2009
Valplast - Reinventing
the business model
Vision 2013
BSM – MBA Romanian – Canadian Program
Bogdan Popescu
Razvan Blid
Monica Craciun
962PT
342DPM
433WAA
Dragos Ion
176NYC
Honoria Sauciuc
225YRW
Cristina Margaritescu 482YSU
Summary
1. Executive Summary .......................................................................................... pg. 3
2. Mandate............................................................................................................ pg. 5
3. Valplast Profile.................................................................................................. pg. 6
3.1. Company overview................................................................................... pg. 6
3.2. Current strategy........................................................................................ pg. 8
3.3. Performance indicators............................................................................. pg. 10
4. External & Internal Audit .................................................................................. pg. 11
4.1. Macro-environmental analysis................................................................. pg. 11
4.2. External Analysis........................................................................................ pg. 20
4.3. Internal analysis......................................................................................... pg. 40
4.4. Final analysis conclusions.......................................................................... pg. 54
4.5. SWOT analysis............................................................................................ pg. 55
4.6. Strategic alternatives................................................................................. pg. 60
5. Strategic Intent................................................................................................... pg. 62
6. Strategy & Positioning Proposal......................................................................... pg. 64
7. Gap Analysis ...................................................................................................... pg. 69
8. Action Plan ......................................................................................................... pg. 73
8.1. Operational................................................................................................ pg. 73
8.2. Marketing ................................................................................................... pg. 94
8.3. Competitive Intelligence............................................................................ pg. 109
8.4. Sales............................................................................................................ pg. 112
8.5. Organizational............................................................................................ pg. 117
8.6. Financial..................................................................................................... pg. 123
8.7. Integrative Managing Change.................................................................... pg. 131
8.8. Integrative Risk Management.................................................................... pg. 135
9. Timescale............................................................................................................ pg. 138
10. Implementation & Control................................................................................. pg. 140
11. Exit criteria and strategy.................................................................................... pg. 143
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12. Appendixes......................................................................................................... pg. 144
Valplast – Vision 2013
1. Executive Summary
Bogdan Tataru, the GM of Valplast Industrie Ltd is sharing his vision for 2013 while
discussing the mandate with our team; despite the cold wind hitting the windows, his speech
is warm and inspiring: “At times like these, grabbing opportunities, being clever and
ambitious make the difference, not only to survive, but to become a true champion”.
Valplast, member of Romstal group is currently contemplating a dramatic setback in
sales (-40%), as the financial crisis, followed by recession froze Romania.
Our mission was to ensure the strategic move the company had to take in order to fulfill the
shareholders goals that by 2013 Valplast is to become a major player in the industry.
At the end of 2008, Valplast has achieved, through operational excellence and a flexible
sales approach, the highest turnover ever, 26 Mil Euro, being known as a large national
producer of PVC pipes and fittings.
After an in depth external and internal analysis, we discovered a major mismatch
between the company’s current strategy and the competitive environment. Valplast’s
current strategy was to reactively serve an increasing number of customers due to
economical boom. As the crisis hit, the residential market for PVC products contracted,
while EU funds for infrastructure projects will soon be injected; competitors’ reactions
increased the rivalry (price wars, overcapacity), some of them took steps to
diversification/integration; few major customers are able to access EU funds, thus their
buying power increased, while the rest of customers are struggling to survive, creating
additional risks to the company.
Our strategy proposition is based on capturing two major market opportunities:
entering an attractive segment of related products offering the highest margin in industry
(geosynthetics materials), and proactively going where the money is – government
infrastructure projects.
To take advantage of these two opportunities, we reinvented the business model,
from being an anonymous supplier to becoming a drainage solutions specialist, through the
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integration of new chains in the business model.
Valplast – Vision 2013
Action Plan Level
Operational
Marketing
Financial
Sales
Organizational
Measures
Complete makeover of the business model from a simplistic to a complex
format. Starting with a supplier status, Valplast has become a specialist in
specific system and solutions. New values chain steps have been added in order
to support the new position. New quality management system, ISO 14001 has
been noted as a priority.
Addressing each client category with a specific marketing mix and integration of
all marketing communication have been our objectives. A new and innovative
business approach, partnership based, has been identified as a great
opportunity for the company and implemented. By doing so we are the initiators
of the new rules of the game in the industry. Disruptive processes, new
corporate identity, repositioning are the main tactics chosen.
A new cost computation method – ABC cost structure has been proposed for
implementation, method that offers a more cleared image regarding profit
margin and product portfolio profitability. Credit lines restructuring, defense
mechanism against exchange rate risks and raw materials import risks have
been addressed. Nevertheless client profitability analysis is now the basis for
business decisions.
Redesigning the Sales Team structure to meet our new objectives has been a
starting point, therefore we can identify Sales Representatives and also other
important functions as Presales Division, Business Development. The sales
process integrates in the new formula financial services and also financial
discounts. We are aiming to reach 62 M Euros in 2013, revenues from 2 main
lines of products – PVC & fittings, geosynthetics.
Organizational restructure and redesign by integrating basic important
functions until now low developed. 2010 shall be the start for performance
management system implementation, a complex program targeting to increase
productivity and to better manage the compensation, rewards and benefits
plans. Developmental programs will continue in the following period and also a
benchmarked pay plan has to be embraced in order to improve the overall
people and organization indicators.
And so, we have been fortunate to witness the early stages of our proposed strategy
implementation, being also asked to fine tune some of the tactics put in practice. This
project gave us the chance not only to review and apply all the major business concepts
learned during MBA program, but to see them at work, while the Client benefited from an
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integrative, structured and professional approach.
Valplast – Vision 2013
2.
Our Mandate
The Consultants’ mission was to provide the best business solutions for Valplast organization in order to
fit organizational vision and objectives embraced by the shareholders and board members.
Our commitment was to provide a highly documented and expertized analysis and strategic alternatives in
order to catch market opportunities tailored to organization needs and values. We have started our project
with a detailed analysis of the industry in which Valplast activates, and we continued analyzing the main
functions within Valplast and using our best knowledge we have developed multilevel action plans for
sales and marketing, financial, organizational, operations areas.
Always seeking excellence and innovation we decided to go further from the classical way of doing business
and we have designed a new, improved Business Model which in our opinion will better suit the market
challenges and opportunities.
The present business plan integrates a broad description of several management initiatives, all converging
toward the same end: business efficacy and efficiency.
We have been privileged to play a partner role for Valplast management in re-inventing the organization
and as a result of our dedication for the project we have been able to acknowledge some of the
implementation processes taking place already since March 2009.
Concluding our work: we encouraged and assisted a new, daring and success oriented Business Philosophy
for Valplast - The Specialist in Drainage Solutions.
The Project Team
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August 2009
Valplast – Vision 2013
3. Valplast Profile
3.1. Company overview
Valplast Industrie SRL is part of Romstal Group (turnover of 350 Mil Euro in 2008).
Romstal Group consists of:

Romstal – the most important retailer for pipes and fittings in Romania, with over
180 stores at national level

Valrom – the most important producer of polyethylene and polypropylene (PE&PP)
pipes in Romania

AutoKlass – automotive dealer for Mercedes, Jeep, Chrysler, Ford

Valplast – producer of polyvinylchloride (PVC) pipes and fittings

Belform Prod – producer of bathroom furniture
Valplast was established in 2003 as a joint venture between: Valrom – 50%, Enrico Perini
(private person) – 25% and other two Italian citizens (private persons) – 25%. Started with
10 mill Euro investment, Valplast has production facilities in Bucharest, located on 46,000
Production - 10,000 square meters

Preparing units - 4,000 square meters

Offices – 500 square meters

Warehouses, loading platforms – 31,500 square meters
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
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square meters land:
Valplast – Vision 2013
Since inception, Valplast was intended to produce and delivery a complementary product
portfolio vs. Valrom. Valplast was intended to be an independent profit centre, with own
sales force. As general manager, a person from Valrom’s top management was internally
recruited, in the person of Mr. Bogdan Tataru, at that time being Production Manager at
Valrom. The expertise in PVC processing came from the two Italian owners who also own
PVC processing factories in Italy.
Valplast’s turnover constantly increased along years, starting from 1 mill Euro in 2003,
reaching 26 Mil Euro in 2008. Turnover evolution is presented in the diagram bellow
(turnover in million Euros per year):
Source: Valplast internal information
Turnover increase was realized by two main actions:

Enlarging the sales force at national level

Expanding the production capacity with two more production lines besides initial
four ones.
In 2008 a modern fittings section was added, with state-of-the-art moulds and pressing
machines, comprising 1.5 million euro investment. Also in 2008 an old factory was acquired
in N-W region of the country. The factory was completely renovated, becoming one of the
newest facilities in Romania, with a total surface of 55,000 square meters, from which
Valplast – Vision 2013
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economic crisis started in 2008.
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15,000 square meters for production. Equipments were not introduced in this plant due to
3.2. Current strategy
3.2.1. Valplast’s current business model
VALPLAST Business Model - Current
Partner
Network
Infrastructure
Minimal
Value
Proposition
Value
Configuration
PVC pipes and
fittings
Transportation
Core
Capabilities
Operational
excellence
Cash
Capacity
Offer
Time to deliver
Adaptability
Payment terms
Financial and
commercial discount
One-to-one
marketing
Personal
relationships
Customer
Target
customer
Contractors
Retailers
Distribution
channel
Own sales force
and distribution
Romstal channel
Retailers
Cost structure
Direct operational costs
Customer
Relationship
Revenue streams
Finance
Sales incomes
Business model source: A. Osterwalder 2004, adaptation
Due to the economical recession and the dramatic decrease in private investments in
residential projects the company faces a fundamental need for change in order to survive
and secure its shareholders interests. Neither a change in its offerings nor infrastructure
would be enough to turn the company around.
Major alterations should be addressed to all the core aspects of the business i.e. its
purpose and offerings, strategies, infrastructure, organizational structures, trading practices,
and operational processes and policies.
We used a business model composed of four pillars namely infrastructure, offering,
capabilities – the competencies needed to execute the model, partner network – the
Valplast – Vision 2013
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The infrastructure dimension would include all issues related to the company’s core
8
customers and finances.
company’s business alliances, and value configuration – the way in which the company will
prove itself mutually beneficial for its customers, shareholders and all other stakeholders.
The offering component is centered upon the value proposition of the company i.e.
the products and services through which the company will deliver value to each specific
customer segment. It is also the differentiator of the company in relation to its competitors
and the reason why customers would buy from the firm and not from another.
Within the ‘customers’ heading three critical dimensions were addressed: the company’s
target customers, its distribution channels – the means by which the company will deliver its
products and services, and the company’s marketing strategy. Also here we included the
company’s customer relationship as the links established between itself and its customer
segments and the management of these links referred to as customer relationship
management.
Under ‘finances’ we addressed both the company’s cost structure as the monetary
consequences of the other components actions of the model and the revenue streams – the
income of the company and the way the company would manage its various revenue flows.
Within the framework below we presented the company’s current situation with regard to
each of the components described so far.
The company’s partner network is currently exhibiting a minimal functionality with
no active partnership or alliance. The company is a business to business company.
Valplast uses a primitive cost allocation mechanism where all indirect costs are
allocated on a single cost driver – raw material consumption. For a detailed diagnosis of the
cost structure see financial section in the internal analysis chapter.
Sales incomes structure is made of 80% from PVC pipes and fittings internally produced, and
the remaining 20% from sales of other assorted merchandise imported from EU.
3.2.2. Current Strategy
Valplast current goal is to become the largest producer of PVC pipes and fittings in Romania.
Valplast adopted a cost leadership competitive positioning using latest technologies to
achieve this (although it is arguable that it realized it, Teraplast, the largest competitor in
this segment also claiming the cost leadership position), an offensive industry strategy (flank
attack, being the best producer of well pipes, and also frontal attack to Teraplast’s leading
position in PVC segment). As product/market strategy, Valplast adopted the market
penetration strategy, enlarging its market share year after year, now challenging Teraplast’s
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leader position. This growth was achieved organically.
Valplast – Vision 2013
Starting its activity in 2003, Valplast sold 80% of its production to Valrom, which sold these
products through its extensive sales force and distribution channels. Valplast’s sales target
was that in five years to reduce the share of products sold intra-group (Romstal group) to
30%. Using of Romstal group expansion strategy, Valplast sell now approx. 15% of its
production through Valrom distribution network to exports in Ukraine, Moldova, Bulgaria,
Serbia, and Italy. As current product portfolio, 80% of products are own production, the rest
being merchandise from imports (fittings, water-homes, water channel covers, etc).
Although Valplast perform very well in the operational area, it can be considered as
an internal focused company, disregarding the business environment.
Its competitive position is: “Producer of PVC pipes and fittings”. This competitive
positioning fits with Valplast’s competitive advantage, i.e. its operational excellence,
production processes and flexibility in sales, and with its stated mission, to become the
largest producer of PVC pipes and fittings in Romania.
3.3. Performance indicators
Every half year, a board meeting analyzes the realized targets and establishes new
objectives for the next period.
Main performance indicators are:
Turnover

EBITDA

Net profit

Productivity/employee
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
Valplast – Vision 2013
4. External & Internal Audit
4.1. Macro-environmental analysis (PEST analysis)
 POLITICAL factors:
The political configuration of 2009 is “bi-colored” government in place that faces
difficulties in managing European programs and does not find co-financing and also TVA
flow management solutions.
Until the end of the 1st 2009 semester the government has not been able to identify
efficient ant crisis solutions, therefore initial estimations regarding 1.5% economical
increases seem over-evaluations. 2009 being an electoral year in Romania, predictability of
government measures has been a difficult task and a major risk of government dissolution
before elections appears. Past experiences have indicated governmental investments near
election time, therefore we can estimate September 2009 as a special period for election
measures.
European financing programs can be seen as an important solution in this economical
crisis stage following 2009-2010 periods. An important asset in business developing area has
become the political networking issue with government officials, a real driving force of the
industry.
Three major governmental strategies for 2009 are related to industry specifics:
 Rural areas developmental plans including:
o Basic infrastructure repairing and development (roads, water canals, water
flows, waste management system)
o Rural medical establishments development
o Stimulation of farming, agriculture and rural establishment developmental
o Villages’ restorations and rural tourism development.
 Waste management and sanitation programs:
o Better waste management system and sanitation of cities
o Waste Management National Strategy Review – 2009-2013 period ( 3.4 Billion
Euro to be invested in an excess of 250 organic landfills)
 Secure drinkable water sources access:
o Secure drinkable water sources networks for 80% of the total Romanian
population
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almost 69 % of the total population
11
o Secure draining / sewerage canals and used water purification systems for
Valplast – Vision 2013
o Assuring drinkable water alimentation at European standards through
rehabilitation of water purification systems and enlargement of distributions
network.
FEADR program for access to European Funds meaning ethnical patrimony preservation,
water and canalization infrastructure started in 2007 - 2008 period (now in the finalizing
step – execution and payments) are heavily users of PE and PVC pipes and fittings.
 ECONOMICAL factors:
After a 2 year period of excellent economic growth (~8% per year) the recent estimation
is minus 8%, decrease counting also a possibility of budget reconsideration of minus 10 %.
IMF measures, the exchange rate and inflation rate are the main factors influencing the
present economical context.
Financial blockage – increasing day’s receivable and all these associated diminishing the
credit lines for clients within the banking system are describing the economical environment
of 2009. Banks more often are requesting periodical financial analysis (once at three month
period) and are increasing banking warranties limits. Unrecovered debts, insolvency and
bankruptcy are sustaining the economical blockage of 2009.
The level of inflation in May 2009 was 5.9 %, the highest score for the UE region as
stated by EUROSTAT. Even though a descending trend is noticed (inflation rate criteria) the
government does not intervene to control this economical situation. The unemployment
rate for the 2nd trimester of the year, according to INS sources, has been 5.6 %, estimation
being that it will reach 10 % (~1 million persons).
The main declarative measures offered by the government in order to reduce the
economical crisis impact on the Romanian economy and its members are:

Adjusting budget expenses in order to diminish the general budget deficit

Constant 16 % unique taxation rule and financial compensations and deductions for
low income segment of the population

Considering as a priority for the 2009 budget law the co-financing measure for
investment projects from structural funds and EU programs for agriculture and rural
developmental segment

Increasing state budget contribution to thermal rehabilitation of flats and buildings
in order to increase energetically efficiency

Rural infrastructure, county roads and social establishments financing solutions
industry, is focusing on development of transport infrastructure. National roads and trains
network is declared to be a priority for the Transport Ministry until 2012. Therefore a special
Valplast – Vision 2013
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An important element regarding the 2009 government program, influencing the
12
increasing
entity has been developed – National Roads and Highways Company in order to manage and
control transport infrastructure development strategy and implementation. Important
legislative modifications have appeared in this sector, for example biddings criteria were
changed from a price based decision to a more sophisticated criteria (timelines, warranties).
Also “Black Listing” methods have been put in place in order to avoid constructors that have
not respected contractual clauses (price, quality, deadlines) in order to fair competition
requirements for biddings.
The Agenda for 2009-2013 transport infrastructures is below depicted:
Transport
Mean Government Plan
Classification
Highways
Finalizing the IV-th EU corridor Nadlac Constanta (885 KM) until 2012
Finalizing Sibiu –Pitesti connection road (120 KM) until 2013 -2014
Finalizing Bors – Tg Mures section from Transilvania Highway project (415
Km) in 2012 and Tg Mures – Brasov section from the same project until
2013-2014
Finalizing in 2012 of the highway segment from Bucuresti to Comaric (110
km), and next Comarnic – Brasov (56km) in 2013-2014
Bucuresti level highways A1 and A2 connection 2012-2014
2012 starting point for Ploiesti-Buzau-Focsani highway (108 km), FocsaniSabaoani highway (140 km), Tg. Mures – Iasi highway (300 km), South
Highway: Bucuresti-Alexandria –Craiova (170 km), bridging Danube Canal
and the Black Sea at Agigea to A2 highway
National Roads
Detour Roads for main cities as Ploiexti, Cluj, Iasi, Oradea, Suceava, Satu
Mare, Alba Iulia, Ramnicu Valcea, Timisoara, etc
Rehabilitation in respect to EU norms of min 5000 km of national roads
Rehabilitation in respect to EU norms of 10 000 of county roads
Source: Romanian Government Master Plan 2009 www.gov.ro
External demand contraction and also lack of consistent internal support to be
offered will generate a negative economical growth around -8% in 2009 (worst case
scenario is a 10% contraction). Even with this estimation the economical decline can be
smaller if compared to other EU members. Romania is still exposed to the risk of inflationist
pressures due to external monetary attacks. Exchange rate depreciation started early 2009,
limited internal offer for goods and services are sustaining the risks factors for inflation.
gradually, internal & external pressure referring to exchange rate and budgetary execution
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are the main factors that will influence the magnitude of successive reduction of monetary
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Monetary policy relaxation will start in the 2nd semester of the 2009 and will happen
Valplast – Vision 2013
policy interest. Improvements regarding risk perception for Romania, after FMI and UE
agreement, will continue only in case of finalizing assumed obligations – targets
achievement, reforms implementation required by international financial institutions. A
4.6% budget deficit from GDP is possible, but the scenario is decreasing budget incomes and
expenses in comparison with 2008. The actual scenario indicated a revival of the economical
situation of Romania starting in 2010.
 SOCIAL factors:
Considering data from the 2006 National Population Review, done by INS, for a total of
21 Mil persons, the administrative structure of Romania is of 320 cities and municipalities,
15448 rural establishments. (Source: www.insse.ro National Institute for Statistics)
Overall public estimations for 2009 show that 48 % of the total establishments
(urban & rural) are not connected to collective drinkable water sources and 55 % do not use
collective sourcing systems.
Between 2003-2008 a tremendous development of households (urban and rural
areas) have been observed, meaning flats but also houses construction. The increasing
economical trend associated with higher incomes has determined the development of
households. 2009 has meant a real blockage for these trends as many building projects were
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stopped or delayed at any level – physical & juridical persons.
Valplast – Vision 2013
Low incomes and unemployment rate
increases has supported the abandonment
of the projects. Real-estate businesses
stagnation and low cash reserves on the
other hand have blocked constructors from
finalizing their projects.
INS publically announces in June 2009
unemployment rates and gross medium
income generated by the economical crisis
context.
Governmental declarative measures have
been issued in order to combat these
effects as follows: taxation facilities for
technical
unemployment,
encouraging
employment through taxation and co-financing facilities, EU funds for Human Resources
development programs.
Unfortunately most likely the social situation will not be improved significantly; last public
estimations are suggesting a PIB contraction until 7.1 %.
Bellow we describe the major sources of infrastructure projects and allocated funds
in Romania (funds from EU and Romanian Government) in the following years (Sources:
official sites of Environment and Transportation Ministries).
Sectorial Operational Program "Transport" (source: www.mt.ro Transportation Ministry)
Sectorial Operational Program "Transport" is structured around four priority axes, which
include areas in which the intervention may finance transport projects:

Priority axis 1 (3,854.87 million) - Modernization and development axes priority TENT in order to develop a sustainable transport system and network integration with
the EU transport

Priority axis 2 (1,397.30 million) - Modernization and development of national
transport axes outside the TEN-T priority in order to create a national sustainable
transport

Priority axis 3 (322.89 million) - Modernization of transport sector in order to
Priority axis 4 (122.58 million) - Technical Assistance for SOP-T
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increase environmental and public health and safety of passengers
Valplast – Vision 2013
Environment Sectorial Operational Program (source: www.mmediu.ro
Environment
Ministry). To achieve this global objective, the Environment SOP will finance investments
for the following environmental sectors:

The water segment (Total 3.27 billion Euros, of which 2.78 billion grant EU Euro).
This sector will benefit from most of the funding allocated SOP Environment (60%).
Investments are considering the expansion / upgrading water and sanitation
networks, building / upgrading treatment solutions for drinking water in order to
clean as well to increase overall quality in terms of sanitation. For this sector there
will be financed large infrastructure projects that cover several localities at regional
/ county level. They will make a significant contribution to comply with European
environmental standards and will have an impact on community development. This
approach seeks overall efficiency for investment costs (the achievement of
conomies of scale) and operating costs of the investment objective newly created.

Management of Waste / polluted land rehabilitation (total 1.17 billion Euros, of
which 0.93 billion grant EU Euro). Investments target for this sector creation of
integrated systems for waste management at the regional level, in parallel with the
closing of the inconsistent waste stores. There will be financed measures for
collecting, sorting, transport, treatment and storage of Household waste mixed
with measures to reduce the amount of waste, according to the principles and
practices in the European Union. Other investments are pilot projects for the
rehabilitation of land affected in time by the pollutants affecting negatively the
environment and human health.

Heat management (total 458 million Euro EU grant of Euro 229 million)
Investments in this sector are aiming to reduce emissions from municipal heating
plants. Investment projects do will be done in localities in which municipal power is
the largest source of environmental pollution.

Environment protection (total 215 million Euro EU grant of Euro 172 million)
Projects financed are targeting to ensure a proper management of protected areas
and hence degrade stop of the negative impact on biodiversity and natural
resources. A special attention will be provided on management sites
Protection against flood and coastal erosion (total 329 million Euro EU grant of Euro
270million). Investment projects are designed to protect people from the effects of
devastating floods. Another area of action is to protect Rehabilitation and southern
growth of overall safety of population. The environment, but? At growth? Overall
economic value of the Romanian coast.
Valplast – Vision 2013
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coast of the Black Sea (reducing coastal erosion). Such investments contribute to
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
POR - Regional Operational Program (source: www.mmediu.ro Environment Ministry)
POR’s total budget is 4.4 billion euro in first 7 years after accession (2007-2013). EU
financing represents approximately 84% of POR funds, remaining funding comes from
national public co-financing (14%) and co-private (2%).

Priority axis 1: Support sustainable development of cities - urban growth poles (30%
of budget POR). Support for the development of towns in order to increase the
quality of life of people and creating new jobs.

Priority axis 2: Improving regional infrastructure and local transportation (20.35% of
budget POR). Support for rehabilitation and upgrading of network of county roads,
streets.

Priority axis 3: Improving the social infrastructure (15% of the ROP). Support for
improving the infrastructure of social services, health and public safety in emergency
situations, upgrading educational infrastructure.

Priority axis 4: Supporting the business development of regional and local (17% of
budget POR) Funding for development of structures to support business, industrial
rehabilitation centers unused; support micro.

Priority axis 5: Sustainable development and tourism (15% of budget POR)
Support for restoring historical-cultural heritage, tourism infrastructure, improve the
quality of infrastructure in natural areas that could attract tourists.

