Quantitative and Qualitative Decision

Quantitative and Qualitative Decision

Instructions/Descriptions

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Running head: HOCKLEY VALLEY BREWING

HOCKLEY VALLEY BREWING

1

What is the Rationale for Investing in a New Brew Pub?

Conceptual Study by the Owner of an Existing Restaurant/Tavern (Based on a running case and a business simulation package)

Student Names: Xiaohan Feng, Szu-Hua Yu, Chong Zhang, Nanjun Zhou, and Jintao Zhu

Course ID: AD715: Quantitative and Qualitative Decision-Making

Instructor: Dr. Vladimir Zlatev

Date of release: 12/10/2018

Table of Content

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Table of Content 1 Executive Summary 3 1. Introduction 5 Marketing Function: 7 1. Projected Promotion Costs 7 2. Costs of Production and Marketing Prices. 8 3. Sales Projection 9 Innovation Function: 10 1. Water Purification Technology 10 2. New Product to Product Line 10 Marketing Function: 11 1. Adjusting Product Line 11 2. Sales Projection for New Product 11 Operation Function: 11 1. Adjusting the Cutoff Point 11 Marketing Function: 12 1. Balancing Supply and Demand 12 2. Adjusting Prices and Target Market Size 12 Finance Function: 13 1. Budget for Employees 13 2. Budget for Facilities 13 3. Budget for Renting 14 Human Resource Function: 14 3. Application of Decision Support Tools 15 3.1 SWOT Analysis 15 3.2 PESTEL Analysis 16 4. Evaluation of the Results of the Business Simulation 19 4.1. Functional Area #1: Marketing Management 19 4.2 Functional Area #2: Innovation Management 21 4.3 Functional Area #3: Operation Management 21 4.4 Functional Area #4: Financial Management 22 4.5 Functional Area #5: Organization Management 22 5. Summary of the Results, Recommendations, and Conclusions 22 5.1 Summary of the Results 22 5.2 Recommended Strategy 23 5.3 Implementation Plan for the Selected Strategy 24 5.4 Conclusions 24 Appendix 29 1.1 Implementation Plan for The Brew Section 29

Executive Summary

Preamble

The New BrewPub is a new project that the owner of an existing restaurant in Fenway can use to enhance its local competitiveness in the marketplace. The new craft beer section produces and sells craft beers to customers. As the consultant team, we collected data from the beer industry with the purpose of providing more concrete and practical advises to the owner of the restaurant to decide whether to invest into the new system (BrewPub) for brewing craft beer (draught beer) in-house. In business simulation part, we perform our analysis in different functional areas, including Marketing Management, Innovation Management, Operation Management, Financial Management, and Human Resources Management. After running ten cycles of business simulations and adopting several analytics tools, which incorporate SWOT analysis, PESTEL analysis, What-if analysis, and Optimization analysis, there comes the conclusion for the restaurant owner.

Discoveries from Business Simulation

Through SWOT analysis, the new brewery section will bring the restaurant new customers, which will bring more sales revenues into the restaurant. however, it also faces unstable sales resulting from unknown brand name and different seasons. The PESTEL analysis provides concrete outside environment insights to the owner, the technology part gives the owner suggestions to adopt water purification technology to enhance the efficiency of water usage and to improve the taste and quality of the craft beers. Optimization analysis provides hints to revise the market price and target market size to maximize the sales revenues from the new brewery section. With the help of different cycles and different analysis tools, the most profitable cycle has been found.

Conclusion

The trend of the total net profits generated from the new brewery section indicates that the owner of the existing restaurant should invest into the new brewery section. The new section will provide new customers to the restaurant, generate more profits for the restaurant, and help the restaurant gain more competitiveness in the marketplace.

Recommendation

According to our data analysis, our profitability can be further optimized. In the next step, we believe that Pub can also reduce operating costs and procurement costs to improve profit margins. Therefore, we recommend optimizing operations in three areas. The first is the placement of ads, which will no longer be advertising throughout the year, we will find our target users more accurately. Second, continuously reduce operating costs. Third, while ensuring the quality of beer, we continue to explore our procurement costs.

