“THE SPANISH GLASS CONTAINER MARKET. A MODEL OF
STRATEGIC PLANNING IN A FIRM”
AUTHORS: Adolfo Lépez Paredes; Alfonso Redondo Castdn; Ricardo del Olmo Martinez
E.T.S.LL Universidad de Valladolid; Dpto. de Economia y Admén de Empresas;
C/ Paseo del Cauce s/n; 47011 Valladolid - SPAIN
Tfno/FAX: +34-83-423409 E-mail: lopez@wecono.eis.uva.es
ABSTRACT
This paper aims a training tool which permitting different simulated situations would increase the
degree of motivation and learning which could be achieved starting from a purely theoretical position. Most
interactive modelling tools can be employed in gaming situations and provide a contribution to training by
simulating the real world environment. Our model was developed from glass container Spanish market, and
it is possible running different simulations to discover the best prices policies. Market interactions are so
complex that they cannot be intuitively appreciated.
We estudied the market composition, the demand evolution and the prices searching the market
structure for the model. The simulated results for a company are: market share, quality, return, costs and
benefits, inventory level, and installed capacity. So, we can simulate for a period in different scenarios the
best price, capacity and inventory strategic policies.
KEYWORDS: Strategic Planning, Dynamic Systems, Glass Market.
1. A MODEL TO STRATEGIC PLANNING.
We built a model with a simulation tool as System Dinamics which can help managers in strategic
decision making process as final purpose. We propose a model for a spanish company in the glass container
market and we intend to show the applicability and the success of this modelisation. There are a little
number of Spanish companies applying these techniques (e.g.: Iberia, Telefénica de Espafia) in strategic
planning. The software support is POWERSIM.
The main idea of a strategic planning model is the integration into an alone procedure of different
aspects constituting the planning process. There are many tools a manager can use for strategic planning
and scenario planning stands out for its ability to capture a whole range of possibilities in rich detail (see
Schoemaker, 1995).
Most interactive modelling tools can be employed in gaming situations and provide a contribution
to training, by simulating the real-world environment. A manager must have a concept of feedback system
structure for organizing his knowledge about the system. In our model different scenarios are represented
as different possible demand evolution. Markets interaction are so complex that they cannot be intuitively
appreciated, and a manager can essay according the escenarios the best policies according the objectives
of the company: benefits, market share, capacity, inventory (see figure at the end of the paper).
According to Milling (1995): ...” To be used as a strategy support tool, relevant managerial
variables have to be included. The core model is expanded through sectors defining (i) market development
and technological substitution, (ii) product pricing and its impact on operating results, (iii) capital
investment and the resulting cost structure, and (iv) production volume and quality control.” Our model has
considered these variables from empirical data in the sector.
NB
2. DEVELOPMENT OF THE MODEL.
In general, once started, the modular approach to model construction can be developed to explore
the system ans its environment. It is oiten useful to begin the process of diagram conceptualisation using
one or two major resources and a small number of levels at a high degree of aggregation and with a clear
time horizon in mind (Wolstenholme et al, 1993).
So, we started our study with the conceptualization of the market, and the manufacturing process.
The article “Market Growth as influenced by capital investment”, by Forrester (1968), is a necessary
reference for beginning. In this way, the first conceptualisation was adapted from Pérez Rios & Del Olmo,
1992.
We based the model (see next figure) in the main company in the Spanish glass container Market.
It is an oligopolistic market, and this company is the leader with a 50% market share. The other companies
in the market have market shares between 7% and 25%. The environment scan according to Porter’s
analysis:
es Entry Barriers: 1. Minimum market share of approximately 7% (efficiency oven requirements); 2. Very
low differentiation (a few products requiring a high quality); 3. The market shows a growth near of zero;
4. The financial structure of companies in the sector is consolidated and the machinery specialization
suppose a high capital investment and an exit barrier because actifs especialization.
«¥ Sustitutive products: In the last years there was recesion times because the sustitutives (bricks, tin and
plastics containers).
ts The bargaining power of supplier: a fundamental supplier is Solvay, a monopolistic firm, and in Spain
the energy (with a high porcentage of total fixed costs) market is regulated by the governement.
tse The bargaining power of clients: They can execute their threats changing the container for their goods.
In other way the major clients are the greatest companies in the Food and Drink Markets (wines and
refreshments) representing a high porcentage of total sales.