Priority axis 6: Technical assistance (2.65% of budget POR) Support for transparent
and efficient implementation of Regional Operational Program.
 TEHNOLOGICAL factors:
Technological progress is describing the context, Western Europe new, but also second
hand is in place in production facilities. The new requirements for pipes & fitting producers
are to correspond to EU standards also from a production technology point of view. The
renewal speed rate for technology in this industry is one at 10 years.
Extrusion is the process used to create Polyvinylchloride, Polyethylene and
Polypropylene pipes and fitting profiles, process that requires a high degree of
automatization. The material is pushed or drawn through a die of the desired cross-section.
The two main advantages of this process over other manufacturing processes is its ability to
excellent surface finish. Hot extrusion is specific to pipes and fittings industry, this is done at
an elevated temperature to keep the material from work hardening and to make it easier to
Valplast – Vision 2013
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only encounters compressive and shear stresses. It also forms finished parts with an
17
create very complex cross-sections and work materials that are brittle, because the material
push the material through the die. Most hot extrusions are done on horizontal hydraulic
presses that range from 250 to 12,000 tons. The biggest disadvantage of this process is its
cost for machinery and its upkeep.
Plastic extrusion commonly uses plastic chips or pellets, which are usually dried in a
hopper before going to the feed screw. The polymer resin is heated to molten state by a
combination of heating elements and shear heating from the extrusion screw. The screw
forces the resin through a die, forming the resin into the desired shape. The extrudate is
cooled and solidified as it is pulled through the die or water tank. In some cases (such as
fibre-reinforced tubes) the extrudate is pulled through a very long die, in a process called
pultrusion. A multitude of polymers are used in the production of plastic tubing, pipes and
fittings. Sectional view of plastic extruder showing the components is depicted below:
The main focus regarding production and technology used for 2009-2012 period is to
systematically reduce negative environmental impacts at all plants in accordance with
Quality control cycle. An important declarative measure of the Romanian government in
2009 is to reduce the discrepancy
between Romania and other EU state
members regarding the environment
protection infrastructure.
Geosynthetics describe a range of
generally polymeric products used to
solve civil engineering problems. The
term
is
generally
regarded
to
encompass six main product categories: geotextiles, geogrids, geonets, geomembranes,
geosynthetic clay liners, geofoam and geocomposites. The polymeric nature of the products
makes them suitable for use in the ground where high levels of durability are required.
Geosynthetics are available in a wide range of forms and materials, each to suit a slightly
different end use.
These products have a wide range of applications and are currently used in many
civil, geotechnical, transportation, geoenvironmental, hydraulic, and private development
applications including roads, airfields, railroads, embankments, retaining structures,
reservoirs, canals, dams, erosion control, sediment control, landfill liners, landfill covers,
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mining, aquaculture and agriculture.
Valplast – Vision 2013
Geosynthetics are generally designed for a particular application by considering the primary
function that can be provided. As seen in the accompanying table there are five primary
functions given, but some groups suggest even more.
 Separation is the placement of a flexible geosynthetic material, like a porous geotextile,
between dissimilar materials so that the integrity and functioning of both materials can
remain intact or even be improved. Paved roads, unpaved roads, and railroad bases are
common applications. Also, the use of thick nonwoven geotextiles for cushioning and
protection of geomembranes is in this category. In addition, for most applications of
geofoam, separation is the major function.
 Reinforcement is the synergistic improvement of a total system’s strength created by the
introduction of a geotextile or a geogrid (both of which are good in tension) into a soil
(that is good in compression, but poor in tension) or other disjointed and separated
material. Applications of this function are in mechanically stabilized earth walls and steep
soil slopes. Also involved is the application of basal reinforcement over soft soils and over
deep foundations for embankments and heavy surface loadings.
 Filtration is the equilibrium soil-to-geotextile interaction that allows for adequate liquid
flow without soil loss, across the plane of the geotextile over a service lifetime
compatible with the application under consideration. Filtration applications are highway
 Drainage is the equilibrium soil-to-geosynthetic system that allows for adequate liquid
flow without soil loss, within the plane of the geosynthetic over a service lifetime
Valplast – Vision 2013
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fences and curtains, and as flexible forms for bags, tubes and containers.
19
underdrain systems, retaining wall drainage, landfill leachate collection systems, as silt
compatible with the application under consideration. Geopipe highlights this function,
and also geonets, geocomposites and (to a lesser extent) geotextiles. Drainage
applications for these different geosynthetics are retaining walls, sport fields, dams,
canals, reservoirs, and capillary breaks. Also to be noted is that sheet, edge and wick
drains are geocomposites used for various soil and rock drainage situations.
 Containment involves geomembranes, geosynthetic clay liners, or some geocomposites
which function as liquid or gas barriers. Landfill liners and covers make critical use of
these geosynthetics. All hydraulic applications (tunnels, dams, canals, reservoir liners,
and floating covers) use these geosynthetics as well.
In Romania, since its ascension to EU it is mandatory to use geosynthetics materials in
infrastructure projects. Until 2007 these materials were not used, instead, using old
technologies and materials, employing long time and high costs projects. The rework rate
was very high, due to poor quality of raw materials. Even if the new geosynthetics materials
are more expensive, the price/quality ratio is better and ensure and the quality of final
infrastructure is secured.
4.2. External Situation Analysis
4.2.1. Industry analysis
Industry definition: the industry in which Valplast competes is “Polymer based systems for
infrastructure projects”, the players in this industry supplying all plastic materials products
needed in infrastructure projects.
Strategic groups: in the designated industry, all players are first tier suppliers
(producers/importers in the Romanian market) whom clients are the contracting companies
for infrastructure projects.
Analyzing the companies acting in this industry, we identified that some of them have
multiple SBUs competing in different groups (based on the products they deliver). The
products will be described in detail in the next chapter.
Market Analysis:
PVC (Poly Vinyl Chloride) pipes and fittings group: Valplast, Teraplast, Rehau, Wavin,
Pipelife.
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We define the strategic groups based on the main polymer categories, as shown bellow:
Valplast – Vision 2013

PE&PP (Polyethylene & Polypropylene) pipes and fittings group: Valrom, Teraplast,
Rehau, Wavin, Pipelife.

Geosynthetics materials group: Rehau, Iridex, Geocom.
In each strategic group, along with the main players, there are small niche players with
limited financial and technological power. We consider their impact to be of little
significance for our analysis.
In the diagram bellow, we depicted the three strategic groups in colors as follows:
-
Blue - PVC pipes and fittings group
-
Red - PE&PP pipes and fittings group
-
Green - Geosynthetics materials group.
Source: Valplast management information
Medium Net Profitability by segments: PVC segment: 8-9%; PE&PP segment: 5-7%;
Geosynthetics segment: 15-20% (Source: Valplast management, industry periodicals)
Intensity of competition / Ways in which firms compete
In PVC segment: fierce competition, directed on price and payment terms

In PE&PP segment: fierce competition, directed on price and payment terms

In Geosynthetics segment: weak competition – each of present competitors has its
market, efforts are directed towards enlarging the “pie”.
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Competition in industry varies with each strategic group.
The key survival factors within the industry are product standardization, competitive cost
structure, available working capital – due to customers’ long payment terms, sales national
coverage and available inventories. There has been noticed that customers prefer to buy
from local producers when available (PVC, PP&PE local producers; Geosynthetics only
imported).
The key success factors for the industry are: strong financial position, political networking,
high quality services attached to products – Payment term, Transportation, bonding
customers relationships, broader product range, time to delivery, consultative sales
resources and processes, and warehouses in each regions (to optimize transportation costs)
Industry recipes and ‘rules of the game’
Core benefit
water adduction (PE&PP pipes and fittings),
sewage (PVC pipes and fittings), separation,
reinforcement, filtration, drainage,
containment (Geosynthetic materials)
Basic
physical product itself
Expected
Augmented
Potential
fulfill the required standards and advertised
quality
plus associated services: price discount,
payment term, transportation facility,
warrantiesc
Core benefit of product is the expected function it fulfills: water adduction (PE&PP
pipes and fittings), sewage (PVC pipes and fittings), separation, reinforcement,
filtration, drainage, containment (Geosynthetics materials).
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adding value: customer care, consultancy
services, finance

Basic product is the physical product itself.

Expected product is what the customer expects the product to be, i.e. to fulfill the
required standards and to have the advertised quality.

Augmented product represents the product plus the associated services: price
discount, payment term, transportation facility, warranties.

Potential product is what it can become adding customer care, consultancy services,
finance.
At this moment, in PVC and PE&PP segments, the products are traded at the augmented
level. Products being highly standardized all the players concentrate their efforts towards
negotiation prices and payment terms. Another request for many buyers is that in case of
long term contracts, the prices should be frozen (usually up to one year), which is very hard
to achieve due to increases in raw material prices and exchange rate fluctuations.
In Geosynthetics segment, already some of the potential product features are in place; the
competition is not on product prices, but on solution prices.
Large and long infrastructure projects of whom beneficiary are the state authorities
generate long payment terms, with delays that are supported by suppliers.
Buyers “align” the offers and often proceed to open bids in order to obtain better payment
conditions.
More and more, big contractors in financial difficulties buy from one supplier large
quantities and delay the payment. At one moment the supplier stops the deliveries until the
contractor will pay his debts. The contractor instead chose another supplier and buy from
this one, knowing that will delay the payment too. The contractor takes this way one by one
all the suppliers, until he reach again the first one. Now he will pay this supplier and the
“game” starts all over. This way, the suppliers are pressed by some buyers, creating financial
difficulties.
Delivering their products to large contractors, the players in industry are classified by
their buyers (contractors) as level 2 suppliers. On level 1 are the energy and diesel fuel
suppliers for construction equipments. From contractors’ total acquisitions, level 1 suppliers
have approx. 30% share, and level 2 suppliers have approx. 5-10% share. This generates a
priority when paying the debts. When in cash difficulty, the contractor must pay first taxes
to the authorities, then employees’ salaries, then bank loans, then level 1 suppliers and then
level 2 suppliers. Being at the end of the line harden the financial situation of industry
political networking knows where the infrastructure projects are planned, what are the
Valplast – Vision 2013
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Another important rule of the game is political networking. The player who does the best
23
players, that is way a good financial position is mandatory.
allocated funds, and can lobby in advance in his advantage. Moreover, after finalizing an
infrastructure project, the contractor has to wait to receive the money from state
authorities, therefore being unable to pay its suppliers. Again, political networking helps,
the one who has close relations can receive the money faster.
4.2.2. The industry life cycle
Total
sales
2009
Time
Considering each of defined industry segments, the Industry Life Cycles present as follows:

PVC segment: late-growth stage, exhibits downturn in current recession

PE&PP segment: middle-growth stage, exhibits downturn in current recession

Geosynthetics segment: introductory stage, still exhibits growth.
The industry exhibited high growth until 2008, when the economic crisis moderated, even
reduced the sales in industry. Still, dealing with products and systems for infrastructure
projects, even in recession there are large projects conducted by the state authorities that
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make this industry to suffer less than others.
Valplast – Vision 2013
4.2.3. The 5 + 1 forces (Porter)
Within each of strategic groups (industry segments), the fundamental forces have different
impacts on attractiveness assessment. We will assess them separate for each segment.
PVC Segment
FORCE
General Level
Details
Threat of New
Low-Medium
Local producers well established, capital intensive, economies of scale are
Entrants
high, brand identity is not so important, high transportation costs for
imported products, products are standardized and companies differentiate
by value added services, low switching costs, access to distributions is
easy, proprietary learning curve is high, access to inputs is medium,
unrestrictional government policies, expected retaliation is high.
Buyer power
High
Buyers size –large, concentration – high, small number of buyers - high
power. They buy in large volumes; have easy access to information – high
power. Due to high price sensitivity, standardized products (low impact on
quality/performance), low switching cost, high bargaining power, and
push-through type sales, the buyer power is high. The ability to backward
integration of buyers is only potential and exerts pressures upon suppliers.
Decision maker’s incentives to obtain lower prices are high.
Threats of
Medium
substitutes
Plastic materials substitutes PE&PP – between segments, concrete pipes,
new materials development (ceramic pipes), but PVC price is lower.
Switching costs are low, but tempered by the technical requirements of
projects.
Suppliers
Medium
Bargaining Power
1 national supplier that exhibits some power but more external suppliers
that asks for warranties + transport fees + cash. Standardized inputs. Low
switching costs. Not existing substitute inputs. Inputs price is important on
final cost. Threat of vertical integration is low.
Degree of Rivalry
High
5 major producers, high industry concentration, different product
portfolios but standardized products, brands are not valued by customers,
overcapacity, low switching costs, increased rivalry due to shrinking
market, informational complexity is low, activities are core for main
players and corporate stakes are high, exit barriers are medium-high due
to specialized expensive equipment.
Complementors
High
Power
Close positively related with growing infrastructure engineering industry
(national and European funds for raising the living standards and
development of transportation infrastructure); POSM – Operational
Main conclusion: this segment is becoming unattractive
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Sectorial Program for Environment.
PE&PP Segment
FORCE
General Level
Details
Threat of New
Low-Medium
Local producers well established, capital intensive, economies of scale are
Entrants
high, brand identity is not so important, high transportation costs for
imported products, products are standardized and companies differentiate by
value added services, low switching costs, access to distributions is low,
proprietary learning curve is high, access to inputs is medium, unrestrictional
government policies, expected retaliation is high.
Buyer power
High
Buyers size –large, concentration – high, small number of buyers - high power.
They buy in large volumes; have easy access to information – high power. Due
to
high
price
sensitivity,
standardized
products
(low
impact
on
quality/performance), low switching cost, high bargaining power, and pushthrough type sales, the buyer power is high. The ability to backward
integration of buyers is only potential and exerts pressures upon suppliers.
Decision maker’s incentives to obtain lower prices are high.
Threats of
High
substitutes
Plastic materials substitutes PVC – between segments, new materials
development (ceramic pipes). Switching costs are low, but pondered by the
technical requirements of projects.
Suppliers
Medium
1 national supplier that exhibits some power but more external suppliers that
Bargaining
asks for warranties + transport fees + cash.
Standardized inputs. Low
Power
switching costs. Not existing substitute inputs. Inputs price is important on
final cost. Threat of vertical integration is low.
Degree of Rivalry
High
5 major producers, high industry concentration, different product portfolios
but standardized products, brands are not valued by customers, overcapacity,
low switching costs, increased rivalry due to shrinking market, informational
complexity is low, activities are core for main players and corporate stakes are
high, exit barriers are medium high due to specialized expensive equipment.
Complementors
High
Power
Close positively related with growing infrastructure engineering industry
(national and European funds for raising the living standards and
development of transportation infrastructure); POSM – Operational Sectorial
Program for Environment.
26
Main conclusion: This segment is becoming unattractive
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Valplast – Vision 2013
Geosynthetics segment
FORCE
General Level
Details
Threat of New
High
In a market based on imports, economies of scale are not very important.
Producers’ brand identity is important. Low capital requirements. Proprietary
Entrants
product differences influences are minimum. Switching costs are low. Access to
distribution is easy. Proprietary learning curve has a reduced impact. Access to
inputs is facile due to many international suppliers. Government policies
enforce usage of these materials, therefore helping the growth of this segment.
Expected retaliation is low.
Buyer power
Medium
Buyers size –large, concentration – high, small number of buyers - high power.
They buy in large volumes; have easy access to information – high power. Due
to low price sensitivity, low differentiated products (high impact on
quality/performance), low switching cost, high bargaining power, and pushthrough type sales, the buyer power seems to be high. The ability to backward
integration of buyers is present but do not exert pressures upon suppliers.
Decision maker’s incentives to obtain lower prices are high. Since the demand is
higher than the supply, all above mentioned criteria are pondered, resulting in
a medium buyer power.
Threats of
Low
Highly innovative products, technology products, no substitutes available.
Low-Medium
External suppliers available for partnerships, opportunities for entering
substitutes
Suppliers
Bargaining
Romanian market, switching costs are low, differentiation of inputs influences
Power
are minimum, supplier concentration is low, no substitutes available, no large
volume suppliers, Impact on cost/differentiation is high but of secondary
importance as these two factors are not critical, threat of integration is present
(forward – Rehau; backward - Iridex) but demand exceeds supply and there is
low degree of rivalry, relative cost of inputs is high
Degree of
Very low
This segment is not consolidated, being in introductory stage, highly growing,
and local producers inexistent, market is based on imports, demand exceeds
Rivalry
supply, and product differences are high. Brand identity is important, switching
costs are low. Corporate stakes are medium, every player having many
independent SBUs. Exit barriers are low.
Complementors
High
Close positive related with growing infrastructure engineering industry
(national and European funds for raising the living standards and development
Power
of transportation infrastructure); POSM – Operational Sectorial Program for
Environment.
27
Main conclusion: this segment is highly attractive.
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4.2.4. Market analysis
The market value in 2008 was approximately 400 mil Euro according to sources as industry
periodicals, Valplast management, and business magazines. In this industry we defined
three segments following the use of the products:

PVC pipes and fittings - used in sewage, drain and well-drills systems

PE and PP pipes and fittings – used in water adduction systems

Geosinthetics materials (geomembranes, geotextiles, geogrids) – materials (made
from PVC, PP or PE) used for water draining in infrastructure
Served market
PVC and PE&PP markets are influenced by investment projects for water supply and
sewage, or networks of gas, worth hundreds of millions of euro, which are in progress or will
begin in several cities and in rural areas, a large part of project funding being provided by
funds from the EU. PVC and PE&PP markets are based on two pillars: construction and
infrastructure. Although the construction market is in decline, due to need massive
investment in infrastructure, long-term annual growth is estimated to 10-15% by 2013. In
the medium term, due to economic crisis, the markets are expected to decrease by 10-15%.
Geosynthetics segment: products used for construction and rehabilitation of streets and
roads. Under EU regulations, the streets must be provided with drainage systems, which
replace classic ditches on the roadside. Thus, between the asphalt layers, geosynthetics will
be introduced as reinforcement layer. Under the asphalt layer will be installed drainage
systems. This segment shows small penetration in the market, but due to mandatory
regulations and projected infrastructure projects, will exhibit high growth in the next years.
Breakdown of industry segments
PVC pipes segment: in 2008 had a market value of 100Mill. Euro and 40,000 tons
produced in Romania, after a few years of continuous 20-30% growth p.a. For 2009 the
growth rate is expected to be -10%. For the period 2010-2013 a growth of 10% per year is
expected.This segment exhibit a high level of concentration, main four players having 80%
market share.
setting standards in industry for these kind of products.
Valplast – Vision 2013
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having over 50% market share of this niche, and being recognized by the customers as
28
It worth mentioning here the subcategory of well pipes, because Valplast is leader,
The main players and their market shares are depicted in the below diagram:
Others 14%
Pipelife 11%
Teraplast
Teraplast 40%
Wavin 8%
Valplast
Rehau
Rehau 6%
Wavin
Valplast 21%
Pipelife
Others
Sources: industry periodicals, business magazines
PE&PP pipes segment: in 2008 had a market value of 240Mill. Euro and 50,000 tons
produced in Romania, after a few years of continuous 30% growth p.a. For 2009 the growth
rate is expected to be -25%. This segment exhibits a high level of concentration, main four
players having 63% market share. The main players and their market shares are depicted in
the below diagram:
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29
Sources: industry periodicals, business magazines
Valplast – Vision 2013
Geosynthetics materials segment: in 2008 had a market value of 60Mill Euro, being in the
introductory stage. For 2009-2013 the growth rate is expected to be up to 25% per year due
to Operational Sectorial Programs (infrastructure investments of approx 4.5 Billion Euro).
The main players and their market shares are depicted in the below diagram:
Sources: industry periodicals, business magazines
Market Penetration
In Romania, 58% houses are over 30 years old and the piping systems over passed
the lifecycle, 48% of the population has no access to sewage systems and 35% have no
access to centralized water supply, the road infrastructure is old and poorly developed.
(Source: Eurostat). In conclusion, market penetration is low in all segments. There is large
potential to increase the penetration due to the new infrastructure projects, rehabilitation
and construction of new roads and highways, houses shortages and reconditioning of old
ones. Unlike other European countries, Romania is underdeveloped when it comes to fresh
and waste water transportation, the road network and waste management systems,
allowing huge quantities of polymer products to be mounted in the decade to come.
directed their efforts towards offering good prices, payment terms and transportation
services. The quality factor is a critical success factor in the industry, but of secondary
Valplast – Vision 2013
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In the PVC and PE&PP segments, due to low differentiated products, all competitors
30
4.2.5. Competitor analysis
importance for customer when selecting the supplier, due to standardization requirements.
All competitors had bet on a growing market, developing new production facilities to cover
market demand. In the current economical context this strategy produced an overcapacity,
estimated to be twice larger than the demand.
In the geosynthetics segment only few large competitors play, and their efforts is
directed to serve as much as they can from their clients portfolio, this segment being in an
introductory stage. To assess the competitors, we used various data sources: Valplast’s
management information, competitors’ web sites, business magazines, industry periodicals,
www.mfinante.ro Finance Ministry site.
Teraplast
Competitive Position: “the biggest PVC processing company in Romania”. Leader in
PVC segment and follower in PE&PP segment.Teraplast is part of Teraplast Group Bistrita,
which includes also subsidiaries Plastsistem and Politub.
Owners: Emanoil Viciu 20.55%, Dorel Goia 33.15%, and SIF Banat-Crisana (SIF1)
11.4%.Teraplast is listed at Bucharest Stock Exchange (BVB) in the second category since July
2008.
Current strategy: currently no. 1 in PVC segment and no. 2 in PE&PP segment
(through Politub subsidiary), and entered in PVC “double glazed windows” windows
industry, Teraplast pursues an offensive cost leadership,
related diversification strategy, via organic growth. The
company’s different SBUs possess strategic fit, namely: raw
materials suppliers, part of production processes, labor
skills, managerial know-how, and customer overlap.
Teraplast moved in 2008 its operations in Saratel, in an
industrial park near Bistrita, aiming to lower operational
costs. Massive resources are allocated towards PE&PP segment, aiming to increase its
market share in this segment, and obtain increased profits from infrastructure projects. The
company plays a defensive strategy on two levels: flank position defense (entering in
infrastructure for agriculture and public roads, as future potential important markets) and
counter-offensive defense (price wars)
Future strategy: due to massive investments in assets, technology and marketing,
and all the public announcements, we expect no major changes in Teraplast’s future
of top three players in that industry in following three years.
Valplast – Vision 2013
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it has a separate management (proving its importance), and division’s goal is to become one
31
strategy in the next five years.The “double glazed windows” division is of particular interest,
Teraplast Group intend to become the largest national supplier for integrated solutions and
systems in the fields of installations and constructions until 2011.
Rehau
Competitive Position: “unlimited polymer solutions”. Current strategy: Rehau
pursues an offensive differentiation via technology leadership, related diversification
strategy, via organic growth. The company is a worldwide leading company in industry and
tries to identify its name with the category. Rehau targets to expand the applicability of its
products specter to as many domains as possible. In the “Polymer based systems for
infrastructure projects” industry in Romania, Rehau operates in all three segments, being
the leader within the un-consolidated segment of geosynthetics and a distant follower in
the others two segments.
The company owns a factory in Sibiu, four warehouses,
three sales offices in Bucharest, Cluj-Napoca and Bacau, and a
logistics centre started last year. Company’s officials declared that
for now they do not plan expanding the business, the intention is to survive the economic
crisis in as better conditions as possible and the planned investments were postponed. The
company has a good liquidity, because it has no financial debts, even the whole activity
decreased to 65% compared to last year.
Future strategy: in medium term Rehau has a conservative strategy, aiming to
preserve its market share. In the next years, the PVC SBU will increase its weight altering the
other divisions (double glazed windows, geosynthetics).
The company intended to build a new factory near Sibiu (20mill euro investment), but
postponed the expansion plans. As a future diversification strategy, Rehau declared its
intention to enter the industry of “green energy”. Due to severe shrinking of “double glazed
windows” market (-50% in 2009 vs. 2008 in a market estimated at 700Mill Euro), Rehau
declared that will pursuit offensive marketing campaigns directed towards maintaining its
market share.
Wavin
Competitive Position: “providing essentials – to be the
Wavin Romania is the local subsidiary of the Dutch group Wavin,
present in three markets in which the group has developed a strong position: civil
Valplast – Vision 2013
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Europe”. Distant follower in PVC and PE&PP segments.
32
supplier of choice for plastic pipe systems and solutions across
constructions (sewage, drainage, irrigations), utilities (water and gas addictions) and
constructions (area in which it has most of its customers).
Current strategy: Wavin Romania imports and distributes PVC and PE pipes and
fittings, used in draining systems and water adductions, and in construction industry. Wavin
pursues a defensive differentiation, related diversification strategy, via organic growth.
Future strategy: in long term the company intends to enter in Romania with all the product
range, building on incremental successes. Recently Wavin announced opening of a new
pipes production facility in Romania.
Goals: Focus on high margin segments such as water management, hot and cold water and
surface heating and cooling, growth in emerging markets in Europe, improvement of
profitability by optimization.
Pipelife
Competitive Position: “pipes for life – one of the world’s leading suppliers of plastic
pipe systems, solutions provider for the complete water cycle, energy and power
distribution, leading in customer satisfaction”. Distant follower in PVC and PE&PP segments.
Pipelife Romania is the local subsidiary of Pipelife Group (joint-venture WienerbergerAustria and Solvay-Belgium).
In Romania, Pipelife has the headquarters located in Bucharest, four warehouses
(two of them in Bucharest, one in Craiova and one in Cluj) and a factory in Miercurea-Ciuc.
Pipelife has a major project on the regional market: intends to build a new factory (project
will last 2-3 years) – the project is in the beginning stage, when they prospect for a location
in the region.
Current strategy: Pipelife pursues an offensive
differentiation via being latest (“constant improvement and
innovation at the highest quality level”), related diversification strategy, via organic growth.
Company sales are directed mostly to construction companies. Pipelife aims to be no. 1-2 in
every segment in which competes. Operates rented warehouses, as opposed to building
own facilities. Consequently, and having a declared low profitability, we assume that Pipelife
cannot raise capital by borrowing, or saves this “ticket” for a major future investment.
Future strategy: As medium and long term strategy, Pipelife Romania intends to
target small and medium firms, seeing this segment as being most profitable, and trying to
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capacity and marketing campaigns.
33
be in one of the two top places in this market. Adopted tactics are: expanding production
Valplast – Vision 2013
Goals: reducing transportation costs by expanding the distribution system at national level
(targets 10-12 warehouses until 2011, located in Bucharest and in other major cities in
Romania), improved inventory management, production processes optimization.
Valrom
Competitive Position: Leader in PE&PP segment does not compete in other
segments. In 2008, Valrom has reached a peak in sales of 80 Mil. Euro, being the undisputed
leader for supplying water and gas plastic systems. Valrom pursues a mobile defense
differentiation strategy via leadership, product diversification strategy, via organic growth
and joint ventures.
Current strategy: Valrom has a main point in strategy the proximity to the end –
client; with a sales force of 80 people spread all around
the country and 11 regional storehouses, a fleet of
trucks of 30 vehicles, Valrom serves today an excess of
2000 clients, both big and small contractors and retail shops. It is also noticeable Valrom
differentiates through a wide variety of products, apart from its own products (55% of total
sales), many accessories are being imported. Valrom has also a regional presence,
subsidiaries have been established in Ukraine, Moldova, Bulgaria and Serbia, but, for the
time being only 11% of sales are made in these centers.
Future strategy: Valrom intends to defend its leader postion against main
competitors, through a constant presence to the customers, adding new features to its
products, as it has a highly developed R&D department and strive to better assort the range
of products.
Goals: Optimization of costs seems to be the central idea of Valrom for the near future,
along with their declared intention to capture market share with a universe of products
dedicated both to big and small clients.
Iridex
Competitive Position: entrepreneur of large infrastructure projects and products provider in
the geosynthetics segment. Iridex is a follower in geosyntethics segment, does not compete
in the PVC and PE&PP pipes segments, where in fact is a large customer of other producers.
Current strategy: Iridex entered in the geosynthetics segment, following a vertical backward
integration strategy, becoming importer for some of the products and producer for a small
Iridex
Valplast – Vision 2013
infrastructure
also
projects;
manufactures
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the
34
number of products it uses in
construction equipment, following the backward integration strategy, and is involved in
ecological waste warehouses operations following a forward integration strategy.
Iridex pursues an offensive differentiation via “being the first” private construction company
in Romania after 1990, related diversification strategy, via organic growth and acquisitions.
Future strategy: maintain and develop the current SBUs and invest in ecology and green
energy projects.
Goals: Iridex will focus on its core SBUs (i.e. constructions and ecological waste warehouses
operations), its goal is to secure a leading position in civil engineering (transportation and
water infrastructure), and to defend its leader position in ecological and waste management
projects, its presence in the segment of geosinthetics importers being only a result of the
backward integration.
Geocom
Competitive Position: “provider of modern technologies”, distributor for imported
materials and supplies for construction industry, solution provider for infrastructure
projects. Follower in geosyntethics segment does not compete in the PVC and PE&PP pipes
segments.
Current strategy: Geocom pursues an offensive differentiation via
the attribute of the largest product portfolio (one-stop shop) in its
segments (Geocom is a small company acting as an importer and
distributor of products), product development strategy, via organic
growth. In the “Integrated water solutions for infrastructure projects”
industry in Romania, Geocom is an integrator, providing solutions together with imported
products, for a small number of customers.
Future strategy: In the growing segment of geosynthetics, its future strategy is to
maintain the market share, and increase the share of wallet it can retain from its customers
(usually large construction companies) by offering a broader product range.
Goals: to preserve a portfolio of loyal customers within each segment in which Geocom
competes.
All competitors are part of large groups, most of them international, with expertise
in large infrastructure projects, with strong R&D departments, which can be a competitive
advantage in achieving (winning) projects’ design (specifications). These competitors see in
Besides Valplast which can be defined as a niche producer (produce only PVC pipes
and fittings), all the other competitors are developed horizontal, with a broader portfolio of
Valplast – Vision 2013
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investment in production facilities and distribution channels.
35
the Romanian market an opportunity for growth and therefore have done / are doing major
products - pipes and fittings in PP, PE (Pipelife, Wavin, TERAPLAST), and / or PVC profiles for
windows (Rehau, TERAPLAST), geosynthetics materials (Rehau), being vertical integrated
(Iridex), or horizontal integrated (Geocom). This variety produces synergies between their
SBUs. In general, competitors in all segments aim in the medium term to conserve their
market share, continuing already started investments in a slower pace, in order to survive
the economic crisis, and to resume the fight to increase market share afterwards.
We estimate a violent reaction from TERAPLAST in case of a direct attack from
Valplast. That is way Valplast should avoid a frontal attack, maybe searching a strategic
alliance with a large partner, to encircle Teraplast. We believe that Teraplast’s financial
resources are limited due to recent capacity expansion, relocation in a new industrial park,
and massive investments in the rebranding started for its double glazed windows systems.
It is expected that Rehau will have a moderate reaction, being focused on double glazed
windows SBU which has its problems in an industry that declined with 50% in 2008-2009,
willing to respond aggressively, but having no resources for this.
Pipelife and Wavin are relatively small players in Romanian market, who would like to
respond, but being constrained by limited resources from the mother companies that have
financial problems at the global level.
Competition in the geosynthetics segment is rather low, the risk of retaliation is low
because demand exceeds supply and every competitor in this segment concentrates on
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serving best its clients, rather by competing with other importers.
Valplast – Vision 2013
4.2.6. Customers analysis
Who is in the market?
Producers Raw
Materials
Beneficiary –
State
Authorities
Big
Contractors
Industry
Player
Producers –
Other
Products
Resellers /
Distributors
Small
Contractors
Beneficiary –
Private
Retailers
SUPPLIERS

INDUSTRY
DISTRIBUTION
END-USERS
Small Contractors: execute various projects, having as main client the Private
Beneficiary. These contractors avoid working with state authorities because of
delayed payments.