1. Introduction

Owning a restaurant comes with numerous responsibilities. Besides ensuring activities run smoothly and suppliers are supplying food regularly, an owner also needs to concern in bringing a new pool of customers. By doing so, the owner is more likely to increase sales. A good marketing strategy is to have various beverage selections in accompany to the restaurant’s gourmet food. As always, introducing a new menu to the table is always a good strategy. However, several factors come into play when the new “menu” is alcohol. There is no doubt that serving alcohol will attract a new group of customers who were not regulars. As indicated by a research, the most profitable restaurants in America make 75 percent of its income from alcohol sales (Derek 2018). As a matter of fact, people spend more on alcohol unlike any other form of entertainment. Its popularity, therefore, guarantees that selling it at the restaurant will increase the number of customers who visit it.

It is also true that owners of craft beer can ideally decide the price of their product depending on the quality of alcohol that has been brewed. This simply means that as the owner, one can set competitive prices that keep them at bay or above their key competitors. This increases the amount of revenue collected at the end of the day.

There are several reasons why adding new brewery section is a right decision. First of all, alcohol is the most popular form of entertainment for most people around the world. Second, while there are many established brands in the market, people are always more willing to try out new brands that can establish themselves well. Therefore, it is beneficial to establish an owned brand since the restaurant already has its own channel for publication.

Indeed, loyal customers will always want to try out what the restaurant has to offer. Just like they are willing to take a special menu or recipe, they will be willing to taste homemade beer that has a traditional touch to the restaurant that they frequent. Therefore, it is confident to say that since the restaurant already has a market, all it needs to do is to satisfy customers by new products. Finally Crafting beer is not always an easy thing to do. It requires special skill which we believe we possess.

The only way to tell whether our beer are better than that of our competitor are by its popularity. People will tend to show their appreciation for good beer by buying it more often and with word of mouth, it will bring more customers. Therefore, if our beers sell more than that of competitor then we will be making better beer.

However, the main goal of opening this pub is to increase the number of customers that come to our restaurant. First we need a space which has the capacity to have 30 tables, with each we can fit 4 seats. The sitting area around the bar will be 16 seats. This will come to a total of 136 seats. We then estimate a daily turnover rate is to be 4 times, but the occupancy of the restaurant is to be about 70% and another 80% of the alcohol consumption rate, because not all customers will order beer with their food. If we work only 340 days in a year, this will get us approximately 103,578 customers per year just for this beer section. This will, in turn, increase the amount of revenue that we make than the restaurant is getting us currently.

The remainder of this research is structured as follows: First, making statement about final goal. The second section is Managerial decision-making process for selected functional areas of the new business unit. There are 5 functional areas, including Marketing Management, Innovation Management, Operations Management, Financial Management, Organizational Management and Human Resources Management. The third section includes selected decision support tools for each functional area. There are 4 differences methodological framework in this report. Including SWOT, PESTEL Analysis, What-if Analysis and Optimization Analysis. Evaluation of the results from the business simulation is presented in the fourth part. Finally, the recommended strategy and implementation plan in this research and conclusion are described.

2. Managerial Decision Making Process for Selected Functional Areas of the New Business Unit

Marketing Function:

1. Projected Promotion Costs

According to Collins (2018), the majority of beer consumption in United States comes from millennial generation, whose age is 21-27, and this age group contains the heavy user of social media. Therefore, promotion of the new business unit of craft beer through social media platform is necessary. Dephillips (2015) mentions that the average costs for professional social media marketing is around $1,000 to $20,000, since the new business is only a small section of the restaurant, $8,000 is the budget for social media promotion at the beginning stage. When more customers aware of the existence of social media accounts, they will be more engage in the communication with the merchants (Laudon & Traver, 2017), therefore, the social media expenses are projected to increase by 120% per year. Strauss and Frost (2014) mention that it is also necessary to have an official website, which include the restaurant’s important announcements, coming events, and the menu, to let customers easily recognize the restaurant. According to research, all of the four bars that sell craft beers in Fenway have their own websites, and the average price to build and maintain the website is $4,000. In order to make the website look more professional and appealing, $5,000 need to be allocated to the establishment of the website. After the establishment of the website, the budget will be reduced to half of the original for website maintenances. The majority sales revenues will come from the local residences and the college students (who will stay in Boston more than one year), therefore, local advertising is also necessary to inform potential customers about the new craft beer section. After consulting with the advertising participants in Boston, the expenditure of local advertising is round $5,000 to $50,000. For the new craft beer section, $10,000 will be used on the local advertising aspect with the increase rate 111% at the first year and 120% at the second year. According to Grewal and Levy (2014), trade shows is an effective way to attract distributors. Wright and Mcneil (2018) states that craft beer trade shows’ costs range from $8,000 to $20,000. As a result, with the purpose to effectively attract wholesalers to assist the distribution, $12,000 will be spent on trade shows with the increase rate 111% at the first year and 120% at the second year. In order to manage the customer relationship effectively, $3,000 will be used in customer relationship management.

