Cerjugo SA is the largest manufacturer and distributor of beer in a country in Latin America.* Started in 1960, Cerjugo currently sells 360 million bottles of beer annually with revenues last year in excess of $200 million. Cerjugo employs 2500 employees and its four beer brands account for 98 percent of the market share. The beer manufacturer has been growing steadily with the GDP of the country thanks to little competition and no new entrants in the market. Cerjugo has its own distribution fleet and manufacturing facility, its entire customer base is local, and customers are loyal to the flagship brand.
Per capita beer consumption in the country had been stable for many years. In order to find new opportunities for growth, Cerjugo management decided to expand their product lines into juices. They recognized early on that the juice business was very different from that of beer. In beer, there was little competition and profit margins were high, close to 40 percent. The profit margins for juice would be much lower and there were a number of competitors but they felt they could create a competitive advantage by (1) focusing on “freshness,” i.e., all natural ingredients; (2) by leveraging their deep knowledge of their consumers; and (3) by capitalizing on an already strong retail customer base, which would triple as a result of adding juice products.
The Organizational Structure
The president of Cerjugo is Manuel Perreria. He currently has three key executives reporting to him: Jose Guzman, Feliz Arroz, and Maria Santiago. Jose is the director of Production; Feliz is the vice president of Sales, Marketing and Distribution; and Maria is the director of Finance and Administration. Each executive worked closely with Manuel and are involved in all major company decisions. *The country is not named to protect the anonymity of the company on which this case is based. At the time of the expansion into juice, a new $50 million production facility was built across the street from the current juice plant. Organizationally, management assumed that the manufacturing, sales, and distribution of the new product lines could be fitted into the existing structure by adding new positions and employees. They added a production manager of juice manufacturing, juice production supervisors and employees, additional sales supervisors, and over 900 salespeople. Existing salespeople were trained to sell the new juice products in addition to the beer products that they were used to, and the sales compensation plan was modified so that a higher percentage of the pay would be variable based on total beer and juice revenues. We focus on Cerjugo’s two main divisions: the production division and the sales, marketing, and distribution division. Until a few years ago, the executive team had worked very well together with few major difficulties.
The Production Division: Jose Guzman
Jose Guzman, the director of production, has four senior managers reporting to him: Carlos Menga, manager, beer manufacturing; Dolores Bebida, quality control manager; Antonio Ben, the production planning manager; and George Novedad, manager, juice manufacturing. Carlos, Dolores, and Antonio have all been with Cerjugo for the past 15 years. George was hired two years ago when Cerjugo moved into the juice business. George is Harvard educated and had extensive experience in the juice business in North America before accepting Manuel’s offer to join Cerjugo. The production division has a strict hierarchy with many layers of management. Front-line employees such as assemblers and maintenance staff report to team leaders, who report to plant supervisors. Plant supervisors report to either Carlos or George. The jobs in the production division are highly specialized. Formal procedures have been documented and all new employees go through extensive training so that quality standards, safety standards, and efficiencies are maintained.
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