«= Competitive Rivalry: There is a high rivalry, because the high costs of stocks and the excedeed
production capacity. So, there is occasionally reductions in prices to reduce the stockage.
There are specific strategies searching a sostenible growth in the sector (see Marbella, 1994): 1.
Clients delay payments; 2. Weigth container reduction; 3. Increasing the recycled glass uses; 4. Technology
Innovation; 5. Increasing the size of production series; 6. Reducing the energy costs (e.g. cogenerating);
7. Increasing the productivity. We can try the effects of their adoption employing our model but some of
them require any changes.
Chosing model variables, we made attention at the importance of delivery delay in this market. For
a company is very important their clients are satisfied with delivery goods date. Penalization by the market
when demand is not fully satisfied may cause great variations in the market share.
3s CONCLUSIONS
The aims pursued in our project can be summarized as follows: to carry out a practical-empirical
study and generate a model using systems dynamics, which would make it possible to establish the validity
of scenario analysis for management practices in a specific scenario like the glass container market:
die We proposed a model not like a black-box game. It is the reason because you can find another non
economic benefits: the managers have a good tool for learning and so avoiding fatal errors in their
decissions. The scenario analysis is a profitable practice and the theoric degree in System Dynamics is
sufficient to offer managers these tools and so rising the generalizated use.
2. After concluding the model validation stage we went on to check the Nash equilibrium principles
in different scenarios. The simulated results with the model were succesfully satisfactories.
34
Invent _ —_
a i si
+ /Fotal_sales ay tat
Def_total Le invent
stiizge def_pere
Production
Total_prod
Proffinalizada
Total_sales
Prod_change
Start_ord
incr_decr_comp
Price_pere
‘An_av_Benefits
N44
Ev_dem_crec
[MARKET GROWING 2, POLICY: PRICES INCREASING S% i
‘DEMAND EVOLUTION | Taiyaar)
1 200 000
{100 000
1.000 000
+300 000
$00 00}
700 000.
1976 1978 1980 «1962 +«1984 «18851988 1990 1992
year
—
ee
MARKET SHARE AND MULTIPLIERS
tae
' aI FINAL MARKET SHARE 0,504
| a a er
ich 2 __ Muil_p_pnce
i pam _— Mult_p_det
ee a ae
02
1976 1978 1980 1982 1984 1986 1988 1990 1992
year
PRODUCTION, INVENTORY AND ORDERS { Tn. )
800.000,
600.000)
sco. Ss J __ Orders
real_Prod
feats
200.000. a
| a elidel
a
1978 1978 1980 1982 1986 1986 1988 1990 1992
year
TOTAL PROD 8.$68.000 TOTAL SALES (Ta, )
ORDERS IN DEST 0.00 %
INCOME, COSTS AND BENEFITS:
40.000.
30.000. . -
sco a = Cash_sales
* me = Total_costs
10,000. a aan py Ann Beneiis
°.
1976 1978 1960 1982 1984 1986 1988 1990 1992
aos
AVERAGE BENEFIT PER YEAR 7.159,80
REFERENCES
Forrester, J.W. (1968): “Market Growth as influenced by Capital Investment”; Forrester, J.W. Industrial
Management Review (currently Sloan Managemente School) 9, n° 2; Winter.
Marbella, F. (1994): “Rivalidad competitiva en el sector del envase de vidrio”. “Revista de Economia
Industrial”. Enero-Febrero.
Milling, P.M. (1995): “Managing and Understanding Technological Innovations”. Proceedings of System
Dynamics ‘95. Vol. I. 131-149.
Pérez Rios, J.M. y Del Olmo, R (1992): “La Direccién Estratégica. Una visién desde la Dinamica de
sistemas”. Separata de la Revista Anales de Estudios Econémicos y Empresariales.
Roberts, E.P. (1969): “Exploratory and Normative Technological Forecasting: A critical Appraisal”.
Technological Forecasting 1, n° 2, pp.113-127.
Ruiz, A.; Machuca, J.A.D. & Machuca, M.A.D. (1994): “Utilization of System Dynamics for Comparing
Traditional and O.P.T. Production Systems”. Proceedings of 1994 System Dynamics Conference.
Schoemaker, P.J.H. (1995): “Scenario Planning: A Tool for Strategic Planning”. Sloan Management
Review. Winter.
Wolstenholme, E.F.; Henderson, S. Y Gavine, A. (1993): “The evaluation of Management information
systems: A dinamic and holistic approach”. John Wiley & Sons. Chichester.
Sib
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