2. Costs of Production and Marketing Prices.

According to the business running case, the costs of materials for craft beer includes ingredients costs and the costs CO2+H2O. According to Metzger (2012), for most of the craft beers, the total cost of raw ingredients plus adding CO2 into the beverage is about $0.37 per unit. Wilmes (2017) states that the average labor costs of making beer in the north part of United States is $0.25 per unit. The business running case also mentions that making craft beer includes energy consumption or some wastes. The Brewers Association (2017) states that the average energy consumption for brewers is $4.26 per barrel, after converting the barrels into units, the cost is 0.25 per unit.

After doing survey and collecting data from competitors, which include Boston Beer Works, John Harvard Brewery and Ale House, Rock Bottom Restaurant & Brewery, and Cisco Brew Pub, the average price for craft beer is from $4.5 to $6 per unit. With the purpose to cover the development costs and capture market share in the marketplace, $5 is the suitable price for the beer in the new business unit. Moreover, in order to expand the market reach, collaborating with distributors is necessary. According to Kohlbach (2015), retail prices should be at least two times more than the wholesale prices. Therefore, the prices for the two selected beers (Bavarian Lager and Pilsner) through wholesale channel is $1.3 per unit.

3. Sales Projection

After conducting researches, in whole Boston area, the consumption of beers will increase simultaneously with the sport competition like football, baseball, and basketball, especially the events that related to Red Sox and Super Bowel. People will drink different beer in different seasons according to the alcohol concentration. In cold weather, people tend to drink more high alcohol concentration beers, and in hot seasons, people are more likely to drink low alcohol concentration beers (My beer, 2017). As a result, the sales projections for each of the craft beer in different month are based on the alcohol concentration and the frequency of the sports events.

Innovation Function:

1. Water Purification Technology

The in-house H2O purification technology can reduce the chlorine and chloramine elements in water, those elements will give beers a medical taste. After the water has been purified, the efficiency of water usage in beer brewing will be enhanced (U.S. Water System, 2016). Therefore, after implementing this purification technology, the material costs for beer brewing will be reduced. The brewing expert informed that the increased efficiency in water usage can reduce the material costs by about one cent. As a result, the material costs will be reduced from $0.37 to $0.36 per unit after adopted this H2O purification innovation. Purchasing a brand-new water purification machine for only a small section is not cost-effective, renting is a better choice. After consulting an employee from Kwipped water purification company, monthly fee for the machine is $400, when divided this amount by the unites of products, the cost is $0.01 per unit, therefore, the costs for “others” increase from $0.25 to $0.26. After purifying the water used in brewery process and the cost structure is modified, total profit before taxes increases from $563,361 to $611,698.

2. New Product to Product Line

According to the marketing survey, the major increase in population in Boston area, especially in Fenway (where is closed to Boston University, Harvard University, MIT, and Northeastern University), coms from the millennial generation who come here for school. And the survey also shows that for those millennials, American India pale ale (American IPA) is their favorite craft beer. Therefore, in the product innovation part, American IPA (which is referred as Boston Best in the Table ‘Inn-Mgt’) will be added into the product line with the purpose to capture the market share in a short run.

Marketing Function:

1. Adjusting Product Line

In order to ensure the production efficiency and ensure the supply of craft beers can match the demand from customers, after adding American IPA into the product line, an existing craft beer need to be deleted from product line. Based on the efficiency ratios of all the product, Pale Ale Beer is recommended to be deleted.

2. Sales Projection for New Product

From interview, craft beer consumers mentioned that they like to drink American IPA in relatively warm and in hot seasons, the medium alcohol concentration (3.5%-5%) make American IPA unsuitable for the extremely cold winter in Boston. Therefore, American IPA can be served only from May to October.

