A SYSTEM DYNAMICS MODEL FOR AN ENTERPRISE'S
SUSTAINABLE INNOVATION PROCESS*
XIANG Gang
(Yunnan Polytechnic University, Kunming, Yunnan 650051, China)
LIU Lin
(Kunming University, Kunming, Yunnan 650001, China)
j ABSTRACT
By using the System Dynamics approach, based upon the background of a real
Enterprise's Sustainable Innovation process implemented in a famous Chinese
enterprise, paper developed a System Dynamic Simulating Model.
1. INTRODUCTION
Technological Innovation (TI) has become the common behavior for most Chinese
enterprises[1],[2]. However, only few enterprises have ability to sustain the TI process
continually for a long period and get significant development.
Though the enterprises which have/had implemented an Enterprise's Sustainable
Innovation (ESI) process are small in quantity, they usually are powerful and occupy very
important position in their industries even in whole nation's economy. So, it is important to
research on the sustainable innovation in an enterprise sector.
Here, the concept of the ESI is defined as following:
An Enterprise Sustainable(Sustained) Innovation process is such a process that has (had)
continually implemented one or more projects of introducing new products/new process
techniques/developing new markets/acquiring new materials sources/realizing new
organization and/or their inside diffusions at the enterprise for a long period (normally, more
than ten years) and made a continually significant economic development to the enterprise
during the period.
Comparing with the normal sense of the enterprise's technological innovation, besides of
making broader sense of "Technology", we add such an important condition as "Sustainable
or Sustained" to it. Particularly, Enterprise's Sustainable Innovation has three basic characters:
Time Sustainable, Benefits Growth Sustainable and Enterprise Development Sustainable.
*This work was supported by the Applied and Basic Research Fund of Yunnan and China National Tobacco
Corporation Yunnan Branch. Mr. LI Linhong jointed in research work.
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According to these "Sustainable" characters and the background of a real Enterprise's
Sustainable Innovation process implemented in a famous Chinese enterprise-the Yuxi
Cigarette Factory, by using the System Dynamics approach, paper developed a System
Dynamic Simulating Model (SDSM).
2. MODELING THE EARLY PERIOD OF THE ESI PROCESS
2.1 Background
Under the leadership of the Excellent Chinese Entrepreneur, Mr. CHU Shijian, the Yuxi
Cigarette Factory ( located in Yuxi City, Yunnan Province, China) has successfully
implemented an Enterprise's Sustainable Innovation since 1981. With the innovation, the
Yuxi Cigarette Factory has achieved sustained and high-speed growth of the economic benefits
and the sustained developing. In the period of 1981-1994, the annual average growth rates of
the profits and the fixed assets were 41.1% and 34.7%. The enterprise had made 4.1 billion
yuans profit and owned 0.79 billion yuans fixed assets in 1994. The Yuxi Cigarette Factory has
become the largest manufacturer with the best economic benefits and the 1990's world-level
advanced technical equipment in Chinese tobacco industry.
The Start-up-point of the ESI process was in 1981 when the Yuxi Cigarette Factory had
implemented a project: importing a set of advanced cigarette making machine (MK9-5) from
UK. Using the excellent tobacco leaf planted from the Yuxi area and this machine, it produced
high quality filter-cigarettes such as the famous brand "Hongtashan" which is welcome by
Chinese consumers, and returned the buying costs only by two months production. Since then,
the Yuxi Cigarette Factory has continually imported the advanced equipment to renovate its
backward production ability. Till 1985, the enterprise invested about US $ 5 million in
equipment importing and owned 280,000 cases/year advanced production ability .
However, the Yuxi Cigarette Factory faced a serious situation soon. The advanced
machines could use high quality Tobacco leaf to produce higher class cigarettes and only
higher class cigarettes could make higher profits. Unfortunately, the peasants in the Yuxi area,
with the traditional planting experience and week investment ability, could not produce
enough high quality tobacco leaf to feed these machines, especially, the A class leaf which was
the major material of the A class brands such as " Hongtashan". So, more and more advanced
machines would be uneconomically used to make lower class cigarettes.
