Abstract
PurposeThe purpose of this report was to evaluate the effectiveness and practicality of system dynamics modeling in integrating econometric equations to describe the effects of supply chain material and information delays on pricing decisions and consequent financial results in an animal feed export business.Design/methodology/approachAn empirical dynamic model, loaded with econometric theory of price effect on competitive demand, was used to describe the input data.FindingsThe model simulation outputs proved themselves relevant in analyzing the complex interconnections of multiple variables affecting the profitability in a commercial routine, supporting the decision process among sales managers. The impact of information delay on price decisions and business financial results were estimated using the model proposed.Originality/valueThis paper describes an empirical model, based on system dynamics, that predicts operating contribution margins and cash conversion cycles based on estimation of information and material delays in a supply chain. The method is pragmatic and simple for business routine implementation.
Highlights
Products for animal feeding include components derived from, or substitutes of, agricultural commodities
Considering a steady demand and diverse suppliers, quantity sold variation for a given supplier is defined by the competitive pricing among them and can be derived from the crossprice elasticity ratio ðξijÞ in equation (2), expressed as a change in the quantity sold ðδqiÞ by the manufacturer per change in the price ðδpjÞ of a competitor: ξij Equation (3) describes the operating cash conversion cycle (C), given in days, in function of average inventory financial value ðiÞ, variable cost of goods sold (COGS) per day (G), average accounts receivable ðrÞ, revenue per day (R) and average accounts payable ðpÞ: C1⁄4 i þ rÀp
Based on the definition of profit in equation (1), these teams could do either two things: design and communicate better products or value propositions aimed at achieving greater value perception and price increase acceptance by clients, or reduce costs and prices, with the objective to increase the quantity As a balancing feedback loop ðs!oBldÞ,(tFhige urereac1t)i.on from the competitor (j) induced clients to re-evaluate and lower their value perception elicited by any sales or marketing action from the manufacturer (i) ξij, as described in equation (2) above
Summary
Products for animal feeding include components derived from, or substitutes of, agricultural commodities. Their prices present similar volatility and are influenced by the same forces. To trading speculation (Ghosh et al, 2012), the price of agri-commodities fluctuates according to economic activity (Chiaie et al, 2017) and currency exchange rates (Miecinskiene and Lapinskaite, 2014; Bodenstein et al, 2018). Prices can vary on a daily basis for several of these ingredients, as some of them are indexed to the currency exchange rate. The animal feed industry supply chain is composed of a raw material supplier, a manufacturer and a retailer. An important volume of these products is exported, attaining US$15.5bn in revenues in 2019 (Workman, 2019), which makes the supply chain relatively long in terms of delivery time
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