Identifying and evaluating strategies to reduce the cost of petrochemical products using the system dynamics approach

Companies operating in the petrochemical industry have faced many problems due to unbalanced and unsuccessful performance in predicting and controlling environmental complexities in developing and even maintaining market share and using cost-effective systems. This study aims to model and simulate the dynamics of the production system and the cost price of petrochemical products in Takht-e-Jamshid Petrochemical Company (TJPC) as a start-up company; and suggest solutions for reducing the cost price.

According to the complexity of the system and its inherent dynamism, System Dynamics (SD) approach has been applied to model and simulate the production system of TJPC using the time series data of the company. Furthermore, different structural and behavioral tests and sensitivity analyses have been performed to validate the model.   

Five strategies were developed based on the simulation and sensitivity analysis results and the planners' viewpoints. They were i) increasing the production budget of raw materials and reducing the budget of production capacity expansion; ii) increasing the research and development budget; iii) increasing the percentage of profit allocation to employees’ rewards out of the accumulated profit of the company; iv) increasing the budget of purchasing spare parts and equipment; and v) increasing the shareholders' capital to launch development plans. In addition, individual and combined strategies were incorporated into the model's structure. According to the results, implementing the four combined solutions reduced the cost and increased the company's profit in the simulated time horizon, simultaneously and significantly.

Some factors affecting the production and cost systems were considered as exogenous variables. For example, fluctuations in the selling prices of goods and purchasing price of raw materials, arising from various sources such as changing exchange rates, inflation rate, and political relations, were not considered in the model. However, by the model's sensitivity analysis, the effect of each change on the system behavior is predictable.

The petrochemical industry has the highest volume of exports and added value of hydrocarbon resources. It produces millions of tons of polymer products and plays a crucial role in supplying feed to downstream industries, not relying on exports and preventing the sale of crude in the country. Therefore, providing solutions to reduce costs in this industry will benefit both the government and the people.

Reducing costs and increasing profits in the petrochemical industry will lead to the country's economic growth and reduce poverty in the society, consequently. Reducing costs and increasing profits in the petrochemical industry result in national economic growth. They also reduce poverty in society, consequently.

There is limited research in identifying cost reduction strategies in the petrochemical industry. The focus of most studies in other industry sectors is on reducing public costs in products' production and consumption cycle to seek cost reductions in marketing, distribution, and after-sales. The developed model addresses the dynamics of the complex economic system of a petrochemical company via modeling and simulation. Therefore, the developed system dynamics framework provides a guideline for modeling the cost reduction strategies in the petrochemical industry.