2.2 The Part I of the SDSM for the Early Period of the ESI Process
Above situation occurred in the early period (1981-1985) of the ESI process in the Yuxi
Cigarette Factory could be described in following Flow Diagram 1 (Fig. 1) by using SD
approach[3]:
Sel
Fig. 1 Flow Diagram 1 for the Early Period (1981-1985) of the ESI Process in the Yuxi Cigarette
Factory-Production and Selling Increasing with the Limitation of the High Class Materials Supply
According to the real data of the enterprise and the Flow Diagram 1, we built the Part I
of the SDSM by using DYNAMO. Then, simulated it on PC-486 and got following results:
Table 1 Some Selected Data of the Simulation Results ( Part I of the SDSM,1981-1986)
Time (Year) 1981 | 1982] 1983 1984 1985 | 1986
OD (Year) 0.001 | 0.001 | 0.62216) 1.2243 | 2.0414 | 4.9013
ED (Year) 1. |0.80133} 0.63168 | 0.62977 | 0.74867} 1.0072
PSR (10,000 casesfyear) | 1.5 | 1.5 | 2.2589 | 4.4031 | 6.8809| 7.
PA (10,000 cases/year) 15 | 31 | 64477 | 13.484 | 28.199] 58.75
This simulation showed that the production ability of the imported equipment would
increase to 280,000 cases by the end of 1985. However, limited by high class tobacco leaf
supply, the production and the selling amounts (supposing no inventory) of the high class
cigarettes would be limited in about 70,000 cases in 1986. So, the using efficiency of the
imported equipment would be very poor (only 25%) in 1986. These results provided important
information: the enterprise must improve its high class tobacco leaf supply as soon as possible.
3. MODELING THE SUCCEEDING PERIOD OF THE ESI PROCESS
In fact, Mr. Chu and his colleagues launched an important strategy in 1985: Treating the
Tobacco Leaf Growing Fields as the First Workshop of the Cigarettes Making. After then, the
Yuxi Cigarette Factory has continually invested huge amount of money ( Till 1995, the sum
was 1.4 billion yuans.) to support the peasants producing high quality tobacco leaf by using
advanced technology. This strategy has been effectively implemented for more than ten years
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and got brilliant success. The A class tobacco leaf supply amounts from 6,000 tons in 1985
increased to 30,000 tons in 1994. This has ensured the sustainable increasing of the A class
products. This situation also could be described in following Flow Diagram 2 ( Fig. 2).
ocured Delay of the
‘High Class Tobacco
Fig. 2 Flow Diagram 2 for the Succeeding Period (1985-1995) of the ESI Process in the Yuxi
Cigarette Factory-Production and Sales Increasing with the Materials Innovation
Also, we built the Part I of the SDSM and simulated it . The results showed that the
Supply Ability of the A Class Tobacco Leaf ( LSA, 1.09 million cases by 1993) and the
Production Ability of the Advanced Equipment (PA, 1.05 million cases by 1993) could be
optimally matched and realize 0.95 million cases of the A class cigarettes production in 1994.
These results tallied with the actual situation.
Combining the Part I and I, we obtained the whole System Dynamics Simulating Model
for the total ESI process(1981-1995) of the Yuxi Cigarette Factory.
4. CONCLUSIONS
System Dynamics could be very useful approaches to describe and analyze the ESI
process. The application introduced here only a start. We will further the work later.
REFERENCES
1, FU Jiaji, et al, Technological Innovation-the Developing Path of the Chinese Enterprises (in
Chinese), Beijing: Enterprises Management Press, 1992.
2. MA Chi, et al, Analyzing the Technological Innovation Situations of the Chinese Industrial
Enterprises (in Chinese), Chinese Science and Technology Tribune, 1992-2.
3. J. W. Forrester, Principles of Systems (Translated in Chinese), Beijing: Tsinghua
University Press, 1986. & ae.
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