Big Contractors : execute large infrastructure projects, having as main client the
State Authorities.

Resellers/Distributors: these customers have their own warehouses and/or stores.
They can sell products directly to the final beneficiary, but a large volume of their
business is reselling to other retailers or to small contractors.

Retailers: these customers have their own stores through which they sell products
directly to the final beneficiary.
What do they buy?
Depending on the customer type, the products vary in range and quantities. Three
main categories of products (with many subcategories) are included in this industry: PVC
pipes and fittings; PE&PP pipes and fittings; Geosynthetics materials and consultancy
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services. All these categories were described in detail in chapter 4.2.4. Market Analysis.
Valplast – Vision 2013
Who is involved in the buying decision & role?
Usually every big contractor customer has an acquisitions department that is
responsible for the buying process. Due to high quantities of purchased products, the final
decision is taken by the general manager at the recommendation of the buying manager.
The technical department has also a great influence due to the technical requirements that
have to be fulfilled. Independent experts and specialists, or consulting firms in the industry
have a major role in projects design, therefore generating the demand for different types,
categories and quantities of products used in these infrastructure projects.
The reseller customer has a purchasing department in which the buyers’ job is to obtain
better prices and payment terms.
How do they buy?
Every acquisition is prefaced by a quite long presale process, involving meetings
between the seller’s representative and the decision factors in the buying side. Intensive
negotiations and open bids with multiple suppliers usually take place at the buyer’s
headquarters. Products being standardized, during the sale process the emphasis is directed
towards price levels, payment terms, and transportation of the goods, delivery time and
place, and fixed price levels for extensive time periods. GM (most of the times one of the
owners) is usually involved in the suppliers selection, one of their goals being the
recognition of his company as a local partner/ authorized reseller.
When do they buy?
During a study Valplast conducted through external consultants, it was revealed that
the customers in this industry have limited capabilities / are not able to perform accurate
forecasts upon the buying process. This is in part due to the fact that a great part of the
products are meant to be used in infrastructure projects conducted by government. These
types of projects are adjudged in public biddings, therefore until a customer don’t know that
he won a project, he cannot make forecasts and/or order the products in advance. Last
moment orders are common and as a ‘rule of the game’, producers/importers must have
permanent inventories otherwise can lose the sale in favor of competition.
Where do they buy?
This industry is a “small B2B world” in which everybody knows everybody... Usually when a
To analyze the customers we applied the BSM model (Behavioral Sequence Model)
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customer has a small list of preferred suppliers, based on past business relationships.
38
customer needs to order products, he sends a RFQ to all producers/importers. Every
This model will help us to set the objectives in the marketing communication section of the
action plan.
DATA INPUTS
WHAT (decision stages)
Need arousal
Information
Purchase
Usage
search and
evaluation
WHO
Infrastructure
Customers’
Purchasing
Project execution
(decision
projects
technical –
department
department (user)
participants and
designer
designing
(purchaser)
roles) (target
(initiator)
departments
audience)
(influencers)
GM (decider)
In customers’ offices
WHERE
Fairs,
In customers’
(location of
seminars,
offices
decision stages)
business
(possible touch
magazines
On construction
site
points)
WHEN
Anytime
(time &timing of
In the project
After winning the
As required in the
designing stage
bid for infrastructure
project phases
decision stages)
project
HOW
Technical
By comparing
(description of
information on
different offers’
how each
regulations,
characteristics,
decision stage is
technical
prices, payment
accomplished)
specifications,
terms, etc.
By contract
As specified in the
project
benefits
As outlined in the BSM model, the “project” factor appears in many places. This suggests
that the project conception is a critical component of the buying decision process, creating
demand for the products/solutions offered by a company. This constitutes an opportunity to
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optimize the business model and to create a unique value proposition.
Valplast – Vision 2013
4.3. Internal analysis
4.3.1. Financial analysis
4.3.1.1.
Horizontal Analysis
Horizontal analysis focuses on changes or growth, year to year, for each major element on
the income statement and the balance sheet. The years considered are 2007, 2008 and
2009 up until May. By the time this chapter was written, the accounting period for June was
not closed yet. However, since we found some financial indicators troubling (e.g. days
receivables), we asked for the balance of certain accounts (e.g. accounts receivables) in
order to see if the situation had improved. Hence, some numbers are for June 2009.
P&L: the Net Revenue shows extreme fluctuations from +33% growths in 2008 to an
expected (-42%) decline in 2009. This shows that the business is both unpredictable and
unprepared for the major crisis that came in the late 2008.
Both the growth and the decline are negatively affected by the local currency
depreciation. This resides in the necessity to hedge against foreign exchange rate risk to
improve business predictability (see Action Plan).
COGS has maintained the same pace with net revenues, but amortization and salary
expenses represent a higher proportion of the COGS (11% in 2007 as compared with 13% in
2008, reaching 20% in 30.06.2009). High operating leverage is an inconvenient position in
time of financial decline, because it magnifies the effects on profits of a fluctuation in
sales. Therefore, one of the action points will be to transform as many Fixed Costs as
possible into variable costs in order to decrease the leverage.
Balance sheet: 2008 represented the year of extensive investments in equipment, vehicles
and plants for Valplast (as seen in the Balance Sheet Fixed Assets 48% increase, with
emphasis on Vehicles, Land and Capital in Progress). This is depicted in the higher financial
expenses that cut the net profit to lower 6.875.318 lei in 2008 as compared with 7.011.673
lei in 2007. This was the correct strategy for a market that was booming, in times when only
some specialists could predict the economic contraction that was to come. However, this
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left Valplast with assets that are hard to liquidate in today’s economic environment.
Valplast – Vision 2013
4.3.1.2.
Vertical analysis
Vertical analysis examines the main financial indicators and the percentage composition of
the income statement and the balance sheet.
Financial ratios:

Liquidity: liquidity ratios indicate the short-term solvency of the firm.They also indicate
how effectively the firm is managing its working capital.
Current ratio and acid ratio
In 2008, Valplast’s current ratio is 1.08 while acid ratio is 80%. This shows a relatively good
liquidity but is way below competitor Teraplast’s indicator of 2.21 in 2008 (www.bvb.ro). In
the first half of 2009 they tend to improve (current ratio 1.13 – 31.05.2009, 1.16 –
30.06.2009 and acid ratio 88%). However, in 2009, the timing of cash received and paid out,
which these indicators ignore, becomes increasingly important (see days receivables). The
current economic situation implies that contracts are signed with already unfavorable
payment terms and even these are not respected. Valplast must comply with the cash
constraints of their customers, otherwise they risk losing the business.
Average sales and COGS per day
Indicators
2008
2009
Sales revenue
365
Cost of goods sold
Cost of goods sold per day =
365
260.000 lei
167.000 lei
226.000 lei
149.000 lei
Percentage
87%
89%
Average sales per day =
(COGS per day / Sales per day)
Number of days sales in ending inventory
Number of days sales in ending inventory =
Ending inventory
Cost of goods sold per day
end of the two periods) shows how long it takes the company to transform its inventory into
41
sales. It had a value of 57 days in 2007; while in 2008 is 38 days. 2009 shows a worsening
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This indicator (for the ending inventory we use in the formula arithmetic average at the
Valplast – Vision 2013
situation, the indicator at 31.05.2009 is 74 days; while at 30.06.2009 is 77 days. This ratio is
supposed to remain relatively unchanged during the year. Also the financial data are not
available, Valplast management investigated the situation of our main competitor Teraplast
to understand if it is due to unfavorable economic environment. Indeed, Teraplast seems to
have the same problem.
Days Receivables measures the effectiveness and efficiency of a company using its asset. To
increase sales, the company maintains accounts receivables by extending free loans to their
clients. Consequently, this leads to poorer profitability as well as extra financial risks.
Therefore, the company should tighten its credit sale policy.

2008 - AR is 49% of total current assets

30.06.2009 – AR is 55% of total current assts

Days Receivables is 50 days in 2008

Days Receivables is 96 at 30.06.2009.
Valplast was financing its customers in 2008 and this has worsen during 2009. The
actionpoints to correct this are (see Action Plan):

Establish clear policy for financing customers (see Action Plan, Customer Profitability
Analysis)

Establish consortium/association to defend financing policy
Days payables: days Payables is 51 days in 2008; days Payables is 90 days at 30.06.2009.
Days Payables and Days Receivables are comparable, showing Valplast’s suppliers are
financing Valplast. However, Valplast should aim to have DR < DP.
Cash Conversion Cycle: The cash conversion cycle can tell us how cash is moving through
the company in terms of duration. Cash Conversion Cycle = Accounts Receivable Turnover +
Inventory Turnover - Accounts Payable Turnover
2007 – 46 days
2008 – 44 days
31.05.2009 – 86 days
30.06.2009 – 83 days
operation-required cash into cash returns. Therefore, it is vital to assess the operation
Valplast – Vision 2013
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of the business, and simply indicates the duration of time that a firm needs to convert its
42
The cycle represents the number of days a firm's cash remains tied up within the operations
efficiency of a firm. As shown by the formula, an upward trend in this cycle is a negative
signal because the cash conversion cycle lengthens.
Working capital measures both the company's efficiency and its ability to meet short-term
liabilities.

Working Capital (2008) = 1.447.163 mii lei

Working Capital (30.06.2009) = 4.191.099 mii lei
The working capital is positive; Valplast has the ability to pay out its short-term obligations.
Working capital also reflects the operation efficiency of a company. If a company’s money is
tied up in inventory and/or receivables, it needs more working capital and the efficiency
drops down.
 Profitability
Gross profit percentage
Gross profit percentage =
Gross profit
, is 13% in 2008 and 11% at 30.06.2009.
Net sales revenue
Aggregated with Teraplast’s 11% gross profit percentage in 2008, this indicator shows good
prospects for profitability.
Return on assets: is a measure of firm’s effectiveness in using assets. It gives some sort of
indication on how efficiently a company is able to squeeze profit from its assets.
ROA = Net Income/Average Total Assets
Valplast’s ROA was 8% in 2008, compared with Teraplast’s 11% in 2008. Nevertheless, a
possible action point will be to sell some Fixed Assets, e.g. Cehu Silvaniei plant, which will
shareholders have invested - Return on Equity = Net Income/Shareholders Equity
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Return on Equity: measures how much profit a company generates with the money
43
improve both leverage and ROA.
Valplast’s ROE was 13% in 2008, compared with Teraplast’s 14% in 2008. Compared with the
banks’ deposits offering in that period, the shareholders could have obtained even higher
returns.
Profit Margin
Profit Margin = Net income/Revenue
In 2008 Valplast’s profit margin was 7.2%, compared with Teraplast’s 10%
At 30.06.2009 Valplast had a Profit margin of 8.2%.
 Capital structure
Debt/equity ration: 2008 - Debt/equity ratio = 49:51 is a balanced structure and is
maintained at 30.06.2009.
Financial leverage
2008 - Financial leverage =
Total liabilitie s
= 45% (compared with Teraplast which is 29%)
Total assets
and is increasing in 30.06.2009 at the percentage of 49.
Interest coverage ratio: is also known as Times Interest Earned, and defined as the times of
earnings before interest expense and income tax expense (EBIT) to interest expense.
Valplast - Interest coverage ratio = EBIT/Interest Expenses
2007
2008
31.05.2009
30.06.2009
13.2
9.8
3.9
4.7
It measures a company’s ability to meet its debt obligations. It indicates how many times a
company can pay out its interest charges. Failure to the obligations will lead the company to
bankruptcy. However, a very high ratio could indicate the company does not have an ideal
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other projects.
44
capital structure or it has paid down two much debt, which could be used for financing
Valplast – Vision 2013
As a general conclusion, the financial indicators show an equilibrated financial situation and
give Valplast a good power of negotiation and this offers access to a better interest rate
from home banks.
4.3.1.3.
Cost structure analysis
Valplast uses a primitive cost allocation mechanism, where all indirect costs are
allocated on a single cost driver which is raw material consumption. This is a form of cost
smoothing which is most likely to result in product cost cross-subsidization.
During diagnosis, a comparative analysis with its public competitor Teraplast has
been performed. However, since Teraplast has several other business units that produce
PPR pipes, double-glazed windows and home improvement, differences can be due to this
diversification. Corrective action points were proposed into the Action Plan. It is also
important to understand the links between various costs and the Valplast's volume of
business. Every product requires a certain amount of manpower, but a certain amount of
manpower is also required if no sales are made in the early stages, since the company must
prepare for the possibility of future sales.
31.12.2007
%
31.12.2008
%
30.06.2009
%
Expenses Raw Materials Goods
52721628
85%
68380874
83%
20524547
76%
Expenses personnel
3738613
6%
5594136
7%
2122589
8%
Others expenses:
5463649
9%
8713370
11%
4281580
16%
2995354
5%
5408529
7%
3238733
12%
out of which depreciation
COGS
61923890
82688380
26928716
Looking in the table we can conclude that in Valplast cost structure a majority
percentage of the COGS is represented by raw materials and goods. In 2009, the tendency
of this weight is to decrease, due to lower sales volume which leverages the fixed costs.
Personnel expenses have a growing trend year by year which is a positive thing as
long as the profitability is following. We observe an important increase in weight of the
depreciation, justified by the fixed assets acquisitions (from 46 mil lei in 2007, at 68 mil lei in
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2008 and over 70 mil lei in June 2009).
Valplast – Vision 2013
4.3.2. Commercial (Sales & Distribution) analysis
Compared with other competitors, Valplast sales force is rather small, having only 20
representatives.
Sales department is organized in two subsections: sales agents and
support (latter dealing with contracts and invoicing activities). The sales force is managed by
the national sales manager, in person of Francisc Tancof. Mr. Tancof has an autocratic and in
the same time paternalistic approach, being involved in almost every sale action, giving
advices and recommendation to his subalterns.
Even the company has both large and small clients; the sales force structure is not
organized as such, having no key account managers for these large accounts. The structure
is geographically organized, having one sales representative for each 3-4 counties, and 5
sales agents for Bucharest. Every sales agent deals both with big contractors and resellers
The only production facility and warehouse are located in Bucharest, from where
distribution is performed across all Romanian territory. Transportation fees are supported
by Valplast, this being intended by the general manager as a service offered to company’s
clients, although not advertised accordingly towards the customers.
The record of transportation fees in the cost structure is rather simplistic, being
traced only as general expenses, and not linked with every delivery. The medium
transportation cost is around 3% of turnover figure.
Valplast has no special pricing and exclusivity policies for local distributors, every
reseller creating its own local distribution. Many times, these networks overlap, creating
conflicts among resellers. Every reseller buys products from more than one supplier
(competitors), usually based on price discounts. Valplast managed to maintain only a small
list of loyal resellers, by adopting a flexible price and payment terms policy.
4.3.3. Marketing analysis
Valplast doesn’t have a formal marketing department in the organization. Until now,
the top management didn’t concern too much about marketing. This is in part due to the
operational background of the general manager and in part due to the economic context
until 2009. Until last year orders were abundant, Valplast’s supply of PVC pipes and fittings
hardly matched the demand. The few marketing actions were delegated to the national
sales manager. There was no marketing strategy, and no intention to adopt one. Or, better
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promotions when competition does so.
46
said, the only strategy was: “we go were the market goes”, reactively doing some price
Valplast – Vision 2013
The marketing materials used were: web site, catalogues, datasheets, branded booknotes and pens. The formal communication (public relations) is inexistent, both internally
and externally.
The only action that can be noticed is that the sales representatives are performing
basic relationship marketing with good results, creating long and personal relations with
buyers.
Within the customer satisfaction survey we performed in April 2009, this relationship
marketing was described by the customers as one of the most important factors that
determined the customer to buy from Valplast, along with good prices.
4.3.4. Operational analysis
Currently the company uses judgmental and time series techniques within its
forecasting process. The company builds its forecasts on information from its customers,
sales staff, and managers. It uses historical data on sales and demand trying to identify
specific patterns and extrapolate them but without searching for deeper insights into
identifying the causes of these patterns. This approach was fueled in the last years by the
dramatic increase in demand and the lack of fierce competition.
As political and economical conditions are changing most of these available historical
data become irrelevant. The sales force opinions on demand and sales evolution are partially
biased by the recent periods of low sales - their estimates tend to become over pessimistic.
Moreover the customers’ inputs are altered as the company’s client base profile changed –
from residential investors to contractors for major infrastructure projects. Until mid 2008
the future values of the demand or profits series could be estimated with high accuracy from
the past values.
The analysis of time series data was accomplished by plotting the data, visually
examining it and identifying the underlying behavior – this was done by the top
management of the company. The behaviors identified were an upward demand trend
incorporating a seasonality dimension related to construction industry. No attempt was
made to identify the variables influencing the time-ordered sequence of observations. A
cycle type variations should be assessed as the economical recession is turning into a major
economical global crisis.
The services attached to the products are moderately personalized for each
customer. The company lacks a value analysis approach with regard to its products which
would be needed for reducing costs or improving the products and/or services performance.
Valplast – Vision 2013
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PVC pipes.
47
The current product portfolio is composed mainly of highly standardized products –
The high degree of product standardization offers several benefits as well as several
disadvantages. Among the benefits are reduced time and cost to train employees and
reduced time to design jobs.
The products are immediately available to customers and the design costs are low. As
opposed to products and compared to competition the production processes and the
services offered are moderately standardized. High reliability of products and systems
complement the current operational performance of the company. This is achieved through
improved testing, production techniques, preventive maintenance procedures and system
design.
The company did not develop an R&D department and does not share expertise with
the other companies within the group. The company recycles part of the materials used in
the production processes both for pipes and fittings.
Valplast is currently not integrating ‘the voice of the customer’ via a formal approach
to its services’ offerings related to consultancy, potential partnerships and legal advisory.
The company is not capitalizing on the major opportunities related to new services design
aiming to achieve competitive advantage and increased customer satisfaction within a
macro environment dominated by the economical recession.
The company is able to produce at full capacity by employing three shifts. Currently
due to the dramatic decrease in demand only two shifts are used which is equivalent to a
60% capacity utilization. The production capacity has built in flexibility due to special
equipment design that allows the production switch between product items with minimal
set up costs.
The gaps between the design capacity and the effective one are minimal due to the
current operational excellence and top management operations expertise – short time
intervals needed to change the product mix, optimized maintenance scheduling and
balanced operations. The company built its capacity strategy on the assumptions and
predictions about long term demand patterns, technological changes and the behavior of its
competitors relevant as of 2002. A capacity cushion was designed and incorporated as
demand forecasts were pointing out a solid and continuous increasing trend. The capacity
cushion was not maintained with the purpose of blocking entry into the market by new
competitors.
A big picture i.e. systems approach was undertaken when developing capacity
alternatives – no bottlenecks are present in the company’s current production flows.
expand-early strategy with regard to capacity expansion.
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operations becoming more standardized and reducing unit costs. The company employed an
48
Until the end of 2008 the company was able to generate solid economies of scale with
In 2008 all equipments were efficiently utilized due to top management operations
expertise. The company has state of the art equipments, being in the A energetic class and
employing moderate costs associated with maintenance.
The company has currently an operating production facility in Bucharest and another
facility in Cehu Silvaniei which was placed under conservation. The current strategy does not
include expanding the existing location or moving to a new location. Until mid 2009 the
company’s main supplier of PVC raw materials was located in Ramnicu Valcea, 160 km NW
from Bucharest. As the later recently declared bankruptcy the company was forced to
identify and select new suppliers. The active ones are located in Hungary and Serbia.
Currently a company employee is responsible for obtaining the mandatory quality
certificates for the pipes’ batches. The company implemented the ISO 9001 standard for
quality management systems in 2008. This certification though does not guarantee any
quality of end products and services; rather, it certifies that formalized business processes
are being applied.
Some of the requirements in ISO 9001:2008 include: a set of
procedures that cover all key processes in the business, monitoring processes to ensure they
are effective, keeping adequate records, checking output for defects, with appropriate and
corrective action where necessary, regularly reviewing individual processes and the quality
system itself for effectiveness and facilitating continual improvement.
The quality control of production section is responsible for meeting the Romanian
and EU requirements included in pipes and fittings certification i.e. the SN standards for
pipes and fittings.
The company currently uses a periodic inventory counting system. This system forces
the management to carry extra stock and offers no control between reviews. A crucial link
exists between forecasting and inventory management. Increased demand and lead time
variability are triggering an increased need for additional stock to reduce the risk of
shortages.
The current judgmental forecasting technique cannot address efficiently the higher
variability generated by the economical recession. The company lacks an ABC approach with
regard to inventory classification system and is not able to allocate control efforts efficiently.
The current ordered quantities of raw materials are much higher than the economic order
quantity – the order size that minimizes the total annual cost. The company focuses on
managing inventories from an internal perspective lacking visibility of the entire supply chain
with regard to inventories’ levels. The demand data are not efficiently and timely shared
meeting variations in demand via a combination of options. Capacities – workforce levels,
output rates etc are kept constant over the planning horizon. Major disadvantages are the
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employing a level capacity strategy maintaining a steady rate of regular time output while
49
triggering unnecessary buildups of safety stocks in the supply chain. The company is
greater inventory costs, an increased overtime and idle time, and the resource utilizations
that vary over time.
4.3.5. Organizational analysis
Valplast organization has a total number of 92 employees. Even though a national
coverage has been spotted from employee location point of view, 85% of the employees
have been integrated into Bucharest facilities (Plant, Head office), the rest being Regional
Sales Managers out of Bucharest located. Employees organized in a formal centralized
structure as seen in appendix.
A top down management approach company, with limited number of middle
management covering basic functions in the organization. Functional specialization of the
organization, departmentalization structuring is observed, e.g.: Quality Assurance
Department, Human Resources Department, Financial Department, and Sales Department.
Limited personnel vs. sales and marketing responsibilities, therefore basic marketing tasks
are performed by Sales Department Representative. Even though this particularity has been
noticed the Bureaucratic type of organization is in place: unit division and clear boundaries
from one another.
The present organizational format has successfully responded to company’s business
objectives. A conclusive phrase describing the organizational format is highly centralized,
but stable and dependable one. A Management Functions Enquiry reveals that a strategic
role within the Organization is played by the General Manager. Valplast GM is depicted as a
real Figurehead and the Leader of the organization. His entrepreneurial style, backed up by
tremendous and diverse working experience in the field, has triggered employee’s loyalty
and has become a motivational driver.
Considering the demographic factor HQ employees are University graduates,
previous experience and expertise in their field of working, aged between 25- 45 years of
age, in average medium income individuals. Production department employees are mainly
Undergraduate leveled, on the job skilled, aged between 22 – 55 years of age, low –
medium income segment. The HR procedures have been focused on preserving the
demographic ranges within developed measures in the area of Recruitment & Selection,
Training & Talent Management. The management perception about the Ideal Employee
within the organization is reflecting a harmonious combination between skills, knowledge
belonging feeling and behaves as a individual entity of the group, sometimes even involves
in conflicts with other group members (e.g.: Valrom) in different situations as placing offers
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Part of the ROMSTAL International Group, Valplast Organization has a low group
50
and attitude in order to become a top performer.
for the same product portfolio. Appeal to common goals but also hierarchical referrals are
to be considered as a conflict management solution. Despite several intra-group conflicts,
the general attitude dominating the workplace within Valplast can be described as positive,
high job involvement and also job satisfaction.
In April 2009 we performed a general evaluation of Valplast’s organization. Overall
Organizational Indicators are presented in the diagram bellow (1-10 numeric scale). The
method used in assessing this main organizational feature is questionnaire based and has
integrated almost 80 % of Valplast employees (voluntary responses). Each feature has been
transfigured into practical items that have facilitated understanding and responses.
Considering top scores hierarchy there has been notices that sustainability and global
perception vs. the company are the most important in the perception of the employees.
There is a need for developing supporting services for employees, developmental programs.
Human Resources Managerial Policies and Practices are performed in the
Therefore Job design and Recruitment and selection procedures are performed by
department managers (eg: National Sales manager is involved in Sales Force recruitment
Valplast – Vision 2013
Page
the organization to refer those.
51
organization at the middle and top management level; there is no dedicated person within
and product training). A more technical, than organizational, approach is revealed in these
processes. Forecasting in the HR area is each manager’s responsibility vs. department
planning period.
A consequence of lacking a dedicated HR person to manage these
procedures is turning around focus of the involved managers from the business objectives
to administrative HR tasks. Reliability and validity of the evaluations done is also a question
in managers conducting HR processes.
The company’s pay plan analysis for 2009 reveals medium segment incomes (basic
monthly) for the employees benchmarking the industry specifics. Limited benefits are
offered to the employees, the most rewarded category of employees is considered to be the
Promotion Team that has some further benefits as: working package at their disposal
(notebook, company car for Sales force) and monthly bonuses. The pay plan, in the Exit
Discussions performed in case of resignations, is a major factor of the turnover level
recorded by Valplast for 2008. The internal Individual Satisfaction Survey results (criteria
based, marks ranging from 1 to 5) are depicted bellow. Main weaknesses acknowledged by
the employees are developmental opportunities – medium and long term and also the
compensation and benefits package. The method used in assessing Satisfaction Index has
been questionnaire based, anonymous and voluntary participation in the survey. The
general perception is that Valplast as an organization is offering security ad stability for
employees and also a good opportunity to balance work and private life.
performance. Monthly bonuses are applied to a fix moderate payment according to sales
targets achievements. The formula used to calculate the monthly income per Sales
Valplast – Vision 2013
Page
Representatives, National Sales Manager) for recent performance rather than historical
52
The Bonus Pay Program is aiming to reward Business Involved Employees (Sales
Representatives is considering quantitative objectives only like selling price and volume
sold, leaving out for example important aspects as Opportunity to Business Development
through Client Portfolio Enlargement (a must in the Business Plan for 2009).
Annual bonuses are received by all Valplast employees, at the end of the year after a
Business Review Meeting which reveals Target Achievements and Business Results. The
Reward Management, linking business goals with individual targets, is not in place for
execution positions as Plant / Production ones, excepting the Management Level. A more
developed, coherent and consistent Performance Management System is needed to be put
in place in the near future, in order to best respond to business and also individual needs.
Employee development system is low ranked within Valplast. In the 1 st semester of
2009 the first steps were taken into structuring a Developmental Plan through Integrated
Training Programs, realized by external providers. The first wave of trainees was considered
to be the Sales Team – 20 Sales & Support Representatives.
An initial status of the Trainees is depicted in the bellow chart, showing the strong
need for product knowledge, negotiation techniques and communication abilities
improving. The training needs were addressed in the 1st Training Session and have brought
significant improvement for the participants. Follow up sessions and extensions of the initial
programs are designed for the 2009-2010 period.
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53
Source: Valplast sales force evaluation, June 2009
Valplast – Vision 2013
A conclusive approach vs. organizational HR functions performed within Valplast is shown
below:
Development Stage
Organizational Structuring
Job Design and Analysis
Recruitment & Selection
Induction Programs
Training & Developmental Programs
Performance Management System
Talent Management
HR Admin functions
Employees Support System
HR Functions applied within Valplast
Low
Medium
High
4.4. Final analysis conclusions
To conclude, the market suffered recently dramatic changes: while the private
contractors shrink due to the recession, other large entrepreneurs raise, fueled by the
announced funds to be injected in the national infrastructure projects (water supply and
sewage in rural areas across Romania, rehabilitation of national roads and new highway
corridors, a new strategy for organic landfills and big works under carried for protecting the
environment).
The PVC piping segment is contracting, only because of the private investment decrease,
while the competition will increase: new production capacities soon to be opened and a
desperate commercial policy of the big competitors, hitting on prices and payment terms.
Meanwhile, the envisaged overcapacity of all local producers will diminish the margins in
PVC segment.
The few remaining customers for PVC pipes and fittings gained already a high bargaining
power, lowering the margins in PVC to barely 8%. Searching in the entire industry, a new
product category is needed and undersupplied in infrastructure projects: geosynthetics. This
market is not only attractive, due to higher margins, but also to its size: more than 3Bil.
Euros. Moreover, the geosynthetics are products with high differentiation attributes, as they
incorporate profound engineering techniques, allowing for consultancy services to add value
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54
to the sale process.
Valplast – Vision 2013
4.5. SWOT analysis
4.5.1. S/W assessment in relation with Critical Success Factors
As part of our organizational and environmental analysis and after completing the
PEST, industry, competitor, market and customer analyses we used the SWOT as one of the
key success tools in any strategic planning process. We tried to ask the right questions and
used SWOT as a guide as opposed to a prescription.
This helped us match Valplast’s strengths to opportunities, convert W / T into S / O
and altogether allowed for crafting a better strategy for Valplast in order to compete
successfully in the industry. Based on the above mentioned conclusions we performed the
SWOT analysis.
Strengths
Weaknesses
 State of the art production facilities and processes
 Capacity to attract financing (bank-loans)
 Disposable non-core assets (land, buildings)
 Lean organization structure – fast
response time
 Reputation for quality products (ex. Romanian leader in
well-drilling pipes)and services
 National coverage –loyal customer base
 Solid expertise in product and process innovation
 The only Romanian fittings producer (other competitors
rely on imports)
 Expert in sewage
 Flexible, open to change management style
 Privileged access to international suppliers via main
shareholders (Italian company)
 Competitive pricing policy
 Individualized time to delivery and payment conditions
 EOS - Little overhead, so we can offer good price to our
customers
 Narrow product range
 Lack of expertise in consultancy and engineering for
infrastructure projects
 Untrained sales force
 Basic customer relationship management and sales
force effectiveness
 Reactive market approach
 Noncompetitive cost structure computation method
 Small customer base
 Lack of basic organizational functions (Financial, HR,
Marketing,
Legal,
Development)
Procurement,
Business
 De motivated employees
 Weak brand name at industry level
 Logistics effectiveness affected by the limited number
of distribution centers
 Unpredictable business, unprepared for market and
raw-materials fluctuations
 Lack of experience in bidding process, state initiated
projects
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55
 Lack of political networking
 Intra-group tensed relations (Romstal Group)
Valplast – Vision 2013
Opportunities
Threats
 To create a unique value proposition (differentiate)
 EU and Gov. funds to be injected in infrastructure




