are two machines with a total capacity of 2500 caps per minute. That gives a total amount of 108 million printed caps per month if used at total capacity. Once the printed caps are put into a box, this box is automatically delivered to a weighting machine that assures that the total amount of caps per box is 4400. Then the boxes are sealed and packaging concludes when the boxes of a same product are stored in the warehouse.

3.3 How do we see the Sinea process differently after 3 months Three months ago we were not aware of the importance of each step in the process. For instance, now we know that the waiting time for the cap cooling process becomes part of the total throughput time that is 12 hours per batch of a 135 boxes (142.5 million caps). This idle time could be used to work with the quality and R&D department.

Before studying operations we didn´t realize that the chillers were part of the process. Now, we know not only that these two machines are part of the process but also they represent one of the most important parts of the whole process. We also analyzed the process differently by seeking to find out the bottleneck. In the above described process it is the printing machine. What the company could do to address this problem is to give incentives to clients to demand more non-printed caps instead of printed caps.

We are now also aware, how Operations Management is interconnected with managing people. Thus, as an operations manager of the Sinea factory we would also focus on quality management because every day approximately 3 million caps to into the market and the company is responsible if something happens to the end users.

4. Summary

4.1 Today we saw service operations and we saw a manufacturing operation. How were they different? How were they similar?

Before we start outlining the similarities and commonalities between the Mahou and the Barajas process, let us explain what we compare in terms of the process of Barajas. In connection with the Barajas airport, we compare the customer flow within the airport with the beer manufacturing in Mahou. Thus, we don’t analyze other services the airport provides, such as the different kinds of restaurants and shops available in the airport.

The above made distinction leads us directly to the first and main difference between the Mahou and the Barajas process. Mahou produces a physical product whereas Barajas provides a service. Therefore, within Mahou it is the physical product that runs through the process while within the airport it is the customer and not a product who runs through the process. As a consequence, within Barajas the customer has more direct contact with the process than in Mahou. Thus, at Barajas there are service encounters between the customer, the personnel and the airport as a company (many moments of truth for the airport).


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Another difference between Mahou and Barajas is the number of different products each processes delivers. As we have already stated (see 2.6), Mahou produces different products, different kinds of beers, but not every product is different. Mahou produces batches of products. Within these different batches the product stays the same. In the Barajas process, as every customer is different, each service is slightly different.

When we are taking the role of the end-customer, there is another difference between Mahou and Barajas. The process at Mahou is not visible for the end-customer when he or she buys the beer at a store. The process at Barajas is more visible to the end-customer since he or she runs through the process. Admittedly, there are a lot of processes behind the airport scene that the customer doesn’t see. But still the Barajas process is more observable by the customer than the process in the beer manufactory.

However, when we have the chance to analyze the different processes as a visitor, we identify another difference in the two processes. As Mahou produces a physical product produced waste of the process is visible. Waste will be bigger and has to be transported away from the factory. In the Barajas airport waste is not visible because a lot of the different steps of the process are carried out electronically. Even to decide what is waste is difficult. This circumstance makes it more complex to analyze the Barajas process and identify its waste or its bottleneck for example.

Similar in both processes are that Mahou and Barajas employ a strict quality control. Both processes have employees who only track the quality of the product. Furthermore, both companies are concerned with the security of the organization as a whole. For sure the security check has a bigger impact on Barajas since it operates in an industry in which regulations have a huge impact on the service. However, also Mahou faces a strict regulation environment when you consider the rules and guidelines of the food and beverage industry (hygiene standards for example).

4.2 As a manager, what different tools or processes do you think need to be put in place for these operations to succeed? What did you learn from these visits?

4.2.1 Lean Manufacturing in the Manufacturing Industry as well as in the Service Industry

Both companies should apply lean manufacturing to its processes. Lean manufacturing primarily means taking a customer perspective and try to avoid waste during the process. This customer view tries to avoid or take out everything what is not value adding for the customer, also called waste. From taking this view a manager can analyze the process from a different angle.

