Ing.

Luis

Rebollar

Corona,

Member

G-6 SMIC

Cia Mexico

DuPont

LONG

RANGE

PLANNING

CONCEPTS

AND

APPLICATIONS

In 1958 a new company was started with the purpose of producing titanium dioxide pigments for the domestic market. It is well-known that titanium dioxide has a high index of refraction which makes it useful as an opacifier in every kind of manufactured product such as paints, plastics, synthetic fibers, rubber, paper, ink leather, etc. In 1960 this plant went into operation to produce titanium dioxide with a capacity of 5,000 tons per year using the sulphate process. This process consists bacically of dissolving a mineral containing iron and titanium oxides in sulphuric acid, separating the titanium from the solution through hydrolisis and calcining the resulting hydroxide to obtain the pigmentary titanium dioxide. Since the plant starter operating, five expansions have been carried out in order to be able to supply the domestic, and occasionally, the export market. At present, this plant has a name plate capacity of 23,000 metric tons and it is expected that 1976 this capacity will be insufficient to satisfy the demand. In 1970, when the expansion studies to surpass the 23,000 metric tons per year were startThe new expaned, the company faced a problem. sion required the installation of a series of expensive equipment which in the previous expansion had not been necessary. Simultaneously, more importance was given to aspects not previously considered meaningful such as: availability of raw material and labor, pollution, national and international competition, quality and service to customers. The most recent technological advances allowed us to consider that besides the planned expansion using the sulphate process, the possibility of expanding the plant using a better sulphate process, such as the ones used by some companies in Europe and America, was also open, and even more, the so called "chloride" process which is recognized as the best for producing outstanding quality pigment was available to consider as an alternate. The chloride process consists of disolving ferrotitanic minerals with chlorine gas to produce chlorides, crystalization of iron chlorides to separate them from the titanium tetrachloride
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and production of pigmentary Ti02 oxidation of titanium tetrachloride

through with

the oxygen.

In order to evaluate the three suitable -esses for the expansion, a decision was made .sed on return on investment. In this particular case, the method known as Internal Rate of Return was used. The effect of possible competition and its penetration in the market was introduced in the economic evaluation as follows: First, a model of the company as a business was created. In this model, the administrative strategy, the availability of financial resources and the market size would be converted, through production and marketing techniques, into the cost of sales and the revenue which determines the business profitability. Also a model of a likely competitor or competitors was made. Administrative and financial results were transferred into a Profit with the added effect of seeing the market affected by the strategies of the already established company as well as government policies. The Ti02 market distribution between the already established company and a possible competitor, was evaluated according to the different processes used by each. There were various criteria which determined the share of the market obtained by the competitor; the most important being the quality of the pigment obtained. Some other considerations that could affect the market position of the existing company were: price policies, credits, discounts, etc. The final value of the competitor's market share is a result of a subjective appraisal by the administrative and sales personnel of the established comsince they know the market conditions; cusw-v, tomers needs and the main objection of the Ti02 consumers. They knew as well, the characteristics of the pigments produced by each one of the processes . It is considered that the best quality of a pigment is obtained through the chloride process. It is logical to expect that the competitor .will

get his best penetration of the market when his quality is the best and the existing company is the worst. Based on this point of view, the economic results of the possible competitor were analyzed. Knowing the size of the Ti02 market and the available market share, the feasible plant capacities were fixed. The raw materials for its operation and the necessary investments to build these plants were also determined. The Internal Rate of Return was evaluated for processes of the different competitors represented by the most attractive economic case. of ial be was The method of evaluating the Internal Rate Return as an index, is due to the confidentcharacter of the absolute values, but it can added that in all cases, the rate of return very low.

order to study them, a computer than 1500 variables was used.

model-with

more

It is taken into consideration that independently of the decision made by the competition, the most attractive process for expanding this company resulted via the chloride route. The whole study was completed at the beginning of 1972, at which time the decision to expand this plant using the chloride process was made. After making the preliminary cost evaluation of the new plant, Directors approved its construction 1973. As 25 million close to capacity of Ti02, -tons per design and the the Board of in February,

Finally in order to get to the last step of the study a decision tree was used as a tool for the decision making process. Basics of the decision tree used were as follows:

the result of financial authorization of dollars, a new plant is being built, the present installation. The name plate of the new plant is 35,000 tons per annum with a possibility of expanding to 50,000 year.

a)
b)

The decision of choosing the process by the existing company was made. The event, pany does competitor one of the in which the existing comnot have control, that a enters the market using three feasible processes.

The special equipment used in the sulphate process will be abandoned except for the equipment used in the Pigment Finishing and the service and auxiliary installations. It is expected that the new construction will be finished at the end of 1975 and will normal production in January 1976. Jointly with this sis of advantages and decide if the company material to be used in start

c)

The competitors market share according to the above steps, and including probabilities for high and low penetration.

study, an economic analydisadvantages was made to would produce the basic raw the new process. of comparpurchasing making were of the

This chart is a different alternative as represented by individuals. The Internal Rate of Returns for the existing company was by an index. The best Rate of Return obtained by the competitor, averages the economic results affected by all the processes selected by the competitor. It is worth noting, that the decision tree only represents a summary of the three alternative processes: sulphate, improved sulphate and chloride. However, each one of these alternatives had variations such as location of the plant, basic raw material, stages of construction and so on. The complete study of alternatives consisted of more than 300 cases. In

The analysis consisted essentially ing the manufacture of chlorine versus it from one or more suppliers. The same techniques for decision the future conditions used, considering caustic soda market in Mexico.

It was decided that we should install a plant to manufacture chlorine-caustic using Hooker's technology. Such a plant will use diaphragm cells with a name plate capacity of 56,000 tons per year of chlorine. The permanent investment will require 28 million dollars and the plant start up is scheduled for the middle of 1976.

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