Global recession





Competitors’ large distribution network
projects (5Bln. Euro)
 EU
mandatory
technologies
requirements
to
use
green
 Demand exceeds offer in geosynthetics segment
 Train and develop human resources due to
economic crisis
 Increase share of wallet at existing customers
 Regional exports for fittings and well-drilling pipes
 Competitors’ other SBUs in financial difficulty (ex.
Double glazed windows)
 Competitors’ low ability to retaliate to strategic
moves of other players
 Development of product portfolio in geosynthetics
segment
 Partnerships with contractors, industry associations,
strategic distribution alliances
 Economies of scope in distributing a broader product
portfolio
 Low
entry barriers
Geosynthetics segment
(low
investments)
Overcapacity at segment level (PVC)
Delays in paid outs
Low entry barriers in geosynthetics segment
encourage new players
Exchange rate risk
Inflation risk
Raw materials price fluctuations
UE multinational players attracted by the size of the
infrastructure projects
 Changes in government politics – election year (low
absorption rate of EU funds)





Private construction market dramatic decrease
High risk of clients’ default / bankruptcy
Other competitors’ political networking capabilities
Seasonality and extreme weather effects on sales
Other competitors’ intentions
infrastructure projects
to
focus
on
in
 Start producing geosynthetics at Cehu Silvaniei
production facility
We narrowed the list and assessed the most relevant S/W in relation to the critical
success factors previously identified. Major understandings were gained after this cross
analysis i.e. most of the weaknesses are impeding the company’s ability to meet the five
KSF’s. Moreover the current strengths are addressing only partially the KSF’s and are
ineffective as compared to competition – additional strengths should be developed in order
to address both the key survival and success factors as listed in the section on industry
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56
analysis.
Valplast – Vision 2013
Strong
KSF
Strength A
financial
Political
networking
position
Bonding
customers
relations
+++
Capacity to attract
financing
(bankloans)
Strength B
Broad
product
range
_
Lack of expertise in
consultancy
and
engineering
for
infrastructure
projects
Weakness B
___
and processes
+++
+
+
+++
Reputation
for
quality
products
and services
Weakness A
sales resources
+++
++
Expert in sewage
Strength C
Consultative
+++
___
_
___
__
___
___
__
__
___
__
___
Lack of political
networking
Weakness C
Lack
of
basic
organizational
functions (Financial,
HR,
Marketing,
Legal, Procurement,
Business
Development)
Weakness D
Reactive
approach
___
market
Legend:
“+” – the degree to which strength positively impacts the ability to meet the KSF’s
“-“ – the degree to which weakness negatively impacts the ability to meet the KSF’s
Following the five key success factors we pursued a relative assessment of
competitors with regard to their potential capability to address these relevant KSF’s. As
depicted below we chose competitors from both segments – PVC and geosynthetics.
The five most important key success factors identified are: strong financial position,
Page
sales resources and processes
57
political networking, bonding customers’ relationships, broad product range, consultative
Valplast – Vision 2013
KSF
Top
Competitor
5
Valplast
Teraplast Rehau
Valrom
Wavin
Pipelife
Iridex
Geocom
++
++
+
+
+
++
+
+++
+
KSF
1
Strong
++
financial
position
2
Political
++
+
networking
3
Bonding
++
+++
+
++
+
+
+
++
+++
++
++
+
++
+
+
customers
relations
4
Broad
product
range
Consultative
5
+
sales
resources
and
processes
Legend:
‘+’ some capability to address KSF / ‘++’ good capability / ‘ +++ “ – very good capability to address KSF
Some important insights were revealed i.e. political networking and broad product
ranges are not just some of the company’s weaknesses but also part of its major threats.
While many of the company’s competitors have a moderate or strong financial positions
they also managed to develop competitive sales forces and hired trained specialists aiming
to increase customer satisfaction and loyalty. Moreover some of the competitors started to
attach to their offerings extra consultancy services and improve their customer
management processes. With regard to Teraplast positioning as “biggest PVC processer in
Romania”, Valplast although proud itself with operational excellence is unable to match the
economies of scale generated by Teraplast.
When contrasted with Pipelife – one of the world’s leading suppliers of plastic pipe
systems and Rehau – ‘unlimited polymer solution’ provider, Valplast could outweigh the
formers’ innovation expertise, brand reputation and multinational specter by reinforcing,
expanding and capitalizing on its solid business experience within the Romanian market and
‘local touch’.In Romania Wavin operates an importing and distribution office and despite
the expanded product range the company exhibits a limited flexibility and longer lead times
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58
as compared to Valplast.
Valplast – Vision 2013
Concluding the section we graphically represented the correlations between the most
relevant strengths or weaknesses and the most relevant opportunities and threats –
matching and conversion - see below.
Opportunities
O/T
Threats
Opportunity 1
Opportunity 2
Opportunity 3
Threat 1
Threat 2
Threat 3
EU and Gov. funds to be
Demand
Increase share
Other
Delays in paid
Other
injected
exceeds
of wallet at
competitors’
outs
competitors’
in
offer
infrastructure projects
in
existing
intentions
to
political
(5Bln. Euro)
geosynthetics
customers
focus
on
networking
segment
(local
S /W
regional)
and
infrastructure
capabilities
projects
Strength A
Capacity
to
attract
financing
++
+++
++
+++
(bank-loans)
Strength B
+++
Expert in sewage
+
Strength C
Reputation for quality products
+
++
+++
+
+
___
_
_
__
_
and services
Weakness A
Lack of expertise in consultancy
and engineering for infrastructure
projects
Weakness B
__
Lack of political networking
__
_
_
___
Weakness C
Lack
of
basic
functions
organizational
(Financial,
HR,
__
__
_
_
___
__
__
__
Marketing, Legal, Procurement,
Business Development)
Weakness D
Reactive market approach
_
Legend:
“+” and ”-“ represent variable degrees of impacts of strengths and weaknesses over opportunities and threats
“+ “: enhances opportunities and reduces threats
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59
“-“: minimizes opportunities and augments threats
Valplast – Vision 2013
4.6. Strategic alternatives
Based on the insights gained in the previous section we developed a set of possible
strategies for each of the four alternatives available i.e. SO, ST, WO and WT.
Opportunities
Threats
SO possible strategies:
ST possible strategies:


Raise funds and invest in product portfolio
development – geosynthetics

its customers
Raise funds and pursue a market development

strategy - go regional as EU funds are available
Focus
only
on
sewage
section
of
the
Build exclusive partnerships with suppliers via
Capitalize on the reputation for quality products


start
building
political
Raise funds and adopt a growing via acquisitions
Hedging – exchange rate risk, raw materials
price fluctuations
Build on its current reputation for quality

Sell all noncore assets
products and increase share of wallet via

Attract funds to be invested in own distribution
existing products
network – direct transportation services for

Pursue a related diversification strategy
customers

Use the company’s individualized time to

delivery and payment term offerings to increase
share of wallet of existing customers – e.g.

tactics to address all three customers’ segments

Outsource PR component to limit the impact of
multinational players and low entry barriers in
Use the company’s competitive pricing policy
geosynthetics

Use the company’s fast response time ability to
wallet of existing clients
address
Start production of geotextiles and geogrids at
competitors’ focus on infrastructure projects
the Cehu Silvaniei production facility

the
threat
generated
by
other
Build on the company’s core loyal customer base
to reduce the threat associated with other
60
competitors’ political networking capabilities
Page

Invest in developing a marketing plan comprising
fittings
and loyal customer base to increase share of
Strengths
and
strategy
and invest in expanding the ‘services portfolio’

funds
advantage
the privileged access of main shareholders

Raise
networking capabilities as its main competitive
infrastructure projects

Attract funds and continue to fight the war price
as independent entity – market penetration

also for other countries

Raise additional funds and continue to finance
Valplast – Vision 2013
Opportunities
Threats
WO possible strategies:
WT possible strategies:


Switch to a proactive market approach with
regard to infrastructure projects
and solutions

Outsource the consultancy related services

Expand the current product range by entering


the lack of political networking – preferred
the lack of political networking
supplier
Initiate the creation of an industry association
fluctuations
Weaknesses
Build
a
strategic
alliance
with
Valrom


Switch to a proactive approach towards
customers – transparency of cost structure

Become supplier for the competition

Initiate the creation of an industry association to
addressing issues like distribution network,
address issues related to delays in paid outs, the
small customer base, weak brand name, high
high risk of client’s default
risk of client’s default, narrow product range

Develop partnerships with customers to cancel
Create partnerships with contractors to address
to address issues related to raw materials price

Fill all HR gaps related to middle and top
management

the geosynthetics segment

Hire experts and focus on consultancy services

Proactive market approach as other competitors
Outsource the PR component to address the
intend to focus on infrastructure projects and
company’s weak brand name
the entry barriers for geosynthetics are low and
Train and develop human resources with regard
the segment is highly attractive
to company’s untrained sales force and
demotivated employees

Improve the company’s cost structure to address
risks
generated
by
raw
materials
price
fluctuations, inflation and exchange rate
All above used frameworks, data interpretation and performed analysis led us to define the
most appropriate strategy. The chosen strategy resulted after balancing several alternatives,
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61
was validated using NPV analysis in the financial section of the Action Plan.
Valplast – Vision 2013
5. Strategic Intent
5.1. Mission
In ROMANIA, Valplast aims to become the preferred partner for construction and
infrastructure projects (sewage, fluid controlled flows, environment, and wells). We will
achieve this through privileged relations with suppliers and clients, by offering technical
consultancy and direct involvement in major projects, co-financing solutions and smart
selling.
At regional level, Valplast targets to be an important producer for well-drills pipes and
filters, as well as PVC fittings. We will achieve this through growing exports inside the group
and towards third parties.
5.2. Vision: the regional drainage expert in infrastructure projects.
5.3. Values
Clever
Out of the box
solutions
Team spirit
Trustworthy
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62
Reliable
Challenging the
future
Valplast – Vision 2013
5.4. Objectives
Turnover
2009
2010
2011
2012
2013
18
23
19
36.5
38
Geosyntethics 1
5
13
19.5
24
Total
19
28
42
56
62
Gross Profit %
2009
2010
2011
2012
2013
10 %
12%
14%
14%
14%
(Mil Euros)
PVC
EBITDA

Net profit: positive in 2009 and 2010, +3% / +5% / +8% in 2011 – 2013 respectively

Market share:

PVC (basic line) – achieve (until 2012) and maintain 30% (until 2013)

PVC Spring line (well pipes) – maintain leadership 55% market share
and expand product range

Geosynthetics (drain line) – achieve 15% market share until 2013

Organizational redesign until mid. 2010

Competitive Intelligence Center establishment until end of 2009

Partnerships

Establish industry players association until mid. 2010

Establish local authorized representatives partners in each Romanian
county until mid. 2010

Establish partnerships with big contractors – 20 projects larger than 5
Mill Euro in 2010, then increase partnership number with 20% every
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63
year
Valplast – Vision 2013
6. Strategy & Positioning Proposal
6.1. Corporate Strategy, Business Strategy, Functional Strategy, Operating Strategy
Corporate strategy refers to the overarching strategy of the diversified firm. Such a
corporate strategy answers the questions of “in which businesses should we be in?” and
“how does being in this businesses create synergy and/or add to the competitive advantage
of the company as a whole?”
In Valplast’s case, the corporate strategy “Vision 2013” that we proposed, refers to the
related diversification in the geosynthetics segment, a new competitive positioning in the
market and consequently redefining and create as necessary the competitive advantages to
sustain this competitive positioning. Expanding in the geosynthetics segment will create the
following synergies:

Capitalize on existing customers (large contractors that currently use both products
from PVC segment and Geosynthetics segment)

Take advantage of the geosynthetics market that in Romania is in the introductory
stage, is growing, unconsolidated, and showing attractive prospects

Offering to its customers a high added value, by incorporating in sales the
consultancy services, offering the best solutions to contractor needs.

Reduce the logistics and transportation costs share in the cost structure, by offering
a larger product portfolio, therefore optimizing these activities

Create a unique selling proposition that will differentiate Valplast from its
competitors

Enlarge the customers base
Business strategy refers to the aggregated strategies of the strategic business units in a
diversified company. For this, we propose Valplast to differentiate by being expert in
drainage for infrastructure projects in Romania. This differentiation covers both the PVC
business unit, and the geosynthetics materials business unit. Indeed, the “drainage”
category is large enough to cover: sewage, surface waters drainage, roads and highways
construction (that need water drainage), land drainage, waste water treatment plants,
ecological waste warehouses, waste storage management systems. The expert attribute
(specialization) will come by bundling together with the products several adding value
eligibility and funds to participate in auctions for large infrastructure projects.
Valplast – Vision 2013
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winning projects, and financing services (co-participation) for contractors that need
64
services: presales consultancy – technical and bidding expertise to create and deliver
Functional strategies include marketing, operational, sales, human resources
(organizational) and finance strategies derived from corporate strategy.

Marketing strategy. The emphasis will be on market share, with the objectives
presented in the table bellow for each segment. In the table are presented the
forecasts for market development for each segment, where the funds come from,
and Valplast’s market share objectives.
Markets - Valplast Forecasts
2009 2010
Year
2011
2012
2013
PVC segment
EU/Gov. funds
Private funds
PVC Market Value (Mill. Euro)
Valplast Market Share (%)
72
18
90
20
72
28
100
23
72
38
110
26
72
48
120
30
72
55
127
30
Geosyntetics segment
EU/Gov. funds
Geosynth. Market Value (Mill. Euro)
Valplast Market Share (%)
85
85
1
105
105
5
130
130
10
150
150
13
160
160
15
Market forecasts compiled from various sources – see appendix

Operational strategy. Will take into account the established objectives for gross
profit.

Sales strategy. The strategy has to take account of the established objectives for
turnover described in the strategy intend section.

Human resources strategy. The main objectives are: to ensure that Valplast has the
necessary human resources available, that these resources are trained accordingly,
and to establish a complete reward system.
Finance strategy. In order to support intended developments and changes, finance
department has the main objective to provide financing at a lower cost of capital,
and also to provide means to protect Valplast’s operation from financial risks such as
65
exchange risk and raw materials prices change risk.
Page

Valplast – Vision 2013
6.2. Competitive Positioning
What are the offered benefits, to who are intended, and where will be delivered?
“Valplast offers extended systems for sewage, drainage, ecology and wells,
innovative products, transparency partnership and co-participation in consortiums with
large contractors in infrastructure projects. Valplast also offers equitable policies with
regional distributors.”
The new positioning is graphically designed in red in the following diagram. Valplast
moves from a one-segment player (PVC pipes and fittings producer) to a more ellaborated
position, playing in two segments (PVC and Geosynthetics) and offering now an extended
product and solutions portfolio and consultancy services, all these under the large umbrella
of “expert in drainage solutions”. In this way, Valplast can cover a larger portion of this
industry.
We have to mention that we do not propose to Valplast to expand in all three
segment of the market, the third segment being already leaded by Valrom, which is part
(together with Valplast) of Romstal Group, as described in the introductory part of this
project. Expanding in PE&PP segment would be a cannibalizing move. Instead, we will
propose both to Valplast and Valrom to join in a formal strategic alliance and benefit
together from the created synergies: compete together against Teraplast, achieving
economies of scope in distribution and customer service, collaborative participation in
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bidds, offering together the whole/ largest product portfolio in the industry.
Valplast – Vision 2013
6.3. Competitive Advantages describe the assets who will make possible/sustain the
competitive positioning. These assets will be assessed on the criteria listed in the
table bellow and should fulfill as many as possible criteria:
We propose the following competitive advantages to support the competitive positioning:

Integrated approach on partnerships with big contractors

Close partnerships with suppliers of raw materials and imported products

A team of technical and bidding consultants that will develop the appropriate
integrate solutions to support the sales department

Operational processes that will constitute the advantage of low production costs
and reduced logistics cost

Brand value recognition for the well-pipes to be extended over the whole product
portfolio

Local reseller network, that will be transformed in a network of authorised
representatives

Development of a Competitive Intelligence department
Criteria
Integrated
Privileged
Technical
Operationa
Brand value
Network of
Competitive
/
partnership
partnerships
and bidding
l processes
extended to
authorized
Intelligence
Assets
approach
with suppliers
consultants
whole
representati
department
team
product
ves
with big
contractors
portfolio
Valuable
V
V
V
V
V
V
V
Durable
V
V
V
V
V
V
V
Rare
V
V
V
V
V
V
V
Inimitable
Complex
V
V
V
V
V
V
Most of these assets are not present in Valplast’s current business model and they
have to be created/ acquired to make possible the implementation of this strategy. In
Action Plan section we addressed each of these competitive advantages in order to build
necessary assets.
The only existing competitive advantage that is present in this moment is the asset of
own operational processes that made possible until now the high growth Valplast exhibited
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in the last years.
Valplast – Vision 2013
6.4. Competitive Tactics
In Chapter 8 we will detail the action plan to implement the proposed strategy. This action
plan will cover following functional areas:
Operational
Marketing
Competitive
Inteligence
Sales
Organization
Financial
Risk
Management
Change
Management
The action plan will be completed in the next chapters with: timescale, implementation and
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control and exit criteria.
Valplast – Vision 2013
7. Gap Analysis
After performing Valplast’s audit (external and internal) and after formulating the
intended strategy, we will conduct a gap analysis (using Diamond-E framework analysis) to
identify the missing elements that are needed to implement the strategy. In the 8th chapter
(Action Plan) we will bridge the gaps within each function, building a new business model.

Environmental gap analysis (Need to do)
As described in chapter 4 on external audit section, Valplast has to to capitalize on the
opportunities and minimize the threats:

In Romania the infrastructure is low developed and massive funds are to be allocated
Other competitors’ political networking.

Economic crisis dramatically altered the fundamental forces influencing the industry:
the current segment in which Valplast operates became unattractive, crowded, there
is an increased, fierce competition, buyers power increased.
Valplast – Vision 2013
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
69
by government and EU in this sector.

Competition moves: opening of large national distribution networks (regional
warehouses), main competitors diversified into multiple SBUs securing a more
balanced financial position.

Due to EU regulations, a new market segment was open in 2007, namely
geosynthetics materials. In this segment (in introductory phase) competition is weak,
demand exceeds supply and growth potential is very high, making this segment highly
attractive.