Nowadays the world and competitors are moving fast, and that is why responsiveness to market changes and customers’ needs are very important. Also the fact that customers are demanding more and more has to be taken into account. Lean manufacturing applied to service industries can improve the flow of the process because it focuses on removing non-value added process steps. As a result, the overall process can be improved in terms


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of speed that leads to lower costs. The customer’s approach of lean manufacturing not only leads to cost efficient processes but also increases the quality of the service. As a result, it increases customer satisfaction. However, since the waste in a service company is not highly visible, applying the tool of lean manufacturing to a service company is difficult to make. But still the tool of lean manufacturing can have a positive impact on the process of a service company.

The advantages of applying lean manufacturing to the Mahou process are straightforward. Lean manufacturing leads to less waste. It also reduces product errors. Therefore, it increases the efficiency and reduces inventory. These factors have a huge positive impact on costs. Also when Mahou takes a customer approach it can identify new trends of tastes that affect its product offer. In responding fast to possible changes Mahou can mitigate the risk of falling behind its competitors or of missing out certain trends.

4.2.2 Standardization

Another important tool for both processes is standardization. Both processes should try to standardize processes because this enhances the process flow.

As we have seen, the process in Mahou is very standardized and automated. Every batch of beer runs the same process.

Barajas as a service company doesn’t produce a physical product. It provides a service to a human being, thus it provides a customer experience. Furthermore, every personnel contact is slightly different. With standardization Barajas can group customer according to their general needs. For example the difference between the check-in counters for First, Business, and Economy class is such standardization. But, as every service is slightly different, standardization in a service company cannot be put to the extent as it is possible in a manufacturing company such as Mahou that produces identical or different batches of identical products. But still, applying the tool of standardization to a service company where standardization is possible, can lead to a better customer flow.

4.2.3 Total Quality Control

We see for both companies Total Quality Control as an important aspect. In particular, for Barajas it is important to involve employees in improving services. We believe, that not only at the Barajas airport but also in other airports many employees don’t know what their role is compared to the overall process. Many employees even have no knowledge about the process and how long it takes to complete a task. Thus, manager at the airports should involve its employees in process making or at least inform them of the process. This would strengthen employees’ commitment to the process and increase their overall motivation what leads to higher quality.

4.2.4 Learnings from the vistis Both visits were very interesting. We had the chance to see the processes at first hand. In particular, we were very surprised by the control office of the Mahou. We were somehow aware that the airport employ a strict control check. However, that the Mahou


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factory also has such rigorous checks were astonishing. Also the fact we didn’t see a lot of employees working at Mahou was surprising. This process is very automated which is impressive.

4.3 As a manager, what have you learned from OM that you will need to manage effectively to be a successful manager?

First of all we learned how operations management is linked to the strategy of a company. Strategy should be aligned with operations and both should match.

Furthermore, to analyze operations of a company we learned that the first thing you have to do is to analyze the process in depth. You have to know for what people spend their time. It is not enough to have an overall view of company’s operation. You have to go to the details and analyze every little step in the process. Only when you do that you can identify the bottleneck of the process and which process steps add value and which do not.

When you have successfully identified the bottleneck and want to change company’s operations, such a change implementation needs the commitment of employees and its involvement. Therefore, operations management is interconnected with managing employees. In order to improve company’s process you should first train your employees and strengthening team spirit. While running the process you should engage employees in steadily seeking to improve the process. In most of the times, employees are closer to the operations and thus have more knowledge about which steps could be simplified. Furthermore, in service companies it is important that you empower your employees that they have responsibility over certain tasks. Employees are more motivated when they have more responsibilities because they feel they can influence something. Higher employee motivation leads to better service. Better service leads to better quality and thus higher customer satisfaction.

We also learned that operations management or the improving of a company’s operation is an ongoing process. It doesn’t stop because a company’s operation will always have a bottleneck in the process and there is always the threat of new competitors. These competitors are not only operating in your industry, they also can come from other industries. When these competitors develop better operations a company can quickly fall behind and lose its current position. Thus, a company steadily has to improve operations. Yet, in the role of a competitor, operations can give you a weapon (competitive advantage) to attack the market leader company.

Operations Management Facility Visit Report Operations Management – Mahou

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