Operation Function:

1. Adjusting the Cutoff Point

According to Heizer (2013), efficient operation management should balance the demand from customer and the supply from sellers, the difference percentage shoul equal or lower than 10%. Since the new brew pub is only a small section of the restaurant business, 10% difference between supply and demand is acceptable. Table I shows that product 3, 4 and 6 exceed the 10% difference. In order to increase the supply, the cutoff points for these three products are reduced from 0.8 to 0.6. After adjusting the cutoff points, product 4 has reached the 10% difference range, but product 3 and 6 are still out of the 10% range. With the purpose to ensure the supply efficiency for other products, 0.6 is the lowest acceptable cutoff point. Therefore, modifying the sales projection for these products is the alternative solution.

Table I. Total Supply and Demand

Marketing Function:

1. Balancing Supply and Demand

Product 3 (Light Wheat Beer)’s alcohol concentration is only 2.6%, it is not so popular in the extremely cold weather in Boston. Therefore, product 3 can be served only from March to September for the three physical years to adjust the demand from customers. According to marketing research, product 6 (Nut Brown Ale) is popular among customers in winter because of its strong taste and aroma. As a result, product 6 can be only supply in the cold weather to restrict the demand from customers. After changing the cutoff point and modifying sales projection, the supply of all the products is relatively match the demand from customers (which can be shown in Table II). The balance increases the total profit before taxes from $611,698 to $769,009.

Table II. Total Supply and Demand After Adjusting

2. Adjusting Prices and Target Market Size

After adjusting the sales projection, the price of each product and the target market size for each product also need to be adjusted through the optimization analysis. The purpose of this action is to further balance the demand from customers and the supply by the sellers so that the restaurant can ensure to serve customers with their needs and wants. The total profit before taxes increases from $769,009 to $1,361,505 after the prices and target market size are optimized.

Finance Function:

1. Budget for Employees

For the employee part, since the new brew section is only part of the restaurant, and according to the Brewer Association (2017), the workload for the assistant is low, hiring a part-time office assistant to execute the brew pub operation is enough. The average salary for the expert assistant in brewer industry is around $31,946 per year (American Bar Association, 2018), so the budget for the part-time assistant can be $15,000 per year, with the purpose to retain this assistant, the salary can increase steadily by 110% for the last two years. In order to generate more market share and more revenues from brew section, two salesmen need to be hired. After consulting with human resource managers in brew industry, the salary for salesmen ranges from $20,000 to $40,000. With the purpose to encourage the salesmen to put more efforts in promotion, the salaries for these two salesmen can be $80,000 per year, and based on their performance, the salaries may increase by 110% for the last two years. It is useless to have a full-time executive for a small section, $15,000 can be set as the budget for the part-time executive.

2. Budget for Facilities

Basic equipment, like cars, computers, phones, lights, is necessary for the brew section. From the industry research, at least $15,000 need to be allocated to the utility section with average depreciation costs at $75,00. Based on the infrastructures and equipment utilized by the brew section, $31,500 will be allocated. With the purpose to reduce the loss after some unexpected situation like fire or earthquake, purchasing insurance is also necessary. According to an expert in the Brewery Pak Insurance Program, $7,000 is the suitable amount for the brew section in the restaurant.

3. Budget for Renting

According to LoopNet. Com (2018), (the website that collects information of rent and lease in Boston), the yearly fee for 1 square feet in Fenway is $110. Therefore, 200 square feet space for brewing beers is $22,000, and based on the trend of interest rate in United States, the payment may increase by 110% and 120% for the las two years.

According to Bank of America, the prime interest rate for loan is 5% for the length of 36 months. The Tax Cuts and Jobs Act (TCJA) adjusted the corporate tax rate on January 1st 2018, the tax rate is decreased from 35% to 19% (Trading Economics, 2018).

Human Resource Function:

After doing the survey in brewery industry, the average salary for an experienced salesman is $30,000. “The salaries of sales people are based on their performance, we cannot give them high basic salaries to decrease their incentives”, said by a HR in a beer company, “we should give them high commission to encourage them to sell harder”, said by a sales representative manager in the same company. Therefore, $40,000 is projected to be the yearly salary for a critical salesman based on the assumption that the two salesman have good performance.