Change in customers profile – dramatic decrease of civil construction projects
(buildings, houses) and increase in infrastructure projects

Suppliers: in PVC and PE&PP segments there is increased power and prices
fluctuations due to oil prices fluctuations, but in Geosynthetics segment suppliers are
willing to find Romanian partners

Financial blockage, exchange rate risk

Overcapacity in PVC and PE&PP segments and under capacity in Geosynthetics
segment

Managerial preferences gap analysis (Want to do)
Managerial Preferences act as an indirect filter through which Environment and Resources
are assessed. Starting from current beliefs in operational excellence, the management
should “upgrade” the company to a big picture approach:

Managerial preferences do not fit the current environment reality

Focus on customer satisfaction

Seize the market opportunities - enlarge the product and services portfolio

Capitalize on intra-group (Romstal) opportunities – economies of scale (supply side)
and economies of scope (distribution, marketing side)

Open to change but reactive management style

Owners preference to operate the companies within the group as separate,
independent entities, as opposed to an integrated network of firms (that can benefit
from intra-group synergies)

Risk aversive management and autocratic style potentially limiting the success of
business initiatives

Need to change from a production-oriented approach to a market-oriented

Blind spots – “if it worked in the past, it will work in the future”, there’s no perceived
need to change, inertia
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services
70
approach - integrate the voice of the customer in designing the products and
Resources and Organization Gap analysis (Can do)
Resource analysis:
 Financial – exposed to financial risks (inflation, exchange rates, raw materials price
variations, customers’ default risk), delays in paid outs (cash-flow problems) – need
of extra working capital; noncompetitive cost structure computation method,
investment funds needed to develop the product and services portfolio – marketing
the new products and services, working capital related to new products and
consultancy projects, logistics,
 Physical – from the production side perspective, physical resources (production
facilities) appear to be over-dimensioned in the current economical context. In order
to enlarge the product portfolio, new storage facilities and logistics capabilities are
needed. With regard to the consultancy services that Valplast intend to offer to its
customers, new physical resources are needed (office space, furniture, IT &C
equipments, cars)
 Human – although the number of employees is corectly dimensioned in the context
of current strategy, there are few drawbacks: lack of dedicated department heads
(Financial manager, Marketing manager, HR manager), insufficient training, lack of
soft skills for sales force, incomplete reward system, lack of dedicated sales and
consultants executives for key account customers. To implement the intended
strategy human resources must be redesigned to match the new requirements (to
be detailed in chapter 8, Action Plan)

Logistics – integrate suppliers and distribution in company’s supply chain to jointly
achieve a superior value chain performance
Organization gap analysis

Valplast is currently a company in Stage II (single business), and the intended
strategy assumes a leap to a Stage III company (multiple SBUs)

Leadership style is autocratic (formal, power based)

Rewards - a more developed, coherent and consistent Performance
Management System is needed to be put in place in the near future, in order to

People and careers – no functional specialists, no career management plans,
demotivated employes (decreased sales, competition moves, no internal
communication on future strategies)
Valplast – Vision 2013
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best respond to business and also individual needs.
Page


Knowledge/Skills – expanding the activity into new products and services
requires new skills and knowledge, new job designs centered on customer
values, trainings, interdisciplinary teams to manage large infrastructure projects,
environment scanning and analysis (competitive intelligence)
Culture - innovative, always pushing high product quality, sometimes at the
expense of profitability, affirming a customer orientation but in fact not
72
understanding very well the customer.
Page

Valplast – Vision 2013
8. Action Plan, Specific objectives
8.1. Operational
8.1.1. New Business model
VALPLAST Business Model - New
Infrastructure
Core
Capabilities
Bidding and
presales office
Competitive
intelligence center
Marketing and
Procurement dept
Trained sales
force
Expanded
portfolio
Partner
Network
Partnerships
within the
supply chain
Value
Configuration
Cost structure
transparency
Co participation in
consortiums
Co financing
Presales consultancy
Offer
Value
Proposition
Drainage
systems onestop shop
Clever drainage
solutions and
advisory
Cost structure
Activity Based Costing
Smart and relevant cost drivers.
Customer
Relationship
Customer
CRM system
Redesign sales
force activity
Proactive approach
Targeted marketing
campaigns
Distribution
channel
Own sales force
and distribution
Romstal channel
Retailers
Customer
Target
customer
Proactive
approach to
contractors in
government
infrastructure
projects and
independent
resellers
Reactive to
contractors in
private projects.
Revenue streams
Finance
Sales (PVC and Geosynthetics)
One time revenue- sale of Cehu
Silvaniei facility
Marketing & sales incomes from
suppliers, penalties.
As presented in the framework below and within each of the following sections of
the action plan we delivered solutions and specific tactics for each component of the
business model.
The company was offered a completely new business model comprising some of the
and added to a completely new set of core capabilities.
Valplast – Vision 2013
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operated at each dimension level. Operational excellence and cash capabilities were kept
73
elements of the former one but more important critical changes and improvements
We proposed an integrated approach with regard to supply chain management and
partner network. Exclusive partnerships will be developed with external suppliers –
geosynthetics along with privileged partnerships with suppliers of raw materials for plastic
pipes and fittings. These partnerships will be reinforced via cost structure transparency and a
long term commitment.
The creation of an industry association will be initiated as described in the Marketing
Action Plan, in Partnerships section. The company should target to become the preferred
supplier for contractors operating in infrastructure projects. This approach will be fueled by
both transparency of cost structure and co financial participation in consortium for big
infrastructure projects. The value configuration would be enhanced via presales consultancy
services and competitive prices for geosynthetics.
The company will become mutually beneficial for its customers and all other
stakeholders via a complete set of tactics i.e. co-participation to consortiums
in
infrastructure auctions, co-financing in major projects, cost structure transparency,
competitive pricing, presales consultancy together with current time to deliver and
adaptability. In short the new value configuration will comprise tailor made solutions for
infrastructure projects.
The new value proposition will be ‘drainage systems one-stop shop, clever drainage
solutions and advisory ’. The company will continue to exist as a business to business type
company. With regard to customer relationships the current one-to-one established
personal relationships will be complemented with a full CRM system for tracking customers,
their needs, interactions and contracts.
From the current reactive approach towards customers the company will switch to
proactively managing its clients and will redesign the sales force activity - cross-selling, upselling, add-on selling and develop targeted marketing campaigns.
At the distribution channel level the company will emphasize direct sales and convert the
current key independent resellers customers into authorized representatives (franchise
type). As part of the strategic alliance with Valrom the company will benefit from the
national warehousing network and transportation logistics.
The company should adopt a proactive approach towards the target customers i.e.
the contractors in government infrastructure projects and independent resellers, and a
reactive one to contractors in private projects.
In the cost structure section we proposed an Activity Based Costing system implementation
Smart/relevant cost drivers will be introduced as
described in the financial section of the action plan.
Valplast – Vision 2013
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costs in homogenous cost batches.
74
in order to develop the ability to allocate as many costs as direct costs and split indirect
The new company’s revenue streams would be the sales generated in the PVC and
geosynthetics segments, the onetime revenue- the sale of Cehu Silvaniei facility and other
marketing & sales incomes from suppliers - penalties. Cost structure and revenue streams
are detailed in the financial and sales sections of the action plan.
8.1.2. Forecasting process. Milestone – ongoing from September 2009
In the current economical context the forecasting component of operations becomes
critical for company’s survival.
From operations perspective forecasts are used for
scheduling, capacity planning, inventory planning, outsourcing, project management, work
assignments and workloads, make or buy decisions.
With regard to the forecasting technique we will complement the current one
namely moving average forecast with a weighted moving average approach and then start
implementing a more associative model i.e. simple linear regression. We will ‘upgrade’ this
model if needed to a multiple regression analysis. Past experience cannot be projected
anymore into the future and historical data cannot be taken for granted with the assumption
that the future will be like the past.
As one important explanatory variable to predict demand we will use the level of
European funds allocated each month by the government for infrastructure projects.
The predictor indicators chosen are uncontrollable variables that tend to lead or precede
changes in demand for company’s products. Other indicators used are the oil price, interest
rates for commercial loans, consumer price index, political climate, activities of the other
players as identified above. We chose indicators with high correlation between them and the
demand variable. In the first step as mentioned above we used a weighted moving average
and assigned more weight to the most recent data – after a trial and error session needed
for finding the suitable weighting scheme.
A more accurate alternative was considered also namely exponential smoothing
building each new forecast on the previous one and taking into account a percentage of the
forecast error.
Neither seasonality nor cycle’s behaviors could be taken into account due to the unique
profile of the current economical recession. In choosing our set of forecasting techniques a
cost/accuracy assessment was conducted along with monitoring forecast errors over time.
The later was done via using the control chart tool. The forecast frequency will be monthly
benchmarking: actual vs. budgeted on a monthly basis, and consolidated at Q end.
Valplast – Vision 2013
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set composed of: forecast accuracy 90% and benchmarking. The company should do
75
each salesman forecasting its own sales and reporting to sales manager. We proposed a KPI
The short forecast horizon was also considered as a filter in choosing the relevant
techniques – moving averages and exponential smoothing being essentially short range
techniques. We tried to identify the possible costs of errors and the benefits that will accrue
from an accurate forecast. Other critical factors in our analysis proved to be the lack of
historical data relevant for the current economical recession and the lack of time needed to
gather and analyze data in order to prepare the forecasts.
A set of forecasting techniques was developed as opposed to a single one with the
aim of comparing independent generated forecasts and assess any possible disagreement
between them and increasing the managers’ confidence. We used this analysis in order to
generate a change in top and middle management’s behavior toward forecasting i.e. taking a
proactive approach as opposed to just reacting to meet demand.
Actively influencing demand, and using a ‘what if’ approach are mandatory in the
current economical reality. Consequently more accurate forecasts would be developed in
order to take advantage of existent opportunities and reduce risks. Shortening the
forecasting horizon besides lowering inventory levels and improving customer service levels
would boost credibility throughout the organization. Shortening the lead time needed to
respond to forecasts would trigger the need to build more flexibility into company’s
operations in order to fast respond to changes in the whole value chain. (E.g. changing
demand for products and services, the time needed to train/retrain employees, shortened
lead time needed to obtain raw materials and supplies)
Qualitative forecasting techniques were used on a limited basis as all the relevant
company’s stakeholders lack the experience and expertise needed to formulate forecasts
within the current major and unique economical recession. We took into account experts
and executives’ opinions together with customer surveys and data on new European Union
regulations related to infrastructure projects – geosynthetics segment. Milestone for
implementing new forecasting methods – ongoing from sep. 2009
using
the
new
Year
2010
2011
2012
2013
90
20
100
23
110
26
120
30
127
30
85
1
105
5
130
10
150
13
160
15
PVC
forecasting techniques described
Market Value (Mil Euro)
below.
Market Share (%)
The production and procurement
Geosyntetics
forecasts should consequently
Market Value (Mil Euro)
cascade from the sales data.
2009
Market Share (%)
Each of the three forecasting stages should be complemented with a staffing forecasting
section incorporating the changes to be done.
Valplast – Vision 2013
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developed
Valplast Evolution
Page
A sales forecast will be first
Sales
Forecast
Production
Forecast
Procurement
Forecast
Please find below PVC / Geosyntetics market evolution in values and also Valplast market
share per each segment:
PVC market - Valplast
Evolution
110
120
Geosynthetics - Valplast
Evolution
127
90
100
20
23
26
30
30
2009
2010
2011
2012
2013
85
Valplast Market Share (%)
150
160
1
5
10
13
15
2009
2010
2011
2012
2013
Geosynth. Market Value (Mill. Euro)
Valplast Market Share (%)
Page
77
PVC Market Value (Mill. Euro)
105
130
Valplast – Vision 2013
8.1.3. Product and service design. Milestone – ongoing from September 2009
As products are highly standardized, the company is constrained to redesign its
product portfolio. Milestone – until sep. 2009. More specific we proposed a new product
differentiator i.e. an inner white layer for pipes offering an improved inspection and
maintenance process performance - Milestone – market research until oct. 2009. With
regard to services’ design, a new ‘services portfolio’ approach should be considered
consisting of both product bundled services and consultancy services (bundled services:
transportation, financial discounts, certified welder for geosynthetics and consultancy
services: technical, government bidding procedures, legal, financial advisory) - Milestone –
ongoing from Jan. 2010 (October + November 2009 hiring, December 2009 training).
With regard to the opportunities and threats identified in our SWOT analysis section
critical decisions are needed also at the products and services level. The company should
redesign its production department by hiring a dedicated team comprised of a Production
Manager, three Department Heads and an R&D specialist.
Within the responsibilities attached to this department several dimensions are
critical i.e. inventory management, product and service design, capacity planning, acquisition
and utilization of equipment, location decisions with regard to production facilities.
The decisions related to the above issues would be jointly taken with the other relevant
departments’ heads.
As described in earlier sections within all three segments of interest the products are
highly standardized and little can be done with respect to new designs or redesigns.
However incorporating information from the newly competitive intelligence center we
proposed with regard to product design the introduction of a new feature i.e. the entire pipe
range would have an inner built-in layer of white color. This feature would be hard to copy
and could help building a new product differentiator
A different perspective should be adopted at services design and processes design as
described above. The main focus of services design should be customer satisfaction as
product high quality is becoming more an industry norm than a competitive advantage.
Cascading from our proposal on company’s strategy and mission an expanded ‘services
portfolio’ should be designed.
Dedicated teams would work closely with our customers aiming to identify unique
solutions to their problems and enhance our value offerings to them. Capitalizing on this
within the Production Department and will be subordinated to the Production Manager.
Valplast – Vision 2013
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services’ standardization is minimum. As mentioned above an R&D specialist will be hired
78
opportunity the company will be able to build a unique value proposition as the degree of
We pursued a ‘designing for operations’ analysis in order to align the company’s
human resources capabilities with the new firm’s services’ offerings. A complete analysis is
presented both in our gap analysis section and organizational section within the action plan.
Services are created and delivered simultaneously. In our proposed ‘services portfolio’ we
included both categories of services i.e. as part of a product bundle and totally independent
consultancy expert services delivering complete solutions for drainage infrastructure
projects.
The bundled services will be associated with transportation and financial discounts
i.e. ‘crediting’ the company’s customers and avoiding penalties impact. The consultancy
services offered by the company will consist of technical expertise, legal advisory,
government biding techniques and expertise, and financial services like letters of credit
Moreover we focused on the service delivery system which includes the processes and skills
needed to provide the service.
As described in the strategic intent section we managed to create and deliver a
reliable set of customer-oriented services and solutions and consequently built a key
competitive differentiator. Our service design involved the development of all the
components of the service package i.e. the resources needed, the accompanying products,
explicit and implicit services (e.g. courtesy). Along the process of designing the services
portfolio we identified a critical opportunity namely the greater the degree of contact with
company’s customers the greater the opportunities for selling. We began our service design
by aligning the service strategy with the proposed corporate strategy i.e. the drainage expert
for infrastructure projects. The focus of the service will be centered on customers –
entrepreneurs’ satisfaction.
The pillars of the delivery system would be high degree of customer contact, in depth
customer involvement and high degree of variation of the services’ requirements. Services
and solutions offered by the company will be highly customized and will be tailored after
customers’ requirements and expectations. In the process of assessing the potential market
for the proposed ‘services portfolio’ we identified a consistent profitability potential and we
concluded that the company would have the ability to close the human resources gap and be
able to deliver the new standards of quality and customer satisfaction.
Both quantitative and qualitative – training/retraining components were addressed
with regard to human resources within the gap analysis section. The increased number of
variables and the extensive customer contact raised additional challenges.We included in
customer perspective – managing customer perceptions during and after the service is
Valplast – Vision 2013
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quality standards for both tangibles and intangibles, focusing on the operation from the
79
the service system design several elements to secure success like identification of specific
delivered; we managed to align the service expectations with the recruitment, training and
reward policies.
Within the design process we implemented systems to monitor, maintain and
improve service. More specific we used the SERVQUAL instrument for assessing service
quality and spot the strengths and weaknesses of the service system.
A more detailed analysis on service quality follows in the quality management section.
Within the service design process an important aspect was also addressed namely
the location and customer convenience was chosen as ‘the name of the game’.
All in all we used a customer-oriented approach trying to determine the clients’ wants and
needs in order to understand the relationships between service delivery and the perceived
quality.
As one of the critical pillars of our competitive advantage the company’s service
delivery system will aim to be user friendly, easy to sustain, offering value that is obvious to
customers and be robust as variability is an important factor. Moreover it will incorporate
effective linkages between front and back operations aiming to deliver consistency between
customer service and the speed and efficiency factors – cost effectiveness.
A major component of our service design is represented by increasing the
management involvement towards ensuring their full support for implementation and follow
up of the proposed design. Aiming to integrate the ’voice of the customer’ into service
development process we used the quality function deployment approach.
The purpose was to assure the senior management that the customers will want the services
and solutions provided by the company and to secure their buy in.
8.1.4. Capacity planning Milestone – monthly, ongoing from sep. 2009
In this section we addressed the major challenge represented by the need to
maintain cash flow while making a reasonable profit. We proposed as part of the new
strategy new products and services (consultancy) that exhibit complementary demand
patterns – opposite seasonality as compared to the currently offered products.
We proposed as part of the new strategy new products and services (consultancy)
that exhibit complementary demand patterns – opposite seasonality as compared to the
currently offered products. With regard to capacity planning for products the company
should use as metrics the number of PVC suspension tons to be processed cascading from
planning for services adding small amounts to each of the services offered and using criteria
such as the number of letters of credit – co financing, and the number of auctions dealt with
Valplast – Vision 2013
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The company should implement the ‘matching strategy’ when designing the capacity
80
the forecasting section.
by each consultant on a monthly basis. The new strategy of the company addresses the
capacity planning process not only via optimizing the current operations but also through
altering the demand for company’s products and service – new ‘services portfolio’ and new
product lines will be incorporated in the company’s value proposition.
The new forecasting techniques and the strategic alliance with Valrom would trigger
several adjustments with regard to production capacity. The company has a consistent
capacity cushion needed as the demand for company’s products is forecasted to significantly
increase due to the new strategic customer approach.
Customers will become partners on a long term basis and the new ‘services portfolio’
together with the new product lines on geosynthetics will generate a solid demand for
company’s current products.
When forecasting the capacity requirements the company should consider an overall
stable demand pattern as although the residential projects segment is decreasing the
infrastructure projects financed by the government will compensate the demand for the
entire product portfolio related to drainage offered by the company. This is the reason
behind our proposition to conserve two of the six available production lines as opposed to
selling them. We initiated a relative assessment of the available alternatives and the above
solution was considered optimal in the long term.
The current economical conditions impede a profitable selling or rental of the
available production capacity. With regard to consultancy services we assessed the demand
volatility as being moderate to minimal. These services are to be offered to customers
involved in major infrastructure public projects.
As the new ‘services portfolio’ will generate the company’s new competitive
advantage and the expertise brought in by the new personnel will become core capabilities,
the outsourcing alternative was excluded from our analysis. Major risks would be involved in
outsourcing these services and loss of control and proprietary information disclosure would
be imminent. Unique high quality requirements are attached to the new strategic proposal.
As described in the section on marketing – action plan, the company would
outsource all activities related to public relations and media communications. The original
capacity design namely high built in flexibility would secure minimum costs to be employed
if modifications to the existing structure will be needed in order to meet demand variations
and minimize the risks of overcapacity in the market. Although the products currently
offered by the company are in the growth phase the overall market will experience a plateau
demand in the market is forecasted to recover due to the major infrastructure projects that
Valplast – Vision 2013
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The company should employ a wait-and-see strategy with regard to capacity expansion as
81
due to the economical recession.
are to begin in the fall of 2009. If market conditions will prove it the company should
consider emergent capacity disposal strategies.
8.1.5. Aqusition & utilisation of equipment. Milestone – until oct. 2009
Within this section we proposed several tactics related to optimization of company’s
equipment. No equipment related acquisitions will be made in the following year. The
company should conserve two of its current production lines. They will not be sold as the
forecasts pointed to an increase in sales in 2010 and 2011 with regard to infrastructure
projects that will consequently enable 100% production capacity utilization.
The remaining four will be utilized on three shifts aiming to optimize the power
consumption – with this production design no employees would be fired.
Moreover we proposed the OEE hierarchy of metrics focusing on how effectively the
manufacturing operation is utilized. OEE measurement is a key performance indicator used
in conjunction with lean manufacturing efforts in order to provide an indicator of success for
the company’s activities. ‘OEE breaks the performance of a manufacturing unit into three
separate but measurable components: Availability, Performance, and Quality. Each
component points to an aspect of the process that can be targeted for improvement. We
proposed OEE as it incorporates quality and could be used to perform benchmarking and
build improvement targets for specific production units.
The Quality portion of the OEE Metric represents the Good Units produced as a
percentage of the Total Units Started. The Quality Metric is a pure measurement of Process
Yield that is designed to exclude the effects of Availability and Performance. The Availability
portion of the OEE Metric represents the percentage of scheduled time that the operation is
available to operate. The Availability Metric is a pure measurement of Uptime that is
designed to exclude the effects of Quality, Performance, and Scheduled Downtime Events.
The Performance portion of the OEE Metric represents the speed at which the Work Center
runs as a percentage of its designed speed. The Performance Metric is a pure measurement
of speed that is designed to exclude the effects of Quality and Availability.
8.1.6. Location decision. Milestone – until October 2009
perspectives namely the company’s suppliers – raw materials and geosynthetics, the
company’s processing facilities and distribution facilities. With regard to the later we
Valplast – Vision 2013
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impacted by location. In this section we addressed the location challenges from three
82
Delivery lead time and costs associated with transportation and production are directly
proposed in the section on strategic intent the strategic alliance with Valrom along with an
integrative approach to partnerships development with suppliers and customers.
Along with other major benefits this alliance will strengthen the company’s ability to
reduce the delivery lead time and the transportation and warehousing costs via a national
distribution network. Along with other major benefits this alliance will strengthen the
company’s ability to reduce the delivery lead time and the transportation and warehousing
costs via the national distribution network of Valrom.
The location of production facilities would not be changed due to high initial costs
and inability to sell profitably the existent factory from Bucharest - on a longer term though
this strategy should be taken into account - Check point for this emergent strategy – 2011.
The suppliers’ location should be decided upon via using two criteria i.e. be EU located – no
taxes, common standards, and, for suppliers of PVC raw materials a KPI comprising ex-works
costs + transportation costs should be used to select the best option.
8.1.7. Quality management
In this section we addressed separate tactics with regard to the quality of products
and the quality of services offered by the company. Several expert testing laboratories will
be used to acquire quality control certificates for all batches produced in order to prove
higher parameters of the products to be handed out to customer - Milestone – until Nov.
2009
Two levels of production process quality control were considered:

respect national and EU certifications for PVC pipes and fittings (SN standards) –
done currently.

for imported products, implement quality control of nonconforming products –
preventing and corrective actions - Milestone – ongoing from sep. 2009
We proposed the implementation of ISO 14001 and SA 8000 standards in order to build
new capabilities to fight competition and to meet EU and Romanian new requirements Milestone – until sep. 2010 The former is a standard for environmental management
systems to be implemented in the company. The aim of this standard is to reduce the
environmental footprint of the business and to decrease the pollution and waste the
business produces.
The SA 8000 is currently not being met by the company’s major competitors. SA 8000 covers
the following areas of accountability: child labor, forced labor, workplace safety and health,
Valplast – Vision 2013
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conditions addressing major issues on social responsibility intra and outside the company.
83
The later (SA 8000) is a global social accountability standard for decent working
freedom of association and right to collective bargaining discrimination, discipline, working
hours, remuneration and management system.
The implementation of these standards will reinforce the company’s focus on ‘changing
the industry rules’ by creating an industry association needed to bring back in balance the
relations between government, civil society and competitors. Moreover we proposed the
implementation of a total quality management (TQM) strategy.
TQM requires that the company should maintain the high quality standards in all aspects of
its business. This will require ensuring that things are done right the first time and that
defects and waste are eliminated from operations.
We proposed a new scheduling approach based on the theory of constraints i.e.
identifying and optimizing the activities at the potential bottlenecks level – with regard
either to production or delivery of both products and services. Critical for success would be
the scheduling of non-bottleneck operations in order to minimize the idle time at the
bottleneck level. As opposed to traditional management the new approach will focus on
maximizing flow through the entire system by balancing the flows through the various
operations.
The company’s operations will be capable of consistent on-time delivery, reduced
inventory and shorter lead times by avoiding the costly and time consuming multiple setups.
The company should use three metrics to assess the effectiveness of improvements i.e.
inventory – money tied up in goods and materials, operating expense – e.g. money spent
with utilities, scrap, depreciations, and throughput – the rate at which the system generates
money through sales i.e. the contribution margin.
More important TQM implementation would be consistent with the new corporate
strategy centered on high quality standards to be integrated at all levels within the supply
chain and inside the company and ‘delighting the customer’.
"TQM is a management approach for an organization, centered on quality, based on the
participation of all its members and aiming at long-term success through customer
satisfaction, and benefits to all members of the organization and to society." (source: ISO)
Total Quality Management is the organization-wide management of quality, consisting of
two qualities: quality of return to satisfy the needs of the shareholders and the quality of
products. The company should address both its external and internal customers.
We proposed three measures to be used along with TQM implementation namely
measure the customer satisfaction and the employee’s satisfaction - Milestone – ongoing from
September 2009. The third is related to lean quality management i.e. spotting overproduction
and over inventory, extra processing, and waste tracking. Milestone – January 2009.
Valplast – Vision 2013
Page
ones i.e. related to procurement, bidding, forecasting, hiring, rewarding - Milestone –
84
January 2010 and document and control all processes within the company – including the new
Valplast should enlarge its management team by hiring also a Quality Manager
responsible for all the aspects presented in this section. The company should use the
following set of tools for measuring, assessing and improving its processes: the fishbone
diagram, Pareto chart, process diagram, benchmarking.
As illustrated above we split the broad category of services into two categories
namely services as part of a product bundle and totally independent consultancy expert
services delivering complete solutions for drainage infrastructure projects.
Different customers have different requirements making quality customerdependent. The entire set of dimensions of service quality was addressed in our analysis and
specific related KPI’s were incorporated in the evaluation and rewarding systems. We
studied these dimensions aiming to generate tactics which would increase the company
performance and exceed the customers’ expectations.
Among these dimensions, of critical importance are the following: the convenience
and reliability of the service, responsiveness and assurance of company’s personnel, its
courtesy, the speed with which the service is delivered and the physical appearance of all
relevant tangibles e.g. facilities, equipment, personnel and communication materials. In
‘servicing’ the customers major challenges are present with regard to stating in measurable
terms the above dimension.
For that purpose we approached two widely used tools i.e. the quality function
deployment and the SERVQUAL instrument. (SERVQUAL was originally measured on 10
aspects of service quality: reliability, responsiveness, competence, access, courtesy,
communication, credibility, security, understanding or knowing the customer and tangibles.
It measures the gap between customer expectations and experience.)
The results of this service quality audit helped us identify the strengths and
weaknesses of the company service offerings. Major gaps were identified in areas like
service quality and service actually delivered actual customer expectations and the
company’s management perceptions of those expectations. All these pointed out the critical
need to move from a reactive customer approach towards a proactive one, along with the
need for establishing partnerships based on shared experience and expertise.
At the organizational level the company should be focused on ‘delighting customers’
as high product quality became more like an industry norm. The company and the customers
should jointly define quality.
While the production processes in this industry are not standardized the company
customer relations would be critical as services cannot be inventoried being created and
delivered to customers at the same time.
Valplast – Vision 2013
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exhibit a consistent potential for improvement and innovation. Training, process design and
85
proud itself to operate the most efficient production lines. The management processes
With regard to company’s processes we proposed an ‘outside-in’ approach aiming to
understand the value adding cycle from the customers’ perspective. Consequently this
allowed the company to identify several areas in which more value was incorporated and
flexibility was built in.
One of these opportunities was to create dedicated teams of experts working
together with the customers’ experts right from the infrastructure projects inception stages designing more profitable technical solutions and generating smart sales for the company.
The company’s experts started to act like consulting partners trying to prevent or identify
and solve the customers’ problems. The experts’ job description was redesigned and
centered on ‘delighting the customer’, meeting and exceeding the service quality standards
as defined by the customer. The customer was asked to pinpoint the critical dimensions of
quality from his perspective.
Consequently the overall company’s performance assessment was redesigned in
order to incorporate these new criteria. We also conducted a cost-benefit analysis and tried
to evaluate the impact of this emphasis on customer satisfaction. We proposed an integrate
perspective with regard to building a balanced system to achieve a smooth, rapid flow of
materials, products, information and services within the company.
The company should aim to eliminate disruptions, make the system flexible and
eliminate waste. With regard to the later a complete set of aspects should be considered i.e.
overproduction, waiting time, product defects, and inefficient work methods. The reduction
of setup and lead times will be critical for success as the economical crisis will continue for at
least 1-2 years. Moreover at the personnel and organization levels we proposed five
elements to be implemented. They are continuous improvement – a new ‘culture’ centered
on improving quality, cost accounting – as described in the section on ABC costing, cross
training workers – building flexibility into the system, reinforcing line balancing and dealing
with bottlenecks, and offering workers more authority in making decisions and more
responsibility. Many of these issues are comprised in the Japanese Just in Time philosophy.
8.1.8. Inventory management. Milestone – ongoing from sep. 2009
The ultimate goal of the company with regard to inventory management and
scheduling should be to develop an internal balanced system capable to eliminate waste
especially excess inventory and to eliminate disruptions – caused by poor quality, equipment
market uncertainties. This would be achieved by reducing both the setup time and the lead
time.
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to increase the system’s flexibility in order to be able to deal with the current demand and
86
breakdowns, late deliveries or changes to the schedule. Moreover the company should aim
We adopted in our analysis an extended approach of the waste management by
including besides inventory – as an idle resource, other wastes like overproduction, waiting
time, processing waste, unnecessary transporting, product defects and inefficient work
methods – which are reducing productivity, increasing scrap and increasing work-in-process
inventory. All these issues are addressed in the Just In Time philosophy and more broadly in
lean operations.
They are process oriented, focusing the attention where value is created, promoting
a joint effort of all employees – including top and middle managers, and are supported by
total transparency of procedures, processes and values consequently uncovering all types of
wastes.
Within this section two objectives are to be pursued: high quality of customer service
– having the right goods and services, in the right place in sufficient quantities and at the
right time, and optimizing the costs of ordering and carrying inventories.
As described below in order to cut back inventories two directions could be followed
i.e. reducing lot sizes and reducing safety stocks. Via the new partnerships with suppliers –
comprising standardized procedures, electronic data interchange, the economic order
quantity would be reduced due to decreased ordering costs and the company will be able to
lower its safety stocks.
The company should incorporate in its inventory management the external perspective i.e.
the inventory in the supply chain. We proposed a switch with regard to inventory counting
system namely from the current periodic system to a perpetual inventory system.The added
cost of record keeping will be canceled by the increased ability to control and determine the
optimal order quantity.
We proposed the implementation of an ABC approach with regard to inventory
classification system in order to allocate control efforts efficiently. Based on sales
forecasting, inventory buffers would secure the demand for the following month. The
company should use two key performance indicators i.e. the average days of sale – the
amount of time needed to sell the product after production completion, and inventory
turnover.
In this section we addressed issues related to the need of meeting demand
requirements while managing the costs of holding inventories and the inventorytransportation cost, lot size-inventory and the product variety-inventory trade-offs. We
addressed also tactics related to the newly introduced product lines inventory management.
transportation costs via the former’s logistics platform.
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warehouses facilities on a national basis consequently helping the company optimize the
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The strategic alliance with Valrom comprises an agreement on jointly sharing the
In line with the new strategy two objectives were considered: reducing lot sizes and reducing
safety stocks.
As presented in the next section as part of the proposed partnerships with suppliers
the former will agree to hold the inventory in exchange for a long term commitment from
the company consequently decreasing the costs generated by continually finding new
customers and negotiating prices and services. This will reduce the company inventory costs
for both raw materials for pipes and fittings and the new product lines – geosynthetics.
Moreover the proposed techniques in the forecasting section and the new approach
of sharing sales data will reduce the costs associated with the safety stocks needed for
matching the demand and supply. An important consideration should be given to the new
consultancy services ‘portfolio’ as services cannot be stored.
The proposed partnerships with suppliers and customers will cancel: the need to
hedge against price increases, to protect against stockouts triggered by supplier stockouts,
deliveries of wrong materials or quality problems – since all partners will share similar
quality standards.
The company will be able to identify both points where buffers would be most useful and
points where they would merely increase costs without adding value.
The company will be able to decrease the need to decouple operations by finding
and eliminating the sources of disruptions as opposed to building buffers of raw materials
and finished goods.
Potential sources of disruptions will be uncovered as the information exchange will
be reciprocal – the new partners would share forecasts and sales data, information on
inventory quantities, delays or breakdowns.
Also with regard to the challenge of meeting the uneven demand we proposed
adopting a chase demand strategy – matching capacity to demand.
The planned output for a period would be set at the expected demand for that period.
All capacities – workforce levels, output rates, would be adjusted to match demand
requirements and would offer several advantages: low investment in inventories, high labor
utilization – in line with the company’s policy. This proposition was contrasted to the level
approach strategy described in the section “current operation”.
8.1.9. Supply management. Milestone – ongoing from September 2009
forcing the company to take immediate action.
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production, distribution and inventory. Several critical internal and external factors are
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The major decision areas with regard to supply chain management are location,
Among these are the need to constantly increase the quality via improving
company’s operations, transportation costs are increasing – fueled also by the absence of a
national warehousing network, competitive pressures are increasing due to economical
recession and the need to optimize the management of inventories.
Moreover higher demand variations originating at the customer level are triggering a
bullwhip effect becoming increasingly larger as they radiate backwards through the supply
chain.
All these evolutions are building extra costs and are limiting the company’s ability to
compete.
Along the section on operations we addressed each of the elements comprised in the supply
chain management i.e. the customers, forecasting, design, capacity planning, processing,
inventory, purchasing, suppliers, location and logistics.
As described in the forecasting section we proposed efficient techniques in order to better
anticipate the variations in demand and reduce the uncertainty and variability via a more
efficient timing.
We translated the customer demand into corresponding activities at each level of the
supply chain. In the section on product and service design we incorporated the customers’
wants and addressed issues like manufacturability requirements and time to market with
regard to consultancy services offered by the company as described in the strategic
proposal.
As described below we proposed tactics for helping the management decide how to
best move information and materials – logistics, how to evaluate potential suppliers and
support the needs of operations on the purchased goods and services – purchasing section,
and how to monitor supplier quality, on time delivery, to secure flexibility and maintain
efficient supplier relations – suppliers section.
With regard to company’s suppliers we addressed them as independent entities and
proposed an individual, customized approach. They could be separated in two major
categories namely suppliers of raw materials for production and suppliers of finished goods
– geosynthetics.
We proposed building personalized partnerships with each supplier as each of them would
bring different and unique opportunities and limitations.
These partnerships should be built only on a long term basis sharing common values
and be centered on trust and mutual benefits – partners would share similar goals and
Milestone – ongoing from September 2009
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Suppliers’ products should meet the national safety standards (health, environment).
89
quality standards, certifications and quality systems.
This will enable the participants to share forecasts, determine the status of orders in
real time and access inventory data of partners. Major gains would be achieve via full
transparency of the cost structures and reduced uncertainty.
Moreover we proposed as critical for success building partnerships with the
company’s major customers. This issue was addressed in the section on strategic intent.
All the above proposed tactics will secure mutual gains for the trading partners within the
supply chain in terms of costs and profitability.
Besides trust and supply chain visibility other requirements should be addressed i.e.
effective communication – requiring an integrated technology and standardized means of
communication among partners, event management – dealing efficiently with unplanned
events, and the implementation of a performance metrics system in order to enable an
efficient on-going evaluation of the supply chain performance.
We
proposed
the
introduction of the Supply Chain Operations Reference (SCOR) model in order to standardize
measurement of the supply chain performance. SCOR is a management tool, spanning from
the supplier's supplier to the customer's customer. SCOR enables users to address, improve,
and communicate supply chain management practices within and between all interested
parties in the Extended Enterprise. The model focuses on the following:

All customer interactions, from order entry through paid invoice.

All product (physical material and service) transactions, from your supplier’s supplier
to your customer’s customer, including equipment, supplies, spare parts, bulk
product, software, etc.

All market interactions, from the understanding of aggregate demand to the
fulfillment of each order.
SCOR is used to describe, measure, and evaluate supply chains in support of strategic
planning and continuous improvement.
Specific metrics should be involved in order to successfully integrate all the aspects of
the supply chain: suppliers, warehouses, factories, distributors. Among these the company
should focus on: on-time delivery, order fulfillment lead time and fill rate from the reliability
perspective, supply chain response time for flexibility, the supply chain management cost
and the value added per employee with regard to expenses. Moreover the total inventory
days of supply, cash-to-cash cycle time and the net asset turns should be considered.
forecasts and sales data, information on inventory quantities, delays, breakdowns securing
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the timely flow of raw materials, products and services through the supply chain.
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The information exchange will be reciprocal – the new partners would share
Valplast – Vision 2013
Information has a time value therefore instead of each organization in the company’s supply
chain making its own forecasts of demand by sharing data on end-customer sales and
partner inventory on a real time basis each player will contribute to the synchronization
across the supply chain.
We proposed an action plan consisting of several steps in order to create an effective
supply chain: the company should establish specific objectives, e.g. integrate the intracompany activities and coordinate them with its suppliers and A1 customers (big
contractors).
One of the main benefits would be the reduced inventory cost for the company as the
supplier will agree to hold the inventory in exchange for a long term commitment from the
customer consequently decreasing the costs generated by continually finding new
customers, negotiating prices and services.
The partnerships the company should initiate both with its suppliers and customers
will positively impact all the major performance drivers – quality, cost, flexibility and both
inventory and information velocity. The long term strategic alliance with Valrom will enable
both companies to significantly increase manufacturing and supply chain efficiency while
maintaining high quality standards for products and services.
As Valrom shares many of the company’s values and commitment to high quality
manufacturing standards this alliance will generate powerful synergies related to
transportation, storage, distribution and marketing dimensions.
The companies would pursue collaborative procurement of common raw and packaging
materials and common operating supplies, as well as shared logistics to increase process
efficiency across the supply chain. By joining forces with Valrom on purchasing, distribution
and marketing the company will establish solid economies of scale and scope that would
increase the profitability of both companies. The proposed strategic alliance should be
managed by an executive operating committee comprising members from each company
namely Valplast and Valrom.
A special consideration should be given to the maximization of the velocity of
information transfer and minimization of response time. Instead of transferring costs and
setting up buffers the players in the supply chain should switch from an inward focus
towards a systems approach to both internal and external portions of their supply chains
and consistently optimize the performance of the overall value system.
This will cancel the ‘lumpy’, high-variability demand at the supplier level and relieve
orders to their suppliers – the lead time would decrease as ‘waiting’ for sufficient orders
and/or production to achieve a full load for shipment current practice will be avoided.
Valplast – Vision 2013
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forecasting information to suppliers would improve the timing of their production and
91
them from carrying large amounts of safety stock.As presented above, improved shared
The above tactics will decrease the variations and uncertainty at each player level in
the supply chain canceling the risks and costs associated with inventory buildups, bottleneck
delays, missed delivery dates and frustration and demotivation at the employees and
customers levels.
Following the implementation of both the partnerships and the strategic alliance the
company will be better able to match supply and demand and consequently achieve its
strategic goals.
With regard to the tactics needed for choosing the new supplier for geosynthetics
and regional suppliers for raw materials needed for pipes and fittings production we
proposed a specific vendor analysis – this should be based on a set of factors consistent with
the new strategy i.e. quality and quality assurance, reputation and financial stability,
flexibility, location and competitive price, lead times and on-time delivery. Similar cultures of
the supplier and the company are also critical for the success of the partnership.
The company should find suppliers with compatible quality management systems.
Milestone – ongoing from September 2009 The company should find suppliers with
compatible quality management systems. The proposed partnerships with suppliers will
secure the quick response and higher quality needed by the company to deliver the new
standards of ‘delighting’ the customer as described above. Mutual gains will be achieved by
the company and its suppliers in terms of lower inventories, lower costs, higher profits,
increased reliability, increased employee satisfaction and motivation – higher quality
operations.
The company should hire both a Procurement Manager and a Logistics Officer
responsible for all the components within the supply chain management.
We pursued a relative assessment of the two options available for transportation of
PVC raw materials and of imported finished goods – pipes, fittings and geosynthetics. The
direct transportation – own trucks was selected as opposed to outsourcing option. The risks
attached to the later are too large and cannot outweigh the potential gains. Among risks the
critical ones are related to product quality deterioration and time constraints.
Moreover due to high handling and quality control additional costs, the potential benefits
cannot prove the efficiency and performance of transportation outsourcing alternative. The
transportation of PVC raw materials via train although more cost efficient in monetary terms
was also excluded when contrasted with auto transportation due to the same reasons
distribution network centered on exclusive partnerships based on customer portfolio
protection as opposed to geographical exclusivity.
Valplast – Vision 2013
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The company’s key resellers will become representatives and will be part of the new
92
described above – high costs related to delivery time and quality control.
The new product lines will secure the expansion of company’s product portfolio as
this is one of the key success factors in the industry. The partnerships with both suppliers of
raw materials for pipes and suppliers of geosynthetics will be based on full cost structures’
transparency.
Partnerships based
on long term
commitment
A1 Proactive
Producers Raw Materials
Big
Contractors:
A1
A2 Reactive
Beneficiary –
State
Authorities
VALPLAST
Proactive
Producers –
Other
Products
Authorized
Representatives
Small
Contractors
Beneficiary –
Private
Retailers
Exclusive
partnerships based
on cost structure
transparency vs.
market entry ticket
SUPPLIERS
INDUSTRY
DISTRIBUTION
END-USERS
Project based
partnerships
A1 Proactive
Producers Raw Materials
Big
Contractors:
A1
A2 Reactive
Beneficiary –
State
Authorities
VALPLAST
Proactive
Producers –
Other
Products
Authorized
Representatives
Small
Contractors
Beneficiary –
Private
Retailers
INDUSTRY
Valplast – Vision 2013
DISTRIBUTION
END-USERS
Page
SUPPLIERS
93
Exclusive
partnerships based
on portfolio
exclusivity vs. target
Strategic Alliance
A1 Proactive
Producers Raw Materials
Big
Contractors:
A1
A2 Reactive
Beneficiary –
State
Authorities
VALPLAST
Proactive
Producers –
Other
Products
Authorized
Representatives
Small
Contractors
Beneficiary –
Private
Retailers
VALROM
SUPPLIERS
8.2.
INDUSTRY
DISTRIBUTION
END-USERS
Marketing
8.2.1. Marketing strategy and objectives
Divided on its four components, the marketing strategy will be:
Strategy
Competitive
Industry
Product/Mkt
Institutional
strategies
strategies
strategies
strategies
Cost
Defensive
Market
Organic
leadership
strategies
Penetration
growth
Differentiation
Offensive
strategies
Market
Alliances
Development
Joint ventures
Product
Development
M&A
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Focus
94
formulation
Valplast – Vision 2013
Diversification
Competitive advantage strategy – differentiation via specialization, by providing drainage
integrated solutions and consultancy services. We do not intend that Valplast dilute its
positioning by claiming the expertise in everything. In our opinion this would be a “stuck in
the middle” strategy. We think it is better to start from our current customers’ perceptions,
and based on this to develop a new positioning that will be credible.
Industry position strategy - follower, adopting an offensive strategy – encirclement attack
by product and services proliferation, and flanking attack in a market segment where most
of Valplast’s current competitors have no presence at all.
Product market strategy – in the Romanian market, following described stages: in the first
stage market penetration strategy – increase market share in PVC segment (milestone – end
2009), in the second stage product development strategy – entering the geosynthetics
segment and establish a solid position (milestone – end 2010), and market development at
regional level (milestone – end 2011).
Institutional strategy – organic growth and strategic alliances with suppliers and
contractors. The strategic alliances will be described later in this chapter in the Partnerships
section.
The ultimate strategy is to cross-sell the products (achieving economies of scope in
distribution, marketing and logistics) and embed them with consultancy and financing
services i.e. starting with existing clients in PVC segment and sell them both geosynthetics,
and later expanding towards geosynthetics market customers where Valplast can sell PVC
pipes and fittings too. All these together with the associated consultancy, both in bidding
process and for technical solutions.
We have to mention here that we took into
consideration the risk into expanding into new products / new markets. That is way we
considered a gradually expansion in both directions, assuming moderate risks, considering
the current economical context uncertainty.
Marketing objectives will be set based on the corporate objectives, for the period 20092013 for which the strategy is formulated. Although in the last years Valplast exhibited high
Page
the current economic crisis. Therefore we set the following objectives:
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turnover and profitability growth, the marketing objectives will have to take into account
Valplast – Vision 2013
Year
Product Range
2009
2010
2011
2012
2013
Turnover
PVC
18
23
19
36.5
38
(Mil Euros)
Geosyntetics
1
5
13
19.5
24
Total
19
28
42
56
62
Gross Profit %
Overall
10%
12%
14%
14%
14%
Market Share %
PVC
20%
23%
26%
30%
30 %
55%
55%
55%
55%
55%
1%
5%
10%
13%
15%
(Basic Line)
PVC
(Spring Line)
Geosynthetics

Partnerships
o Establish industry players association until mid. 2010
o Establish local authorized representatives partners in each Romanian county
until mid. 2010
o Establish partnerships with big contractors – 20 projects larger than 5 Mill
Euro in 2010, then increase partnership number with 20% every year
o Establish partnerships with external suppliers in geosynthetics materials for
every product category until Dec. 2009
8.2.2. Segmentation, targeting and positioning
Customer segmentation will be done according to the customer related terms i.e. customer
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96
types and customer needs.
Valplast – Vision 2013
Identifier Variables
Response Variables
(Who they are)
(What they want)
Size of customer – customers can be divided in:
Benefits Desired

Good price on an offer

big contractors

Long payment terms

small contractors

Reliability

large resellers

Status (Large resellers)

retailers
Application or Usage Situation

Use in infrastructure projects (contractors)
Final beneficiary – this industry is divided in two  Sell for a margin (resellers, retailers)
segments:
Sensitivity to Marketing Mix


State Authorities

Private Beneficiary
Geographical location
Best solution to minimize their spending on
materials (contractors)

Delivery services (contractors)

Price, promotions (resellers, retailers)

Long payment terms

cover all Romanian territory

Large product portfolio

external customers (exports)
Purchasing Behavior

Large volumes (contractors)

Internal bidding (contractors)

Regularly (resellers)

Price negotiations on volumes (resellers)

Low Brand loyalty

Channels used
All defined segments will be: homogeneous within, heterogeneous between, substantial,
and operational.
Targeting (national coverage):

Big contractors that work with state authorities in infrastructure projects – for this
segment we propose to adopt a proactive approach, with tactics to enlarge the
customer base, and both to enlarge the share of wallet for these customers. (approx.
Small contractors that work with private beneficiary – we propose a reactive approach,
i.e. to serve them as they ask, do not spend efforts towards this segment since it
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
97
60% of industry customers)
Valplast – Vision 2013
suffered dramatic decrease in current economic crisis (approx. 20% of industry
customers)

Resellers - for this segment we propose to adopt a proactive approach, to establish
strategic partnerships based on full disclosure and cost structure transparency (approx.
15% of industry customers)
Client segments targeted
15%
Big Contractors
Small Contractors
20%
65%
Ressellers
Exports strategy refers to increasing the exports value by expanding the international
reseller network beyond intra-group (Romstal) exports.
Positioning: according to the concept “own a word in customer’s mind”, Valplast intends to
associate itself with the drainage category in this industry.
8.2.3. Marketing research
Due to the fact that we intend to implement a long term strategy (2009-2013), we need to
perform marketing research to find the relevant factors and to validate them, in order to be
successful in our actions.
Having enough time to perform the research before the decision step

Missing data regarding the intention to expand the product portfolio and the offered
consultancy services

Strategic importance of the implementation decision
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
98
Marketing research is both needed and possible due to:

Benefits of the research are much higher than its costs.
A research plan was assembled, having the following objectives:

find the market trends, value and development forecasts

discover the rules of the game in this industry

find who are the relevant competitors in the industry, what are their strategies, their
strengths and weaknesses

find who are the customers, their buying habits, what do they buy, what do they
value

find and select suppliers for the intended product portfolio
Research budget will be incorporated in the total budgeted marketing expenditures. The
marketing research function will be the responsibility of the Competitive Intelligence Center
that is described bellow in chapter 8.3.
8.2.4. Marketing Mix – Product, Price, Place, Promotion
As we defined earlier three customers segments we intend to target, in this section we
describe a marketing mix (4P) for every targeted segment.
Contractors that work with State Authorities – proactive approach

Product – PVC and geosynthetics products, technical and bidding consultancy
services, financial support (co participation for bids eligibility and letter of
guarantee). Bids participation in alliance with Valrom (who offers PE&PP products).

Price – Cost transparency approach. Price will include all added value services,
overall solution price will be as competitive as before due to higher margins offered
by new products. Bundle price will be in the medium category.

Place – national coverage, direct selling.

Promotion – part of promotion budget is supported by suppliers. This customers
segment will require a proactive approach. As promotion tactics, will use: personal
selling, bundle and tie-in discounts (introductory offers), PR activities (outsourced),
students (Fac. Constructii, Arhitectura, Urbanism). Marketing materials: catalogs and
product samples, data-sheets, CE certification, experts’ testimonials, gadgets
Valplast – Vision 2013
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periodical: Revista Constructiilor), seminars with project designers (as influencers),
99
trade fairs and exhibitions (ex. ExpoConstruct fair in Bucharest), advertising (industry
(calendars, working clothing - overalls), work-shops, open-doors days, annual
meeting with big clients (social+networking+scientific), web site.
Contractors that work with Private Beneficiary – reactive approach

Product - PVC and geosynthetics products, technical consultancy. Alliance with
Valrom and share customers on PE&PP products.

Price – Cost transparency approach. Geographical pricing (price will vary with
distance), economy pricing.

Place - national coverage, direct selling.

Promotion - This customers segment will be approached in a reactive manner.
Minimal advertising of geosynthetics products towards this segment. Marketing
materials: catalogs, data-sheets, gadgets (calendars, working clothing - overalls), web
site.
Resellers which will become Authorized Representatives – proactive approach

Product – PVC and geosynthetics products

Price – Target sales based pricing

Place – National coverage, direct selling.

Promotion – Marketing materials: catalogs, data-sheets, gadgets (calendars, working
clothing - overals), sales trainings, web site, support, common advertising and
promotions to beneficiaries
8.2.5. New Corporate Identity
To sustain the major changes in the business model and the enlargement of product
and services portfolio, we propose a new corporate identity that will reposition Valplast in
the mind of its present customers, and will create awareness for the new targeted
customers. Due to the major impact that repositioning can have, it is critical to guide the
customers through the process with great attention and care.
The new company identity and position should be launched in a careful and methodical
Proposed budget for the creation of new corporate identity will be 5,000 euro. This
sum will be incorporated in the marketing & sales expenditures.
Valplast – Vision 2013
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prospects. In this respect we propose to outsource the creation of new corporate identity.
100
manner in order to avoid confusing old customers, while aiming to attract new business
Milestones:
Nov 2009
•New Corporate
Identity pitch
Jan 2010
•Start the
creation of new
corporate
identity
Aug 2010
•Finish new
corporate
identity project
As measures in line with the new corporate identity, Valplast should propose to its external
suppliers:

To supply Valplast products branded with new Valplast’s logo (private labeling)

To large international suppliers, that do not want /can not produce private labels,
propose to declare the products as: “exclusive line for Valplast” or “distributed only by
Valplast”
8.2.6. Marketing Communication
We recommend an integrated marketing communication campaign with the following
directions with regard to the target audience:
Large contractors – to create awareness of Valplast’s new competitive position, to
encourage trial of new product portfolio and to promote the activity of the integrated team
of consultants in technical and legal areas (to perceive Valplast as a co-participant, offering
integrated solutions in infrastructure projects).
Tactics: relationship marketing (one-to-one). Each customer will be addressed within the
business meetings by Valplast’s local sales representative. The customer will be presented
with the new Valplast strategy and the offered solutions and products with emphasis on
customer’s benefits.
Project designers – to create awareness of the new product portfolio in order to
audience presentations, sponsorships. (fairs, seminars, business & technical magazines,
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web site)
101
include these products in new projects. Marketing tactics: relationship marketing, large
Valplast – Vision 2013
Resellers - to create awareness of Valplast’s new product portfolio in order to include
these products in their lists, to encourage resellers’ enrolment in the partnership program,
by establishing their status as Authorized Representatives. Marketing tactics: relationship
marketing (one-to-one). Each selected reseller will be addressed within the business
meetings by Valplast’s local sales representative. The reseller will be presented with the
new Valplast strategy and the offered products and partnership program with emphasis on
mutual benefits.
Suppliers – to create awareness of Valplast’s new competitive positioning in order to
offer their products to be included in Valplast’s portfolio, to promote partnerships based on
cost structure transparency. Marketing tactics: relationship marketing (one-to-one). Each
selected supplier will be addressed within the business meetings by Valplast’s procurement
manager. The supplier will be presented with the new Valplast competitive positioning and
the intended product portfolio and partnership program with emphasis on mutual benefits.
Internal audience – Romstal Group and Valplast’s employees. This internal
communication campaign is needed to buy in the internal stakeholders, to join and make
possible to realize the intended strategy.
MarCom Tactics
The Three Levels of Positioning

T-C-B positioning model (Macro level).
Target customer-Category need-Key Benefit.
 T  brand-target customer link
 C  brand-category need link
 B  brand-key benefit link
The positioning statement can now be read:
To contractors and resellers, Valplast brand is the drainage expert that teams up for
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successful solutions.
Valplast – Vision 2013

IDU benefit analysis (Meso level).
Importance-delivery-uniqueness.
 Importance: Drainage hypermarket: partnership, financing, knowledge,
products.
 Delivery: Brand’s perceived ability to provide the benefit. Even until now
Valplast activated only in the PVC segment, the company created its
reputation as reliable, trustworthy and innovative. These are the bases
upon Valplast will build its new credible position as a drainage expert.
 Uniqueness: Valplast will deliver integrated solutions: products, financing,
knowledge
I-D-U Strategies
 Increase the brand’s perceived delivery on an important benefit. Until
now, Valplast was perceived as “PVC pipes and fittings producer” –
therefore a supplier. We intend to increase customers perception on
“Valplast as a partner”
 Increase the perceived importance of a benefit on which the brand
delivers uniquely. Our intention is to increase customers’ perception over
the financing benefit.
 Weaken a competitor’s perceived delivery on an important benefit. We
intend to weaken Teraplast position as “the largest PVC processer”, by
emphasizing our “expert” attribute.
 Add a new benefit which is important and on which the brand delivers
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solutions delivery for infrastructure projects.
103
uniquely. The unique benefit Valplast will offer is the integrated drainage
Valplast – Vision 2013
 Try to alter the choice rule to favour the brand. By this strategy we
intend to move the current focus on product prices towards solutions
delivery.

