Faced with new challenges in managing the cyclical and volatile business environment,management at a Commodity Plastic (COM-P) Company agreed to apply SystemDynamics (SD) to support strategy development. A SD model of COM-P industry wasbuilt by adapting the Pulp and Paper Model. The structure of COM-P Index Price creationwas mapped and added to the generic model. The following were investigated: a) Theeffect of current delays in adjusting prices on phantom demand, on capacity utilizationand shipment rates were tested; b) The phenomenon of Phantom demand or pre-buyingwhen customers perceive that prices may be about to go up was modeled; c) By applyingthe model, the amount of margin lost or gained by the industry due to the price protectionterms in the contracts was estimated; d) The risk in the top ten long term contracts underdifferent supply and demand conditions and oil prices in order to support the salesorganization with their negotiations; e) The model was applied to get guidance on capitalinvestment timing and to assess the effect of different oil prices and supply & demandscenarios on the profitability of new investments. In many cases the results were counterintuitive.
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