MEMORANDUM

To: Warehouse Operations

From: Internal Auditing Services
Subject: Exploding Cans in Chicago Warehouse
Date: 9/20/2017

Introduction
Duff Beer strives to create a safe environment for employees and all staff throughout

our entire distribution network. We have a full time staff of twenty four safety analysis to

ensure that we have a safe environment to be in. Duff Beer is annually inspected by the

state of Illinois and quarterly inspected by the Beer Safety Council. Duff Beer is also a

certified member of Keeping American Safe Initiative. As you can see we take a lot of

steps to ensure the safety of the our workers and employees. However, as always there

is something that we missed. This report will go into detail the events the vulnerability

our system has faced as well as what we will be doing to prevent incidents like this from

happening again. This is to ensure the future success of our company as well as build

strong relations with our staff, investors, and most of all customers.

Exploding Beer Cans in Chicago Warehouse

Last Thursday September 14, 2017 520 pallets of beer exploded in the northeast region

of the center. This event took place around 4:30 PM CST. There is very little activity in

this part of the warehouse, as this section is used only for long term storage.

Warehouse Manager Gary was present while the situation occurred and he explains it

as I was walking around the northeast part of the warehouse to check stock levels and

suddenly I heard a sudden bang and beer was everywhere. He immediately contacted

our distribution emergency team and we had guys out on the floor immediately. The
next morning we flew our entire auditing staff from PricewaterCoopers LLP and they

worked with our internal investigators to find out what happened. They worked carefully

for several days to analyze what we did wrong that caused something like this event.

Challenges of the Situation

PricewaterCoopers LLP found several flaws in our practices that caused this incident to

occur. There was several factors why the beer exploded, PWC came up with three

major reasons for its occurrence. We were storing our beer in 70 degrees Fahrenheit,

that temperature reduces the lifetime of our beer to just three months. This is due to the

patented molecular structure of our beer, this is what makes Duff Beer, Duff Beer!

Another reason for the explosion was the amount of space left in a beer can. Currently

we fill each can 99% of the way and the last percent is composed of 72 other chemicals

to preserve its great taste. This mixture is mostly composed of carbon dioxide and one

of the other components is hydrogen, however just small traces of it. When carbon

dioxide and hydrogen combine, its effects are extremely negative. Lastly, we stack our

cans up 3 on each other per box, 12 boxes per single column, and these are stacked on

pallets of three. With this set up there is an immense amount of pressure that is

produced which causes the beer cans to explode into the air.

Going Forward
The future and the wellbeing of our employees is very important to the company.

Starting Monday we will be reorganizing our manufacturing and warehousing practices.

We will now be keeping the storage areas of the warehouse at 58 degrees fahrenheit.

After several tests, we determined that 58 degrees is the perfect balance between

keeping the beer fresh and keeping costs as low as possible. We will also be removing

the .00021% hydrogen from our beer cans. To preserve the great fresh taste of Duff

Beer we will be replacing the hydrogen with a saline type solution. Lastly, we will not be

stacking so much beer in one place. We will now only have 6 boxes of beer per column

on a single pallet. In terms of pallets, our employees will only be able to stack two

pallets on top of each other.

Cost Analysis

These changes are going to cost our company a significant amount of funds. By

keeping the storage areas at 58 degrees fahrenheit, our electricity bill will increase by

$2700 a month. To replace hydrogen with saline, there will be a cost savings of roughly

$200 dollars a month depending on production amounts. Lastly, by placing less beer

per square foot our storage costs are going to increase. We will not be able to operate

in the current warehouses and will need to increase the size of our centers and we will

need to open more. We do not know the exact cost of these increases however our

CPAs believe they will be about $15,000,000 - $20,000,000 over the next 10 years.

Also to remove the beer that we currently have in stores as well as in our warehouses

will cost us $75,000.

My Recommendations

This event will cost our company a lot of money that we do not even have. It will have

several long term effects on our stock and relationships with our investors. That being

said, I think we need to make these changes however, we need to find ways around the

high costs. For example, we reduce the amount of space we use for storage and only

keep emergency supplies. Sometimes the beer sits for several months before it is

shipped to our retailers. If we ship our beer fresh then we will not need to worry about

expanding and building new warehouses. This will also reduce the cost of cooling our

warehouse if we have less storage space area. However, we will need to hire more

workers to produce our beer. But the costs for doing that will be a lot less than hiring

more people. Finally, the chemical change will actually help us save money. The safety

of our workers is very important and we need to be doing everything in our power to

ensure that we are doing just that.