a-b-e benefit claim model (Micro level).
Attributes-benefits-emotions.
 The final, execution stage of positioning
 Benefit claims are used in positioning (rather than the benefits
themselves)
Term
Colloquial definition
Technical definition
Attribute
What the product has
Cutting edge technology
Benefit
What the buyer wants
Partnership, expertise, one-stop-shop
Emotion
What the buyer feels
Trust, Risk sharing “cousin” feeling
Motive
Why the buyer wants it
Reduce financial risk, solving eligibility and
financing
issues,
reduce
bidding
costs,
partnership
What Aspect(s) of the Benefits to Concentrate On at Micro Level
 Attribute focus
•
Expert target audience - to project designers, focus on the products
characteristics
•
Intangible service – to the buying process deciders – focus on partnership,
financing, consultancy services
 Benefit focus
•
Brand with hard to imitate benefit – to contractors, focus on integrate
solutions delivery
•
Brand choice based on negative motives. (e-  b) – to contractors, resellers,
focus on partnerships and risk sharing
contractors, technically showing the financing process, cost structure,
partnership benefits vs. their beliefs that the producer is only a distant entity
that handles huge cash flows and targets large profits.
Valplast – Vision 2013
104
Logical attack on entrenched emotion-based attitude. (a  b) – to
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•
 Emotion focus
•
Brand with easy to imitate benefits – associate Valplast brand with a trustful
partner, identified with the drainage category
•
Brand choice based on positive motives. (b  e+ or e+) - increase the
perceives benefits offered by Valplast: partnership, expertise, large product
portfolio
•
Emotional attack on entrenched attribute based attitude. (e -  b) – attack
the established attitude that only price matters in a project with the trust
feeling when partnering with Valplast
Positioning Statement
To contractors and resellers [the target customer, T], Valplast is the expert
[central/differentiated] brand of drainage for infrastructure projects [category need, C],
that offers partnership, integrative drainage solutions (key benefits, B) .
(T-C-B)
The advertising for Valplast brand:
 Should emphasize integrative drainage solutions [the benefits uniquely delivered]
with an partnership benefit [attributes, benefits or emotions] focus
(I-D-U)
 Must mention partnership, technical and bids expertise, financing, products [the
important benefits];
(a-b-e)
 And will omit or trade off price [inferior-delivery benefits].
Depending on the Product Life Cycle stage, different levels of advertising communications
and promotions are necssary. (See table below)
PCL Stage
Introduction
105
Maturity
Decline
Promotions
high
low
high
low
high
low(trade)
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Growth
Leader (or differentiated)
Me Too Product
High Brand Loyalty
Low Brand Loyalty
Advertising
Communication
high
high
low
high
low
none
Valplast – Vision 2013
In the PVC segment, where the products are in a maturity stage, and the customers exhibit
low brand loyalty, it is advised that Valplast spend less money in advertising, but to increase
the promotions activities. In the geosynthetics segment, which in Romania is in introductory
stage, it is advised that Valplast spend large amounts of money, both in advertising and
promotions activities.
To calibrate the advertising campaign, we applied the Schroer’s Method described in the
table below:
Largest Competitor (LC) in local market
Our Brand’s SOM in Low SOV/SOM (<1.0)
High SOV/SOM (>1.0)
local market
Follower
Attack – with a large SOV premium, Follow niche strategy – retreat and
approx. twice that of the LC, and focus, reduce spending
sustain it for a year+
(Case of Valplast in Geosynthetics (Case of Valplast in PVC segment)
segment)
Leader
Maintain – set our SOV/SOM at 1.0
Follow defensive strategy – increase
spending to match that of the LC
(largest competitor)
SOV – share of voice (% of total adverting spending)
SOM – share of market (market share)
Therefore, in the PVC segment, where Teraplast the largest competitor has an
intensive communication on all relevant channels (direct marketing, industry periodicals,
business periodicals, etc), having supra-unitary report Share of Voice / Share of Market, we
will advise Valplast not to spend large amounts of money on advertising.
However, in Geosynthetics segment, where the largest competitor Rehau does not have an
aggressive advertising campaign, it is recommended that Valplast will engage an aggressive
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106
advertising campaign, to create awareness in this segment.
Valplast – Vision 2013
8.2.7. Partnerships
By offering these partnerships to Valplast’s business associates (suppliers,
competitors, customers – contractors and resellers), we intend to change the rules of the
game in the industry (create a “disruptive process”) that will offer the needed advantage to
bypass the economic crisis and achieve the corporate objectives.
We propose Valplast to be the initiator of a new industry association: ARFI (Asociatia
Romana a Furnizorilor din Infrastructura) – Association of Romanian Infrastructure
Suppliers. Milestones: Mid. 2010 - creation of ARFI; Oct. 2010 - 70% of industry players
enrolled
Objectives:

decrease rivalry

decrease suppliers power

decrease buyers power

raise entry barriers
How the association can accomplish its objectives:

Protect members’ interests (setting best practices for different processes in industry,
lobby to authorities, involvement in higher EU funds absorption, arbitration, PR),
VAT compensations, other financial compensations with authorities and other third
parties

Negotiate with suppliers better prices, that will be pro-rata distributed between
associations’ members

Protect members against bad debt clients - delays in paid outs (industry list of bad
clients),

Raise entry barriers for external competitors (partnership with government to
encourage local production and consumption in order to restart Romanian economy,
involve in social and environmental projects )
As result of our recommendation to Valplast’s general manager, discussions with other
industry players have already started in this direction. Since all players suffer from the cash
flow problems due to increased Days Receivables, the first action was to establish a
common list of customers that have large overdue debts, in order to prohibit sales towards
these customers until they will pay the debts.
discussions, large resellers across the country agreed with the idea of strategic partnerships,
based on their regional customer portfolio protection. In exchange of this it was agreed that
Valplast – Vision 2013
Page
satisfaction survey Valplast performed at the beginning of 2009. In this survey, during open
107
Another type of partnership we propose is based on the results of the customers’
sales targets should be imposed. Another pillar of this partnership will be the integration of
value chains, based on full transparency on cost structure of the partners.
Consequently, the company’s key resellers will become Authorized Representatives and will
be part of the new distribution network centered on exclusive partnerships based on
customer portfolio as opposed to geographical exclusivity.
Milestone: until mid. 2010 Valplast will have an Authorized Representative Reseller in each
county.
Regarding external suppliers for geosynthetics materials, we propose the same
partnership approach as opposed to the traditional supplier-buyer relationship. Based on a
cost structure transparency, these partnerships will add value both to the external suppliers
(giving them the opportunity to sell their products in Romanian market), and to Valplast
(giving the opportunity to expand into a new market segment).
Milestone: until Dec..2009 Valplast will have partnerships with external suppliers for every
product line in geosynthetics segment.
Partnerships with large contractors is another direction we propose to Valplast.
Since now, Valplast (and the other players as well) accepted in contracts long payment
terms, with delays. Moreover in many contracts the price was fixed for long periods of time,
Valplast supporting the exchange rate and raw materials process fluctuations. These issues
were done until now, as being ‘rules of the game’. We propose to take the initiative and
formalize these rules, as financing services, because otherwise, a financial blockage will
intervene in the supplier-buyer relationship, as it is now. The contractors must understand
that a long payment term, plus the usual delays means nothing else that financing,
therefore he must share the costs.
Valplast has also a new proposal to contractors, regarding participation in bids for
large infrastructure projects. Due to requirements for bids registering, a contractor that
doesn’t have a certain turnover cannot participate. Moreover, the contractor’s bank has to
secure a letter of guarantee in favor of the beneficiary. Usually, the contractors are in not so
good financial positions to secure themselves all guarantee letters, being involved in
multiple projects. In this respect, co-participating with a contractor in a consortium at a bid,
Valplast can offer two things: eligibility (the established consortium having the necessary
turnover) and finance for the letter of guarantee. In exchange of these, contractor will
support the financial costs, and will procure all necessary plastic materials from Valplast.
A special attention should be directed towards the proposed strategic alliance with
Remember that Valrom is the owner of 50% shares in Valplast, and that both companies are
part of Romstal Group. But until now, due to owner’s preferences (Enrico Perini), the
Valplast – Vision 2013
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were conflicts when both Valplast and Valrom have made offers to same customers.
108
Valrom. Until now, relations with Valrom were limited, not to say that occasionally there
companies acted separately on the market, not benefiting from the synergies created by
being members in Romstal Group, the largest retailer for pipes, fittings and installations
equipments in Romania.
8.3. Competitive Intelligence Center
Competitive Intelligence can be defined as being the ethical, legal and systematic
process to collect, filter, analyze and evaluate the actionable information, in order to secure
the competitive advantage, to capitalize on the opportunities and avoid surprises in the
market.
Until now Valplast adopted a reactive position towards the movement in the market.
This tactic was sufficient in the context of high economic growth, when the demand
exceeded supply in PVC segment, but now the environment has changed. Working in a
highly competitive environment, Valplast cannot afford anymore to stay isolated, not
knowing what competitors are doing, and reacting, maybe to late, to their moves.
We recommend creating an internal department that will be responsible with the
environment monitoring that will analyze gathered data from various sources, will present
to top management the findings in a manner that will help them to take the best decisions.
Along with permanent, cyclical monitoring of macro-environmental factors, competitors
profiling is required as a tool that allows a better:




identification of future competitors’ strategies
predictability of competitors’ reactions to Valplast’s initiatives
assessment of the fit between competitors’ strategies and their capabilities
understanding of competitors’ weaknesses
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109
The categories and types of information we propose to be collected are described in the
table below:
Valplast – Vision 2013
Products/Services
No. of products/services
Diversity or breadth of product
lines
Quality, embedded customer value
Projected new products/services
Current market shares by product
and product line
Projected market shares
Marketing
Segmentation strategies
Branding and Image
Probable growth vectors
Advertising/promotions
Market research capability
Customer service emphasis
4P parameters – product, price,
promotion, place
Key customers
Human Resources
Operations
Management Profiles
Quality and skill of personnel
Manufacturing capacity
Personality
Turnover rates
Ability to mass customize
Background
Labor cost
Cycle time, manufacturing agility Motivations, aspirations
Level of training
and flexibility
Style
Flexibility
TQM implementation
Past successes and failures
Union relations
Overhead costs
Depth of managerial talent
Lean production methods
Sociopolitical
Technology
Organizational structure
Government contacts
Process technology
Nature of hierarchy
Stakeholder reputation
R&D expertise
Team building
Breadth and depth of portfolio of Proprietary technology, patents, Cross functionality
sociopolitical assets
copyrights
Major ownership
Public affairs experience
Information and communication Cultural alignment
Nature of governments contacts
infrastructure
Connections of board members
Ability internally innovate
Issue and crisis management Access to outside expertise
capacity
through licensing, alliances, JVs
CI Capacity
Strategy
Customer Value analysis
Evidence of formal CI
Positioning
Quality attributes
Reporting relationships
Future plans
Service attributes
Profile
Mission and vision
Customer goals and motivations
CEO and top management level of Goals, objectives
Customer types and numbers
support
Corporate portfolio
Net worth (benefits minus costs)
Vulnerability
Synergies
of ownership
Integration
Resources/capabilities
Data gathering and analysis assets
Core competencies
Strengths and weaknesses
Financial
Financial statements
Securities filings
Absolute/comparative ratio analysis
Disaggregated ratio analysis
Cash flow analysis
Sustainable growth rate
Stock performance
Costs
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110
Background information
Name
Location
Short description
History
Key events
Major transactions
Ownership structure
Valplast – Vision 2013
This information can be collected form the following sources:
Inside company sources (usually more than 80% Contacts in the market
of information are already available inside, it is only a

Clients
matter of formalizing the collection process)

Meetings, seminaries

Distributors

Suppliers

Industry associations

Consultants

Retailers

Competitors’ employees

Advertising agencies

Own sales force

Marketing research

Competitors’ product analysis

Former competitors’
employee

Purchasing department
Published information
Other sources

Industry periodicals

Competitors’

promotional
Investment / financial
analyses
materials

Databases

Financial reports

Social networks

Managers’ press conferences

Various internet sites

Business periodicals

Commercial banks

National newspapers

Local
newspapers
competitor
has
(where
facilities,
offices, etc.)

Directories

Governmental publications
The sources must be always verified; if possible same information should be
collected from multiple independent sources. Unverified information can be used, but they
should be treated as assumptions, with a high uncertainty grade, this information
technical skills (business analyst), and one with extensive market knowledge (business
developer). This department will be directly subordinated to general manager, emphasizing
Valplast – Vision 2013
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Competitive Intelligence department will start with two employees, one with extensive
111
completing the big picture of competitive environment.
its importance. General Manager will offer his full support to this department, as
competitive intelligence is one of key tools he will use in strategic decisions.
8.4. Sales Plan
In creating the 2009 – 2013 Valplast sales plan we have considered the two main lines of
business that we shall focus on: PVC and Geosyntethics materials, 2009 being a
representative moment for Valplast business model – adding new product portfolio, new
segmentation and targeting of clients. In order to match this new working model a territory
and target analysis has to be concluded for salesperson or team in order to develop an
efficient sales structure.
The following sales and marketing budget is configured to support sales turnover in 2010.
Marketing & Sales Support
Congresses & Symposiums
2010 Budget
(Q1-Q4, Mil Euro)
15000
Radio & TV & Web Media Advertising
4000
Magazine & newspaper
3000
Other media advertising
Gifts and Giveaways
Sponsorships
Donations
2000
5000
0
0
Promotional materials (leaflets, booklets)
Monitoring services
Corporate Identity project
PR services
9000
2000
5000
5000
Total
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In order to achieve full efficiency of the sales team – Sales Representatives and Key
Account Managers sales trainings, sales support and materials will be added and thus
increase the conversion rate of calls into sales. Also the sales call must embrace a new
structure and has to become a more proactive than reactive visit based on SMART
objectives settings. We consider a 8 sales call / day minimum activity target based on a
client segmentation (A-B-C levels) using a sales turnover indicator.
112
50000
Valplast – Vision 2013
Therefore client A type must be visited by the SR / KAM with a frequency of 2 calls /
month, client B type – 1 call / month and client C type 1 call / 1 ½ months. Client
classification has to consider exactly individual sales forecasts and be closely followed in
order to permit adjustments in case of underperformance. Such a measure can generate
improvement of sales and profit margin for the product portfolio.
Presales department configuration is the following: Bidding Manager – responsible
for partnerships selection, in order to valorize infrastructure opportunities in the market,
guarantee letters and offers / contracts development, overall project management; Legal
Advisor – responsible for consortium configuration, adapting legal work to the Romanian
legislation, eligibility criteria analysis for projects, Technical Advisor – responsible for
comparative analysis between specific project requests, tasks and feasibility measures to
company offer, technical details for the projects, product recommendation, technical
solution assembly.
The sales plan will start with setting our strategic objectives meaning adopting the
new product portfolio (Geosynthetics) and also considering the important sales values that
can be attained from EU funded infrastructure projects. Considering this business
opportunity and future growth trends of the market Valplast has decided to adapt the
product portfolio and import them.
Sales turnover of 2008 have reached 26 Mil Euro, meaning a 13 % increase since
2007 for the PVC product portfolio. The mentioned sales value has been achieved with 250
clients, average income per client being 104,000 Euro and supported by two main actions
enlarging the sales force at national level and expanding the production capacity with two
more production lines besides initial four ones. Due to economical context of 2009 and its
major impact on construction and infrastructure private businesses there is a negative
impact on the level of sales for 2009. The overall sales turnover for 2009 is 19 Mil Euro
(including sales from the two main lines of business). A decline of sales for the PVC segment
(-11 %) has been noticed and purchase level in the foreseeable future will be also low for
traditional clients. Entering a new customer, more stable and safe market – big
infrastructure state owned projects will govern sales turnover for 2009-2013. Spectacular
increases can be estimated for this new market and product portfolio for 2010 especially
considered as a interfering factor – this industry sales seasonality has been observed as
follows: Q1 – low sales volumes, Q2-Q3 - high sales volumes, Q4 –moderate sales volumes.
Valplast – Vision 2013
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Progressive increases are estimated for this period and also seasonality has been
113
(518% increase from a 0.85 Mil Euro in 2009 for the Geosyntethics market).
Valplast – Vision 2013
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In the following charts we presented Valplast sales forecast and sales trends – centralized
version for 2009 – 2013:
114
Below we depicted market growth tendencies for 2009 – 2013:
115
Page
Valplast – Vision 2013
Valplast is launching a new range of geosyntethics products and sales will be low this year,
reaching only 0.85 Mil Euro equaling only September – December sales for that specific
portfolio.
Our established products will enjoy steady sales but have little growth potential due to the
economical context of 2009. A risk of declining sales is faced because of a competitor's
superior product. Selling more products to existing customer is not an option due to
blockages in the construction industry; the focus should be on attracting new customers.
Please find below a detailed sales forecast and quarterly variations:
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116
As seen below Valplast turnover over the 2009 – 2013 shall follow market tendency.
Valplast – Vision 2013
8.5. Organizational
The new organizational structure must clearly determine the roles, power and
responsibilities that are shared by the organization members and also the information flows
between management layers. A long term view regarding decision making processes within
Valplast may be decentralization of the process and that power is distributed - departments
and divisions have varying degrees of autonomy.
In order to match the new business objectives and MVV Valplast organization has to
grow organically and integrate new basic functions as Human Resources, Marketing
Specialist, Logistic Officer, Legal Representative. The new organizational structure, therefore
adding new roles and responsibilities, must be considered in order to align and to be
consistent with the new strategic objectives. Main issues to reconsider, from an
organizational point of view, in the first step of reconfiguration of the business are
departmentalization, work specialization, chain of commands, span of control and
centralization. The new recommended organizational structure includes the following new
roles and responsibilities as a MUST:
Position Name
Department
Main Role & Responsibilities
Configuration
HR Manager
Human
strategic personnel planning
Resources
compensation and benefits planning
identifying requirements for placements, recruitment, training,
professional development of employees
Implementation of personnel policies within an organization.
continuous advisory for employees
manages compensation and benefits programs
creates programs to meet career development needs
recruitment, screening, interviewing, selection, and placement activities
Procurement
Procurement
Manager
ensures best overall value in purchasing various goods and services
works across the organization to ensure the purchasing standards are always met
supervises and operates with the purchasing systems, assure data integrity and
maintenance of the appropriate documentation
leads different sourcing projects
performs contract management (ensure contractual terms are met, including service
level respect, ensure contract renewal, etc.)
Logistic &
responsible for long-term budget planning and preparation of particular budget.
Officer
Administrative
selects, develops and implements cost effective, safe and timely logistical solutions.
co-ordinate shipping requests and resources
ensures running of one /more warehouses
supervises order system
Valplast – Vision 2013
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Logistic
117
performs supplier management
co-ordinates different types of transportation in relation to interdependent systems
organizes and supervises stock control and inventory count
manages, organizes and supervises car fleet area.
Finance Director
Finance &
responsible for managing the company's finances.
Accounting
develops or revises financial systems to meet the needs of the organization.
advises top management on financial resources and of operation costs
recommendation for improving cost control, property management, credit and collection,
tax reduction.
communicates with the appropriate audit, tax and accounting authorities.
participates on negotiations regarding budgets and financial planning.
Sales & Marketing
Business
develops and implements the sales strategy in compliance with corporate policy.
Manager
Management
formulates the business plan in volumes, turnovers, sales budgets
organizes activities within the business units or product lines and within geographic areas.
decides on variations in pricing, payments and other conditions.
represents the company and maintains a high level of contact with important clients
develops the marketing strategy in compliance with corporate policy.
managers
directs the marketing activities within the Business units or product lines and within
geographic areas
directs research of market conditions in local, regional or national areas to determine
identifies
major
competitors,
potential
customers,
trends,
and
developmental
opportunities.
Business
Business
draws conclusions and interprets final results to appropriate department within the
Developer
Development
company.
gives presentations, prepares final reports and makes recommendations – actionable
information
is responsible for collecting of specific information (finding out the best source of
information, ensuring regular gathering of this information, systematic archiving of this
information and regular distribution of this information within the company).
takes part in marketing department strategy development
Business Analyst
Business
help shape the decisions that are made through quantifying the expectations of customer
Development
behavior / resulting profitability
performing analyses to support prospect targeting of marketing campaigns
perform targeting/segmentation on prospect files for each marketing campaign
perform analysis on competitors and market oppotunities
perform analyses utilizing the customer and prospect databases to determine the impact
of marketing strategies on customer behavior and profitability.
communicate to senior management the insights gained through data analysis
Marketing
prepares, organizes and participates in company presentations, seminars, fairs, tours,
exhibitions and product-oriented programs.
prepares and distributes marketing materials, information sheets and leaflets for
customers and other departments within the company.
examines and analyses statistical data to forecast future marketing trends
gathers data on competitors and analyses prices, sales, and methods of marketing and
Valplast – Vision 2013
118
Specialist
Page
Marketing
distribution
co-operates with marketing and PR agencies
IT&C, PR, accounting and payroll functions are to be outsourced as a result of internal
resources allocation versus financial efficiency requirements. The new Organization Chart –
management level is depicted below, full version of the Organization Chart is presented in
Appendix.
General
Manager
Sales &
Marketing
Manager
Sales Manager
Financial
Manager
Finance
Coordinator
Production
Manager
Quality &
Control
Manager
HR Manager
Procurement
Manager
Warehouse
Responsible
Department 1
Head
Business
Developer
Department 2
Presales &
Aftersales
Department 3
Head
Head
Marketing
Specialist
Channel
Manager
Collection
Officer
According to the new sales objectives and business model (customer segmentation
focus) a new structure in the Sales / Commercial department is more suitable. Therefore we
recommend a middle management layer of Sales Manager, coordinated by the National
Sales & Marketing Manager. The role of the Sales Manager will to develop and oversee sales
business methods to be applied and also to new business functions required: pre-sales step
(Bidding Manager, Legal Advisor, and Technical Advisor), debts collection (Collection
Officer).
Valplast – Vision 2013
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coordination and control. The new sales division segmentation refers to client typology and
119
and business strategies for the specific product line and targeted clients through sales force
Sales Force Effectiveness measures have to be implemented in order to support the
selling process within Valplast, functions as contact management, note and information
sharing, quick proposal and presentation generation, product configurations may enhance
sales. Key Performance Indicators configuration and control might indicate whether the
sales process is being operated effectively and achieves the results from the in sales plan.
This tool can enable the sales managers to take timely corrective or rewarding actions.
Performance and reward management is a key part of ensuring business goals
attainment within an organization. Balancing internal equity, competences related payment
and external equity a mandatory measure is to develop a performance based payment and
benefits system. Linking business goals to individual targets (e.g.: production / sales targets)
through quantitative and qualitative objectives to be accomplished would determine a more
productive setting. A key element in developing this new performance system within
Valplast is identifying the essential aspect that determines effective job performance for
each category of positions.
General Valplast performance review should include for each employee contributing
to business results the following objectives:
Quantitative
•General Business Results
•Individual Target Achievment
•Valplast Basic Competences matching
Qualitative
•Job related performance ratings within a 360* system
360 * review
Performance diagnosis and feedback are to be aiming a performance improvement for the
communication has to become a general attitude within the company not only as a part of
Valplast – Vision 2013
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continued with developing action plans and solutions. Performance focused attitude and
120
next evaluation period. Identifying the main obstacles in determining results are to be
the performance management evaluation period, but also as a general guide downloaded
from the top management to the execution level.
Career path and developmental opportunities within the organization for key positions have
to be associated with the performance management system in order to support a
constructive approach.
Performance
Planning
job accountabilities and KPI
developmental plan
Review
Formal review
job accountabilities& behaviors
overall rating
development plans
Coaching
periodic review of progress
modify accountabilities,
measures &development plans
Employee development system, low ranked within Valplast as shown previously
(started in the 1st semester of 2009) has to be continued. A practical proposal is to have a
department training needs assessment in order to best configure a developmental plan for
management, key contributors and basic execution positions. A clear fact, before accessing
the results of this assessment, is that a better structured induction and periodic technical
program is needed – basic technical product knowledge missing at the sales force team
level. Basic recommendations for developmental opportunities must include: technical
skills, communication skills, management skills, leadership skills, each session being adapted
specific measures can be taken: adapting pay plans to the labor market quotations, job
Valplast – Vision 2013
Page
Considering more motivational aspects in regard to human resources of organization
121
to the Trainees experience and expertise for each developmental area.
redesign opportunities through enlargement and enrichment for talent retention situation,
variable pay programs, and flexible benefits package.
Benchmarking incomes and benefits is a must in order to downsize the turnover rate
within the organization (as previously shown in the Organizational Internal Analysis). Basic
recommendations for compensation and benefits plans are included below (source
Romanian Salary Survey 2008):
Position Level
Position Name
Monthly
Other Benefits
Income
(net income, Euro)
General
General Director
Management
Executive
Sales & Marketing
Management
Manager
Finance Manager
Production
Manager
Middle
1400-1500
Company car, mobile phone, insurance package – medical, life,
periodic bonus scheme vs. target
Company car, mobile phone, insurance package – medical, life
Mobile phone, insurance package – medical, life, lunch tickets;
periodic bonus scheme vs. target
Mobile phone, insurance package – medical, life, lunch tickets;
HR Manager
1400
Company car, mobile phone, insurance package – medical, life
Sales Manager
(production)
Sales
Representative
Business Developer
Inteligence
Business Analyst
Marketing
2000
other annual benefits – profit plan sharing
1000 - 1100
Department Head
Competitive
2300-2500
Company car, mobile phone, insurance package – medical, life,
Quality Manager
Management
Sales Force
3000 - 3200
Marketing
specialist
1200
800
550 - 800
1500
1500
800
Company car, mobile phone, notebook, periodic bonus scheme
vs. target;
Mobile phone, insurance package – medical, life, lunch tickets;
periodic bonus scheme vs. target
Company car, mobile phone, notebook, periodic bonus scheme
vs. target
Company car, mobile phone, notebook, periodic bonus scheme
vs. target
Periodic bonus scheme vs. target, lunch tickets
Mobile phone, periodic bonus scheme vs. target, lunch tickets
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122
Proposed timelines – medium term and process map for organizational measures
implementation is depicted below:
Valplast – Vision 2013
Organizational
redisgn
Recruitment processes
Q4 2009
Q3-2009
Assesment Centers &
Developmental
Program Configuration
Compensation &
Benefits plan
Q1 - 2010
Q1 2010
Induction
Programs
Q4 2009- Q1 2010
Performance Mg,
System
Implementation Q2
2010
Human resource management key functions development – long term must include also:
Promotions/Transfer management, Industrial and Employee Relations, Personal data
management system, Compensation, pensions, bonuses etc in liaison with Payroll, Support
system to internal 'customers' in relation to problems at work, Career development,
Competency Mapping, Employer Branding Strategies.
8.6. Financial
8.6.1. Cost structure - Cristina, de adaugat cifre
The following diagnosis points were identified during cost structure analysis performed in
chapter 4.3 in the financial analysis section.

All indirect costs are allocated on a single cost driver which is raw material
consumption (cost smoothing).

Products use different quantities of resources (e.g. pipes need more raw
materials then fittings, fittings need more work-hours)

Competitors offer an equivalent product at significantly higher or lower prices

Classic products with well established production lines and know how show little
profitability (e.g. pipes), while new products for which there is little expertise
seem highly profitable (e.g. fittings).
variable cost have almost 80% weight in total cost of operation the rest is fixed
cost.

Teraplast structure of costs contains 96% variable costs and 4% fixed costs.
Valplast – Vision 2013
123
Splitting the cost in fixed and variable in the first quarter the observation is: the
Page

Currently, Valplast does not follow profitability on product-line basis. Although there
was an initiative to do so in 2007, this was abandoned and left Valplast clueless regarding
which are the stars and the dogs in their portfolio. With the new strategy to develop the
product portfolio, this had become increasingly important and is mandatory to be followed.
Therefore we proposed Valplast an analytical P&L that splits costs and revenues on product
lines.
Additionaly, we proposed ABC costing, with the desiderate to allocate directly as
many costs as economically feasible, and allocating uniform batches of indirect costs on cost
drivers that have a direct causal effect with the incurred costs.
8.6.2. ABC costing – Production
Why ABC costing?