3. Application of Decision Support Tools

3.1 SWOT Analysis

Strengths（internal)

When restaurant open bars and have these new craft beers, it offers more services to customers. This will attract new customers and give customers more options. In addition, the local –Fenway is convenient after people watching sports events. In this case, customers can choose this bar nearby after watching the sports games. In a restaurant, it doesn’t cost much to open a bar with part of the table. What’s more, decoration, recruitment, training of waiters and waitresses this series of early works are very experienced for this restaurants.

Weaknesses（internal）

First of all, this is not a well-known beer brand and low brand recognition for this market. Secondly, beer sales vary from season to season. In cities like Boston, extreme weather conditions such as cold winters and snow force customers stay home. Third, in the United States, you need a license to open a bar in a restaurant. It takes time and money to get a liquor license. Next, when the restaurant opened its bar, it limited its customer base. For example, many families with children may not willing to come as often.

Opportunities（external）

First of all, there will be more choice for customers. Providing a bar serve alcohol will give customer a chance to drink when they want to. Then, during the sports event, this place provides fans watching sports events together. Moreover, close to the Fenway stadium for the people who after watching the sports events. There are many residential apartments near Fenway, with a large flow of people around. When summer comes, the evening gets darker and later in the season, there will be more demand for beer and go out to have dinner and drink with more people. Last but least, the season of sports is the greatest opportunity.

Threats（external）

First,there are so many similar style restaurants; and there are so many competitors that already exist in the market. Usually, some people fight and make trouble when they are drunk, and even do things that hurt themselves or others. Sales and profits cannot be guaranteed without some uncertainty about whether the new beer will be liked by customers. Furthermore, how to ensure the quality of beer, as well as whether the customer wants the temperature of beer? Whether there is enough inventory on that day when the passenger flow is large enough to fill all customer demands? In a word, all these uncertainties may lead to problems and threats.

In conclusion, our team decided the strategy which is focusing on the Opportunities & Threats. By analyzing our opportunities, we know when and under what conditions we can develop better. In addition, by focusing on threats, we can find out under what circumstances the adverse impact will occur, so that we can avoid happening.

3.2 PESTEL Analysis

Political

The regulations and the politicians of the country and the state are the fundamental factors that need considered. According to the Alcohol and Health Fact Sheets, the Minimum Legal Drinking Age (MLDA) laws specify the legal age when an individual can purchase or publicly consume alcoholic beverages. The MLDA in the United States is 21 years. This means, it should be seriously follow this law and strictly check the identification of every person who enters the bar to ensure that each of them is an adult over 21 years old. Second, with the development of economy and the economic trend of globalization, the American government has economic contacts with more and more countries around the world. Lower import tariffs, making beer industry more than beer can expand the choice of raw materials and advanced equipment, such as the import of barley is usually of good quality, lower price and easy to control. It helps to reduce the production cost, through the introduction of foreign advanced equipment; it is beneficial to improve the level of beer brewing. In addition, also is helpful for our beer products to enter the international market in the future.

Economic

After the 2008 economic crisis in the United States, the overall economic level of the country has been improved in recent years through various means. This indicate the purchase power of residence is increasing. According to the Country economy data, the GDP in United States grows 0.9% in the third quarter of 2018.

Social

The culture change of Beer is important. According to the article, World’s largest beer receipt, Beer first appeared in ancient Egypt and Mesopotamia (now Iraq), the production method of which was introduced into Germany from Egypt through north Africa, Iberian Peninsula and France. In the south of Germany, the beer manufacturing industry developed unprecedented, and the beer technology was spread to the whole world by German beer technicians. With people’s in-depth exploration of the efficacy of beer, it is known that beer not only contains amino acids needed by the human body, but also contains rich vitamins B2, niacin and minerals, so it is named “liquid bread”. In addition, beer on campus has been widely rise, has become an important part of campus communication culture, therefore, the age of beer consumption group gradually forward, has been expanded to 18 to 60 years old people, it can be seen that the beer industry has a strong consumer group. In addition, talk about the price of the beer is affordable for people.

Technological

According to the article, Beer Trends Report 2017, there are so many technological improvements for beer producing. First of all, the flavor of beer is being more and more choice for customers and getting wilder. Second, the package technology improvement. In the resource, it also mentioned that recycle water technology and Carbon-capture technology.

