Construction of Market and Production Models and an Examination of their Interaction and use for Planning Decisions

Abstract

The research was carried out in the New Metals Division of Imperial Metal Industries. The Division's primary business activity is the manufacture and marketing of semifabricated titanium. At the time of the initiation of the research, the Division was beginning to experience changing market conditions which threatened its monopoly position as a supplier of titanium in the United Kingdom. The need was apparent for a thorough evaluation of the Division's situation. Exploratory studies of the marketing and production of titanium identified areas for further research effort. The behaviour of the Division's manufacturing costs were investigated in detail. As a result, the use of multiple regression analysis was put forward as an improved method for calculating cost absorption rates. The analysis of aggregated costs resulted in the development of a model of costs of different product mixes. This in turn led to a financial forecasting and cost monitoring system which was subsequently used by the Divisional Accountancy Department. A model was developed which described the source selection decision of the titanium customer. This was built as a logical flow chart. It is based on the concept of a list of acceptable suppliers from which suppliers are successively eliminated by a sequence of decision rules. A simulation model of the titanium market is built, combining the cost and decision models with models for various other aspects. This simulation is sufficiently general to be used to describe different segments of the titanium market. The simulation model has been used in exploratory long-range surveys of the total titanium market and for examining specific business opportunities.