The industry has fierce competition based on price and overcapacity – therefore it is
increasingly important to analysis cost structure in detail. Even differences smaller
than 1% can make a difference in this industry

ABC’s desiderate is to have as many costs as possible as direct costs, if economically
feasible (e.g. resources spent to measure and allocate directly do not exceed the
benefits). In Valplast, large pools of costs such as direct labor, maintenance and
power costs can qualify as direct costs.

Indirect costs are splitted into homogeneous batches, based on the activity
performed
o Valplast activities had been identified as below:
o Indirect costs had been splitted in batches based on activities, having strong
cause-and-effect relationship with their cost driver.
o General administration costs and sales costs are allocated based on total
production costs. It is usually difficult to find good cause-and-effect
relationships between these costs and a cost-allocation base. In Valplast case,
management set prices based on total costs of the products. Therefore we
recommend that, for managerial purposes, instead of deducing these costs
directly from the operating income, these costs should be allocated entirely
to products.
products look better than they really are
124
The aim is to eliminate Product cost cross-subsidization that makes now some
Page

Valplast – Vision 2013

This will further eliminate the risk to sell under costs believing that the deal is
profitable (Product undercosting) or having prices that are not competitive by
believing products cost more than they really do (Product overcosting).
The exhibit below compares the two alternative systems:
Single indirect cost
pool allocated using
raw
materials
consumption
ABC System
Fittings
Direct raw materials
Direct raw materials
Direct
manufacturing
labour
Direct maintenance
labour
Direct power costs
Machine setup costs
allocated on setuphours
Direct
manufacturing
labour
Direct maintenance
labour
Direct power costs
Machine setup costs
allocated on setuphours
Machine
depreciation
allocated
machine hours
Machine
depreciation
allocated
machine hours
on
Rationale for cost driver
on
Mold depreciation
allocated on number
of pieces
Stacking
costs
allocated on cube
meters
Stacking
costs
allocated on cube
meters
Transport
Transport
Valplast – Vision 2013
costs
costs
There is no connection
between setup labor and raw
materials consumption. But
setup hours and setup labor
have a direct cause-andeffect relation.
There
is
an
indirect
connection
between
depreciation
and
raw
materials consumption. But
machine
hours
and
depreciation have a direct
cause-and-effect relation.
There
is
an
indirect
connection
between
depreciation of molds and
raw materials consumption.
Molds are build for a certain
number
of
injections,
therefore there is a direct
connection between mold
depreciation and the number
of fittings.
There is a loose connection
between stacking and raw
materials consumption. But
volume and stacking costs
have a direct cause-andeffect relation.
There is an loose connection
125
Indirect
cost pool
ABC System
PVC Pipes
Page
Direct
costs
Existing
single
Indirect Cost Pool
Sistem
Direct raw materials
(landed cost)
allocated on formula
based
on
cube
meters and weight.
allocated on formula
based
on
cube
meters and weight.
General
and
administrative costs
allocated
on
production costs
Sales costs allocated
on production costs
General
and
administrative costs
allocated
on
production costs
Sales costs allocated
on production costs
between transport and raw
materials consumption. But
volume, weight and transport
costs have a direct causeand-effect relation.
for managerial purposes,
instead of deducing these
costs directly from the
operating income, these
costs should be allocated
entirely to products.
The proposed timeframe for implementing ABC is from October 2009 to December 2009
(3 months).
8.6.3. Client Profitability Analysis (CPA)
Currently, VPL does not know which client is the most profitable and which is a
burden for the business. Current customer segmentation is presented in chapter 4.2
External Analysis and there is a general intuition among the management that small
customers are more profitable then the big ones per unit sold. However, due to the way
costs are measured, it is possible for the sales costs of addressing such customers to be high
enough to erode this perceived profitability. In order for CPA to be possible, Valplast should
keep the ABC structure proposed above but measure shipment and sales effort and
expenses on client basis.
The exhibit below shows the proposed model of CPA.
Valplast – Vision 2013
(trips,
C
D
126
Revenues at list prices
Commercial discount
Net revenue
COGS
Gross Margin
Client’s Related Expenses
Transport
Sales Labour
Sales
Expenses
B
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Client
A
protocol)
General expenses allocated on
COGS
The proposed timeframe for implementing ABC is January 2010 (1 months).
8.6.4. Credit and Collections
Based on CPA, clients should be placed in profit/volume buckets: Strategic, Important,
Opportunistic, Others. In addition, Valplast should analyze which clients pay in time and
which do not. Sales people should focus on Strategic and Important clients, and one
Collection Officer should handle the clients with bad debts.
Based on this analysis they should allocate a credit threshold for Strategic and Important
clients based on equity, assets free of mortgage and turnover.
The proposed timeframe for implementing ABC is February 2010 (1 month).
8.6.5. Hedging for the exchange rate using option calls
Due to increasing suppliers’ power (Oltchim is the only producer of PVC suspension
in the Romanian market), Valplast starting importing raw materials. Therefore the risk of the
exchange rate becomes increasingly important. In 2008, the expenses due to exchange rate
fluctuations were over 4 million lei.
Our approach was to study the available options to diminish this risk through
hedging on the foreign exchange rate. In Romania the only options trading exchange is Sibiu
Monetary Financial and Commodities Exchange (SMFCE), these products being introduced in
1998.
The options on futures
contracts that are traded at SMFCE give investors new trading
possibilities, insuring the means of an improved and more efficient portfolio
management. Sibiu Monetary Financial and Commodities Exchange offers investors
options on futures with 19 different shares traded on BVB, as underlying assets and
also currencies (RON/EUR, RON/USD, EUR/USD), interest rate (BUBOR3) and indexes
The investors could to protect themselves by purchasing 100 call options contracts with a
127
maturity in December 2009, the exercise price of 4.3400 lei (from www.sibex.ro) with a first
Page
(SIBEX9 and SIBEX18).
In early August 2009, the interbank market rate applies RON / EUR was 4.2143 lei.
Valplast – Vision 2013
of 0.080 lei (80 lei / contract). To purchase call options contracts, the investor will pay the
equivalent of first 80x100 = 8000 lei, without the necessity of filing additional margin. At
maturity, on the third Friday of December, the positions on the derivative financial
instruments will be liquidated at the NBR sent in the day, will take place on the cash
transaction. In light of changing course to highlight the following cases:
Variant 1 - The RON / EUR at maturity higher - 4.5600 lei / euro
- Protected against a currency at maturity greater than 4.3400 lei
- At maturity, the investor's margin of profit will be worth (4.5600 lei lei-4.3400-0.080) x1000x100 = 14,000 lei
Final Exchange: 4.3400 +0.080 = 4.4200 lei / euro
Variant 2: The RON / EUR at maturity less - 3.9300 lei / euro
This is below the exercise price, so in addition to money, and leaves are lost first
- At maturity, the investor's margin will reflect the premium paid due to loss of the seller
- Lei 0.080x1000x100 = -8000
Final Exchange: 3.9300 + 0.080 = 4.0100 lei / euro
Variant 3: The RON / EUR stable - 4.3600 lei / euro
- Euro price is higher than the price of exercising the option and will recover part of the premium paid
Page
Final Exchange: 4.3400 + 0.080 = 4.4200 lei / euro
128
- At maturity, the investor's margin will be a loss in value (4.3600 lei-4.3400-0.0800) = -0.06 lei x1000x100 = -6000
lei
Valplast – Vision 2013
Through options contracts, regardless of how it would assess the euro, the maximum
price is locked at 4.4200 lei / euro, following as if it is below 4.3400 lei option to be
abandoned, the only loss suffered by the investor being the first option the seller originally
paid.
The main advantage of the hedging transaction is relatively small in amount
immobilized to block the exchange rate fixed at approximately 2% of the amount of 100,000
euro, and that the investor has set the maximum rate at which the payment at the end of
December 2009.
The proposed timeframe for implementing Hedging, since consultancy activities started in
June is September 2009 (4 months).
8.6.6. Financing options
Valplast financed the current needs through lines of credit, summing in June 2009
almost 17.7 mil lei. The month average sales turnover in 2009 is 5.02 mil lei and looking at
the cash conversion cycle indicator in the same period (83 days) we can conclude that this
way of financing is covering the actual needs, but is over financed. Line of credit loan is
designed to provide short term funds to a company in order to maintain a positive cash
flow. Then, as funds are generated later in the business cycle, the loan is repaid.
Most commercial banks offer a revolving line of credit, where a fixed amount is
available. As funds are used, the "credit line" is reduced and when payments are made, the
line is replenished. One advantage of a line of credit is that the no interest is accrued until
the funds are withdrawn, but the line is immediately available for the company's cash flow
needs.
Considering key financial ratios, the recommendation would be to:

redesign the financing by restructuring the actual lines of credit;

the restructured sum of money should be in accordance with the cash flow;

negotiate with the banks a longer period to return the restructured sum and a
flexible reimbursement graphic;

the financial indicators gives Valplast a good power of negotiation and this offers
Valplast – Vision 2013
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Since consultancy services started in August 2009, the proposed timeframe for
restructuring the Credit Lines is September 2009 (2 months).
129
access to a better interest rate in front of Valplast home banks
Financing option for future development – Private Equity
For shareholders who have the interest in seeing the continued growth of their business as
an independent entity, private equity presents a good solution and is attractive by the fact
that a private equity investor is an experienced, like-minded shareholder who is committed
to taking a business to the next level. Private equity firms typically incentives existing
management teams when they acquire a business, enabling them to participate in its
continued success.

Private equity firms purchase equity or shares in a business, sharing both the risks
and rewards over the long term. Because a private equity firm typically invests in a
business for 3-5 years, they take a longer-term view on value creation. Large scale
operational expenditure is precisely the type of cost which private equity investors
routinely commit to when backing a company, enabling the business to achieve
clearly defined growth targets.

Active ownership: Unlike banks, hedge funds or public shareholders, private equity
investors play an active role in the management and development of the companies
they own. Typical activities include: enabling a growth strategy; professionalizing a
company; offering on-going support to the management on strategic and policy
matters; representing a broader perspective on corporate development; providing
management expertise and acting as a sounding board for management ideas;
facilitating networking opportunities/industry connections; financing, targeting and
assistance with mergers and acquisitions.
8.6.7. Financial forecasting and NPV analysis
Cost of Valplast’s capital (WACC)
Re = cost of equity = 10%
(Based on http://www.deloitte.com/view/en_RO/ro/services/financialadvisory/article/aaf9bf29bfff0210VgnVCM100000ba42f00aRCRD.htm )
(see Appendix: Financial data)
D = market value of the firm's debt = 12,788,638.19 EURO
Valplast – Vision 2013
Page
E = market value of the firm's equity = 13,157,021.45 EURO
130
Rd = cost of debt = 5% (based on Valplast cost of debt)
V = E + D = 25,945,659.64 EURO
Tc = corporate tax rate = 16%
Results
WACC = 7.14%
Based on the forecasted profit and loss, results that the project has an
NPV value of EUR 10,827,010
(see Appendix: NPV Computation).
8.7. Integrative Managing Change
Valplast change management processes require, as key success factors, to be build on
effective communication and involvement at all hierarchical levels, all these generated from
a perceived need for change. The need for change at the actual moment has been emitted
at the management level and slowly cascaded to the middle management and execution
level but only in theoretical measures.
All members’ implication is a must for Valplast due to multiple implications of the
change processes, occurring in a complete organization. Redesigning the organization in
order to meet the new business strategy is not an optional issue for any department. It
involves new rules and policies, new procedural activities and interaction flow within the
company.
In the first step the recommendation is to establish a clear vision for the organization,
the end status and objectives settled for the determined period. Realistic approach of this
vision statement has to be considered in order to assure adhesive trends and involvement.
Due to the central Figure-Head positioning of the General Manager, he would be best to
conduct the change management process and engage the senior management level or other
key contributors to follow him. Personal managerial models can have a great influence in
determining action and changes in the organization.
Change actors within Valplast and their role is configured as follows:

The CHANGE INITIATOR is the General Manager, the person who initially perceives
CHANGE ADVISORY BOARD is formed by the Executive Management Team and it
exists to support the authorization of changes and to assist change management
processes.
Valplast – Vision 2013
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
131
the need for the change and searches for solutions;
The change authorization may differ from process to process, for example for standard
and low risk changes – local authorization can be granted to Department Heads / Supervisor
level, normal changes to Advisory Board members and large / high risk change to the
General Manager. External consultancy ma be also a solution for a good change
management process, using an executive coach for the management level.
Rigorous and planned changes have to be generated in order to be encouraged in the
organization. Previous analysis regarding actual – future statements, actual
- needed
resources have to be realized in order to best apply change management tools and
practices, avoiding therefore risks or potential failures.
Practical measures to be implemented are depicted below:
Change
Management
General
Step
Guiding Rules
Communication
Clear communication for MVV and objectives of the change management effort
Point out changes effects on people to prevent risks
Open for feedback and discussion
Rationalization of change process ( the need, purpose)
Change “sponsors” nomination
Interactive meetings
Rewards management association
Involvement
Plan involvement of key people/ influencers vs. time & inputs
Decision process sharing about their work unit and their work.
Measurement systems for success / failure associated with rewards and recognition
Annihilation of resistance players in order to minimize potential risks
Support
Information sharing for employees regarding all areas of change
Urgency around the need to change followed by the image of what will happen if change is
delayed
Special training & coaching for middle management / supervisor level employees to ensure
that they understand, can communicate about, and support the changes
Align all organizational & informational systems to support needed changes: performance
management system, rewards and recognition, disciplinary approaches, compensation,
promotions, and hiring
Management keynotes, Training sessions; Individual meetings; Internal bulleting posting & Intranet; Public announcements
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& PR tools
132
Multiple channels transmissions (internal & external):
Valplast – Vision 2013
Considering Lewin’s 3 steps model we can conclude that Valplast as an overall organization
has begun a voluntary unfreezing stage due to observed business performance within the
new international economical environment. Differentiation, developmental new marketing
and sales strategies have determined this expectation of change inside the organization at
all levels.
Implementing change in this organizational environment with a high level of trust in
management decisions and actions is a huge plus. Of course a must in this process is to
recognize and respect the human resources element and individualized responses to
change, but a positive general attitude towards changing the business model, organic
growth and new internal procedures per department are welcomed.
Most visible need for change has been recorded at the sales force level, highly affected by
low sales volumes – rewarding and motivational factors involved.
Internal and also public exposure of the actual industrial – economical context has
enhanced that actual state of the business is not a future
option, and that doing nothing will result in disaster –
Unfreeze
downsizing, bankruptcy on long term. On this crisis “general
state” directive and nondirective measures can be both
implemented in order to generate change.
A simple method to be applied is stating actions to be done far
more effective strategy than staying where they are or resisting.
Freeze
Refreeze
Motivational drivers regarding vision of the future can also determine Valplast employees
to embrace the change requirements.
A positive and beneficial 1st step in the transition stage is training employees on different
skills, provide education that ensures people have the skills and knowledge they need for
their new responsibilities. Because multiple changes will affect the organization a step by
step approach is recommended. A planned set of changes and then paused model will
ensure every stakeholder that system is still working. The shift and sync principle is granting
resynchronize and realign to general business objectives and also provides recovering from
the tension of change if it appears.
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recommend the following classification:
133
Priorities in changes implementation has to govern also the decision, therefore we
Valplast – Vision 2013
Priority Category
Change Process Description
Immediate
Secure privileged distribution channels from suppliers
Treat as an emergency
Create the “pre sale” dept. (hire specialists and define the ground rules)
change,
Initiate the creation of the Association (for preventing cash problems & better
immediate
action required
acquisition cost for raw PVC)
High
Define the competitive intelligence center inside the company
To be given highest
Trains the sale force for geosynthetics
priority for change and
Hire marketing specialist
resource allocation
Promote new products to customers
Promote the new partnership proposition to customers
Medium
Career management plans for all personnel
No severe impact, but
Profitability analysis for all clients
rectification cannot be
Periodical assessment of suppliers
deferred until the next
Yearly assessment of the main competitors
scheduled
release
or
upgrade.
Low
Evaluate and reinforce the synergies in Romstal Group
A change is justified and
Define personalized marketing plans for all countries in the region where PVC
necessary, but can wait
fittings will be sold to independent distributors
until the next scheduled
release or upgrade.
A graphic representation of Valplast change process using criteria as: importance and risks
of change is depicted in figure bellow.
major
high risk
change process
VALPLAST
emergency
complex
order to match the 2009 -2011 marketing strategically measures a phase based change
management is required.
Valplast – Vision 2013
Page
organization, involving human resources, operational and strategically implications. In
134
Valplast long term view is in fact an incremental movement to a new – better
Smoothing the change from a 2009 current simple strategy to a developed and
diversified 2011 strategy is a must in order to achieve planned results.
Sustaining a “one way” direction for the organization will minimize the risk to go
back the old way of working and prevents backsliding. Retreat is not possible anymore and
forces all stakeholders to advance and be more involved in reaching the end state vision.
An important role in this change implementation and coordination process will be
played by the HR Coordinator. His main role is institutionalizing the process by creating
formal systems and structures within the refreezing step. New measures ought to be
organizational standards, referred to into systems and procedures for all personnel. Also
the rewards management associated with the change management process would have to
be designed and thought at all levels by the people & organization consultant in place.
8.8. Integrative Risk Management
Risks have been assessed using the following matrix:
Insignificant Minor Moderate Major Catastrophic
1
2
3
4
5
Almost Certain
5
6
7
8
9
10
Likely
4
5
6
7
8
9
Possible
3
4
5
6
7
8
Unlikely
2
3
4
5
6
7
Rare
1
2
3
4
5
6
Optimistic risk management strategy
Moderate risk management strategy
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135
Pessimistic risk management strategy
Valplast – Vision 2013
Valplast will adopt a moderate risk management strategy, though developing action plans
only for the risks that fall in the yellow and red area.
Id
Description
Impact
Probability
Mitigation action
Business Environment risks: (e.g. political, technological, social, regulatory)
1
Political unrest in Romania
will
determine
late
Develop emergent strategy -> export
5
2
in the region
availability of EU funds.
2
Government
contractors
Work in partnership
will delay payments as
much as possible
Establish clear financing policy and
4
4
credit control policy
Create an industry association that
will defend all players rights
3
Exchange rate risk
3
3
Hedging
Export as an emergent strategy
Industry threats
4
Overcapacity at segment
level (PVC) will result in
fierce
competition
and
PVC
5
5
price wars
5
Low
entry
pipes
are
becoming
commodities, therefore VLP will
enlarge the product portfolio with
high margin products (geosynthetics)
barriers
geosynthetics
in
Ensure exclusive partnerships with
segment
encourage new players
suppliers
3
3
Enforce government regulations on
technical characteristics only VPL
suppliers can provide.
6
Raw
materials
price
fluctuations
Hedging
4
3
on
exchange
rate.
In
Romania one cannot hedge on oil
price.
Competitor risks
Competitors will target the
same funds as we do,
probably adopt a similar
Develop emergent strategies (see
5
5
strategy
Competitors’
ound.) and competitive intelligence
for quick retaliation (see chapter 8.3)
large
VPL
distribution network
will
focus
only
large
entrepreneurs (not on retail); this
2
3
changes the way distribution is
required.
Use
brother-company
distribution network
Valplast – Vision 2013
on
Valrom’s
136
8
chapter Error! Reference source not
Page
7
9
UE multinational players
attracted by the size of the
infrastructure projects
Political networking
5
5
Competitive prices
Specialization will result in better
priced and valuable solutions
10
Private
construction
market dramatic decrease
3
4
Strategic move towards government
employed entrepreneurs.
Organizational risks
11
Sustain change of business
processes,
organization
See chapter [organizational action
5
5
plan].
and mindset
Ensure sufficient resources
See financial action plan
for the new business model
In order not to cannibalize the
and portfolio
resources, only one strategy has
5
5
been
chosen.
NPV
has
been
calculated for all options and teh
highest NPV was chosen, while the
137
rest remain emergent strategies.
Page
12
Valplast – Vision 2013
9. Timescale
The proposed time horizon for this strategy is 5 years (up to 2013). The strategy will be
implemented in phases, with aggressive milestones to respond to the dramatic changes in
the environment.
Vision 2013 in stages
Be “the regional
Be “the drainage
Current strategy
PVC pipes
drainage expert for
infrastructure
projects”
expert for
infrastructure
projects”
Diversification
Product development in
the Romanian market
Market
development
producer
Product
Development
Market penetration
(sustain market share)
Construct new
business
capabilities
2009
Organizational development
Prospect regional
markets
Ensure sustainable
growth
2010
2011
KPI’s measurement
KPI’s measurement
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138
KPI’s measurement
Valplast – Vision 2013
139
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Valplast – Vision 2013
10. Implementation & Control
10.1. KPI
The proposed KPI’s are:








10.2.
Market share (as estimated by the Competitive Intelligence department)
Revenue
Revenue in new products (bookings)
Pipeline
Ability to deliver (low backlog to new products)
Gross and Net profit
Days receivables < Days payables
Organizational (human resources availability to sustain the program)
Measurements The KPI’s are to be measured monthly and summarized
yearly. The monthly dashboard will be prepared by the GM’s assistant and presented
to the management board.
The monthly dashboard contains the following information:

RYG (Red, Yellow, Green) flags assigned to the KPI’s

Accomplishments for the last period to show progress and direction towards
Vision 2013

Major issues and risks from the environment, market, competitors and internal
organization, with the objective to establish action plans to mitigate them

Priorities for the next period with clear milestones to measure against.
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140
The template for the dashboard can be seen below:
Valplast – Vision 2013
R
G
R
Y
G
Y
G
Y
ISSUES
Y
G
Y
G
G
G
Rev
Orga
enu Gross nizati Backl Pipe
e profit on og
line
G
Y
G
G
G
Top Risks/Issues
R
G
Marke
Overall
t
Status Fin share
G
G
G
Summarry
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141
• Teraplast partial portfolio overlap
• Competitors will target a similar strategy
RISKS
Priorities & Milestones
Partnership with Grundfos signed
Days Receivables down from 114 days to 95
Entrepreneurs portfolio completed
First geosyntethic contract signed
Revenue in PVC rises with 2%
•
•
•
October 1-st, 2009 – Procurement office in place
November 1-st, 2009 – Bidding office in place
November 1-st, 2009 – Complete geosyntetics
portfolio with reliable suppliers
KEY MILESTONES
Priorities
• Partnerships with geosynthetics producers signed
• Start the bidding presales and consultancy office
(HC=3)
•
•
•
•
•
Accomplishments
Monthly Valplast Dashboard – September 2009
• Government contractors delay payments
• Raw materials price fluctuations
• UE multinational players attracted by the size of the
infrastructure projects
Market
PVC
Geosynthe
tics
Spring
Valplast – Vision 2013
3
10.3. Emergent strategies
Possible emergent strategies and the trigger to start reconsidering the strategy follow:
Trigger (see also Ch. 8.8 Integrative
Risk Management)
Abandon local governamental market and focus on exporting Political unrest
in the region
Insufficient absorption of EU funds
Romanian market penetration with current products
Not enough resources to sustain Vision
2013 program (e.g. financial, human)
Vertical integration through acquisition of contractors and/or Alliances program unsuccessful
distributors
Vision 2013 + become a geotextiles and geomembranes Resources for initial investments
producer
available
Low margin from products aquired
through suppliers
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Emergent Strategy
Valplast – Vision 2013
11. Exit criteria and strategy
11.1. Criteria list
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143
11.2. Fallback strategy
Valplast – Vision 2013
12. Appendixes
12.1.
PVC Raw Materials – Finished Products Cycle
Colorants
PVC
Lead
Additives
Specific Recipe
Extrusion
Injection
raw pipes
Final product:
Fittings
Final Processing
Scrap
products
Scrap
products
Final product:
Finished pipes
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144
Scrap
materials
mill
Valplast – Vision 2013
12.2.
Production process diagrams
Raw Materials Preparation
* Process: combine raw materials on
specific recipes
*Resource center: Raw Materials,
Machine, Shift Supervisor
Extrusion
*Process: machine set-up & extrusion
** Resource Center: machines, 25
operators / shift, semi-finished goods
Final processing
Stacking
*Process: adding joins; adding
*Process: manufacture stacks; stack
accessories (filters, thread)
Finished Goods
** Resource Center: Machines, 15
operators per shift, Semi-finished
goods
** Resource Center: Machines, 15
operators per shift, Raw materials
(lumber)
Loading
PVC Pipes
production
process
Support process
*Process: loading steps
** Resource center: Machines
*Process: maintenance, Q&A
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145
2 Operators
Valplast – Vision 2013
Raw Materials Preparation
Mold Injection
* Process: combine raw materials on
*Process: machine set-up for each
specific recipes
mold & injection
*Resource center: raw materials,
machine, shift supervisor
** Resource Center: machines, 2
operators / shift, semi-finished goods
Packaging
Loading
*Process: packaging
*Process: loading steps
** Resource Center: Machines, 2
operators per shift, raw materials
(lumber)
** Resource center: Machines
2 Operators
Fittings
production
process
Support process
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146
*Process: maintenance, Q&A
Valplast – Vision 2013
12.3.
Organizational Structure – Valplast 2009
Sales Representatives
Sales Manager
Business
Developer
Sales &
Marketing
Manager
Presales
Representatives
Business
Analyst
Marketing
Specialist
Channel
Manager
Collection
Officer
Production
Manager
Department 1
Head
Department 2
Head
Department 3
Quality & Control
Mg
Head
HR Officer
Procurement
Manager
Logistic
Officer
Valplast – Vision 2013
Workers
Supervisors
Workers
Supervisors
Workers
Research &
Development
HR Manager
Warehouse
Responsible
Supervisors
147
General
Manager
Finance
Coordinator
Page
Financial
Manager
Project Management Diagrams
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148
12.4.
Valplast – Vision 2013
149
Page
Valplast – Vision 2013
12.5.
Financial information and computations
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150
Balance Sheet (30 June 2009)
Valplast – Vision 2013
Profit & Loss Statement
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151
Cost Structure
Valplast – Vision 2013
Page
152
Forecast “Vision 2013”
Valplast – Vision 2013
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153
NPV Computations
Valplast – Vision 2013
12.6.
Information sources:
-
www.mmediu.ro Environment Ministry web site
-
www.mt.ro Transportation Ministry web site
-
www.mie.ro Houses Ministry web site
-
www.mfinante.ro Finance Ministry web site
-
www.gov.ro Romanian Government web site
-
www.bnr.ro National Bank of Romania web site
-
www.insse.ro National Institute for Statistics
-
Customers’ Satisfaction Survey – conducted by external consultants in April 2009
-
ec.europa.eu/eurostat – Eurostat web site
-
Online business newspapers (www.zf.ro, www.capital.ro, www.dailybusiness.ro )
-
Industry periodical (Tribuna Constructiilor)
-
Valplast’s National Sales Manager informal interviews with large customers
-
Valplast’s General Manager overview over industry trends
12.7.
Bibliography
–
Bucharest School of Management, 2007-2009 Program
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154
Selected materials
Valplast – Vision 2013