Environmental

For the ecological, it should consider the cost implications, public opinion, sites and locations. As mentioned in the technological, the recycle water technology is ecological friendly tech. Sustainability has become a greater and greater concern for beer producing. It mentioned in the source that using“electrically active bacteria” and “anaerobic digestion” to clean up to 90% of pollutants out of wastewater. In this condition, it allowing breweries to reuse water for cleaning. This technology can improve water footprints by 40% and allow systems to recover 20% of energy needs.In conclusion, the ecological is one thing that breweries should pay attention.

Legal

Besided, the Drinking age 21 law mentioned before. In United States, there is an Alcohol Laws that restrict those who can produce alcohol, those who can buy it, where one can buy it, or even prohibit the use and sale of alcohol entirely. According to the government document, Alcoholic Beverage Labeling, the United States defines an alcoholic beverage as, “any beverage in liquid form which contains not less than one-half of one percent of alcohol by volume”

4. Evaluation of the Results of the Business Simulation

4.1. Functional Area #1: Marketing Management

The project analysis started with key performance indicator; with the targeted market expectation that the owner wishes to achieve in order to consider this investment worthwhile. To prepare the business for success, we have conducted a market research and input the results into the simulation. The following cycle is always a better result than the previous cycle after factors have been considered and modified into the business report and the overall result improved significantly.

From Cycle 0 to Cycle 1, the evaluation of the cost of raw ingredients, labor cost, and energy consumptions were conducted to discover rooms for profits. Raw ingredients has an improvement of 34%, labor and others 17%, and the unit price also has an increment of 125% from $4.00 to $5.00. This results in more profit before and after tax and the net present value improved 12% from $167,625 to $187,225. With more profit in hands, ending cash balance for the years has improved 33% from $- 43,198 to $- 28,987 and a break even point improved by 1% from 7 months to 6 months. This is especially important for many businesses as the net present value and cash flow determine the current and future strategy of a business; as 82 percent of the startups failure were because of the lack of cash flow. Another approach from cycle 1 to 2 is to conduct a survey on the beer type consumption in each season and break it down into months. Most of the light beers are consumed during spring and summer months, if this was not well analysed and was produced in winter months, this would accumulate the inventory, become perishable, and the lost in capital.

Adding to the cashflow advantage, we have considered the current advertising method. We not only investing on the traditional local advertising $35,000, we effectively use the fund in allocating them into local advertising ($10,000), trade shows ($12,000) , social media ($8,000), and building our own website ($5,000) to further promote our new business unit. The strategies increase our exposure to the society and are able to reach different levels or groups of beer consumers. We find that the returns to advertising and promotion were substantial, but varied considerably by region, according to patterns of press readership and urbanization. (Scott and Walker, 2010).

In order to capture different market segment, Boston Best (beer #10) was added to the product line, however, as the newly innovated beer consists of similar traits to Pale Ale (beer #5) and retail special offer (beer #9), the latters were eliminated due to the managing cost and production capacity. In Cycle 4 to 5, the forecasted demand for beer #5 and beer #9 were distributed to beer #1, 2, 4, and 10. Managing different types of products may increase operational costs, such as those related to purchasing, holding inventory, and conducting administrative functions the retailer’s profit (Moon, Kun, Hao, and Kim, 2017).

In Cycle 7 to 8, the sales projection, targeted market size are also adjusted by using the optimization. Based on the cost that we need to spend monthly, we need to have a certain income. As each product price, market, and forecast are unknown, optimization will provide the best suggestion to cover the monthly expenditures. Once the fixed cost is entered in the analysis, the targeted market size for each product is then suggested. With the help of optimization analysis, Cycle 8 made an improvement of 77.02% in Net profit.

4.2 Functional Area #2: Innovation Management

In Cycle 2 to 3 in the innovation management, we have decided to use an in-house H2O purification technology so the material cost dropped. With this change, the cost for “other’s” has increased $0.01 cent and this is due to the monthly rental fee of the equipment. In consideration of the long term sanitary issues and a stable quality, this investment is a must. However, the water usage has reduced also 0.01 cent to balance out the increase from the implementation.

