Narrative 5-2 Sales of Yuengling (Pronounced Ying-Ling) Beer Are Up 225 Percent

question 136

Multiple Choice

Narrative 5-2
Sales of Yuengling (pronounced Ying-Ling) beer are up 225 percent in the last six years. Yuengling's Eagle Brewery, carved into Sharp Mountain in 1831 to maintain a perfect 10 degrees Celsius for storing beer, is the oldest brewery in the United States. The aging plant can't keep up with the growing demand for its beer. So far, thanks to hard work, dedicated workers, and some luck, production capacity doubled from 250,000 to 500,000 barrels per year, but pushing for more will destroy the old equipment.
With sales up so dramatically, however, the company faces a problem. It runs the risk of losing its customer base due to no product on the shelves. Shortages are so bad that the advertising budget has been cut from $3 to $2 a barrel. Ironically, with production stuck at 500,000 barrels a year, Yuengling beer has become harder to find as it has become more popular. Rather than sacrifice sales in its home market of Pennsylvania, its largest market share (10 percent) , the company has temporarily stopped shipping beer to out-of-state distributors. Since that strategy won't help Yuengling grow outside Pennsylvania, the question remains: How does the company permanently increase beer production to meet the growing demand?
Five options have been identified. (1) 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 solution is only short term. (2) Outsource production to another company. Doing this would be more cost effective, but would the product taste different? For a "specialty" beer, this could be a substantial risk. Outsourcing is affordable, and Yuengling has done it before. (3) Buy another brewery, but those available are 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 north-eastern markets. (4) Build a new factory capable of producing 1.2 million barrels per year. Doing this would cost $50 million and take three years. (5) "Do nothing." The company is already very profitable, has low overhead costs, and is 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. Risk is a real consideration because Yuengling was losing money just a few years ago.
-Refer to the Narrative 5-2.What should Yuengling have done in the first stage of the planning process?

• A) It should have developed an effective action plan that would satisfy all of its customers.
• B) It should have determined its problem was demand for its beer exceeding its ability to supply it.
• C) It should have developed several alternative methods for supplying its beer to customers.
• D) It should have established a budget.