In Cycle 3 to 4 we put in consideration of the marketing cost which we spent on the millennials’ social media and it is 21%, $8,000 out of the whole marketing cost, which is $38,000. As the restaurant is located in a place where we have a high concentrations of millenials; we conducted a research based on their favorite craft beer, American Indian Pale, and produced our own craft beer named Boston Best. The purpose of having Boston Best in the product line because we have foreseen the need of the market and hoping it will serve best for the company’s future growth. After all, the intention of having an innovation is to achieve a better quality, a better price or profit, and to reduce the production cost.

4.3 Functional Area #3: Operation Management

One thing that we have to consider in operation is that the analysis of the forecast affects the demand and supply. Manufacturer produces in accordance to the demand. The accuracy of the forecast can achieve, backlog, or overflood the customers’ demand. “Accurate forecasts are essential to successful supply chain management. Without them, it’s extremely difficult to align production with demand. And all too often, the end result is either too much inventory clogging the pipeline or too little product to satisfy customer needs.” (Quinn, 1998)

By evaluating each beer type consumption and how many tanks of beers can be served in each year, we can then understand the product cutoff point. In order to reduce opportunity cost, the task performed from Cycle 5 to 6 is to purposely balance the supply and demand as close to zero as possible by adjusting the cut off point.

4.4 Functional Area #4: Financial Management

In Cycle 8 to 9, the budget for employee, facilities, rent, and HR were adjusted according to the business requirements. As this is a new section of the restaurant and is just starting, the employment does not need to be full time; adjusting the personnel depending on the business size to achieve a better profit. The investment in the equipments, infrastructure, and insurance must be put in consideration in order to calculate the exact fixed cost or the capital spent. Cycle 9 turned out to be closer to the reality, than just a marketing or sales plan.

4.5 Functional Area #5: Organization Management

This function is changed from Cycle 9 to Cycle 10, the final step of the simulation cycle where the salary structure is planned for now and future

5. Summary of the Results, Recommendations, and Conclusions

5.1 Summary of the Results

After continuous efforts and members of our team, we have experienced long-term data analysis. After debugging and changing a large number of key indexes, we finally achieved market target expectations. We will open our new brew pub in the Fenway area. Because the number of people watching the ball is very large, the sports atmosphere is very good, which can make Pub a good development. We will sell 9 different craft beers in the Pub. Form differentiated competition with the surrounding competitors. And rely on data to support the sale of popular craft beer in different seasons and cycles to maintain a competitive edge.

Our pub rent is 20,000, there is about 800SF, we will arrange about 10 tables in such an area and can serve up to 50 people at the same time. Our private investment is $150,000.In the future the most important funds will be spent on operations and advertising costs.So that we need to borrow $60,000 from bank. After the Pub starts to operate for 5 months, we will take back the initial input cost and start to make a profit. The first year’s revenue is 933,212, the second year’s revenue is about 983,997, and the third year’s revenue is 1,068,862. NPV will reach 370,346. Net revenue and NPV are growing steadily. According to the data analysis, our plan will run well in the three-year cycle and it is worth investing.

5.2 Recommended Strategy

According to our data analysis, our team believes that this new brew Pub is worth investing. Investing in this project will bring a good return on investment and increase the competitive advantage with the surrounding restaurants. However, according to our chart, our profitability can be further optimized. In the next step, we believe that Pub can also reduce operating costs and procurement costs to improve profit margins, because the first and second year of operation Spending a lot of advertising costs, the second year of revenue in our data has been reduced. But by the third year, it has improved a lot. Therefore, we recommend optimizing operations in three areas. The first is the placement of ads, which will no longer be advertising throughout the year, we will find our target users more accurately. Second, continuously reduce operating costs. Third, while ensuring the quality of beer, we continue to explore our procurement costs.

5.3 Implementation Plan for the Selected Strategy

Through continuous exploration in the market, we will conduct more efficient advertising pushes. Since our pub’s target customers are high-end beer consumers, sports enthusiasts and nearby college students. So we will increase sponsorship in local sports competitions. And increase the discount to some customers who introduce friends to our pub. In the decision-making process of financial management, Our group found that the operating costs were too high. After continuous debugging, we decided to add 2-3 tables and chairs to the Pub in the future, and also added chairs in the bar area. In order to increase the number of people at the same time to increase profit margins.

5.4 Conclusions

After analysis, this pub is worth investing, and the break-even point will drop to 5 months. In the long run, it will increase the competitive advantage and bring more extra income to the restaurant.

Quantitative and Qualitative Decision

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