INDEX

SECTION 1 – GENERAL EVOLUTION OF THE GAME .......................................................... 2

SECTION 2 – STRATEGY CHANGES .......................................................................................... 3
SECTION 3 – SIMULATION ANALYSIS ..................................................................................... 3
GENERAL COMMENTS ............................................................................................................................. 3
NINTH QUARTER ....................................................................................................................................... 4
TENTH QUARTER ...................................................................................................................................... 5
ELEVENTH QUARTER .............................................................................................................................. 9
TWELFTH QUARTER............................................................................................................................... 13
THIRTEENTH QUARTER ........................................................................................................................ 15
SECTION 4 – OVERALL ANALYSIS .......................................................................................... 18
SECTION 5 – CONCLUSION........................................................................................................ 22
SECTION 6 – BIBLIOGRAPHY ................................................................................................... 24

1
 SECTION 1 – GENERAL EVOLUTION OF THE GAME

The evolution of the main parameters, EBIT and share value, during our management has been
substantially negative. We have observed, except for Q9, a steady decline of the two values. These
data are reported in Table 1 and Table 2.

Q9 Q10 Q11 Q12 Q13

EBIT per period [€] 2.378.814 - 6.044.600 - 8.987.574 - 3.850.196 - 3.058.583

Cumulative EBIT [€] 2.378.814 - 3.665.786 -12.653.360 - 16.503.556 - 19.562.139

Table 1 – Evolution of the EBIT from Q9 to Q13

Q9 Q10 Q11 Q12 Q13

Share Value 25,20 € 13,70 € 9,70 € 8,40 € 4,30 €

Table 2 – Evolution of the share value from Q9 to Q13

We believe that our strategy had some weak points and the market in which we operated was
extremely competitive. In fact, in some cases we were not able to adequately respond to some
scenarios but, in other cases, there where external factors that contributed to create very difficult
situations for our company. Starting from very high investments, we also had for some period very
low prices that brought us to significant drops. A constant key-point for us were our effort trying to
improve our quality of production that has never matched the market average. Moreover, our offered
goods quality never matched our strategy being always under the average too. Wholesalers’ market
has been very difficult for us and has quite always caused losses. Our distribution area was starting
from a very good position but, overtime it has become expensive and inefficient causing a dangerous
reduction of our maximum sales.

In summary, after a promising start in the ninth quarter, we had three very negative periods for
different reasons, before completely reconsidering our previous decisions and going back on the right
path in the last quarter of our management, the first with a positive operating profit since quarter 9.

2
 SECTION 2 – STRATEGY CHANGES

During the evolution of the periods we needed to operate some modifications to our functional
strategies:
• During quarter 10, given the high demand in the retail market we didn’t have enough
production capacity to be also able to offer Fabrics to the wholesalers.
• During Q11, in the attempt to increase the quality of offered goods we have produced
internally Fittings.
• In the same period, since we noticed that the wholesalers’ market was completely unsatisfied,
we decided to offer all three products in that market too
• After the poor results of Q11, in the following quarter we exited the wholesale market until a
later date.
• Again in Q11, given our high production capacity, we produced internally all our three
products for the retail market, improving the quality of our goods.

SECTION 3 – SIMULATION ANALYSIS

GENERAL COMMENTS

Retail market demand forecasting

Our initial idea was to forecast the demand using Holt Winters method. However, after Quarter 9 we
thought that the most fitting method for forecasting was the demand percentage trend given by the
simulator, however this trend is only given time by time. We therefore decided to use the prediction
given by the trend for the first following period and then the prediction given by Holt Winters method
for the subsequent ones. Having all the predicted demand for all the future periods has been very
important (even though we knew that Holt Winters was not as accurate as we wanted) because it
allowed us to adjust our production planning every period, trying to minimize the total costs.

Production planning
We updated our production planning every period since there were changing in predicted demand or
functional strategies. Again, in order to simplify the planning process, we assumed the following
hypothesis, which will be valid for all the following production planning reported:
• Demand for our company evaluated with the following formulation: 𝑑 = (𝐷 ∗ 16,67%) ∗ 1,1
where 𝑑 is our predicted demand, 𝐷 is the market demand forecast, 16,67% represents our
target market share and the product 1,1 is used to increase the production needed in order to
cover the stock we are obliged to keep.

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 • Constant time of production per unit but updated every period in accordance to the
investments in automation technology (see the table reported for every quarter)
• Constant variable cost of production, but updated every period (see the table reported for
every period)
• Total time of production estimated with the intention to buy additional manufacturing
capacity during the periods (this explains the variation between estimated production capacity
between different periods)
• Stock-keeping costs as defined by the simulator: 10 €/u for Fabrics, 2 €/u for Fittings, 20 €/u
for Furniture.
• A safety stock, evaluated as 5000 units/period for Fabrics, 3000 units/period for Fittings and
1000 units/period for Furniture, except for the end of Q13 where there will not be any safety
stocks.

Material requirements planning

Since we defined in our corporate strategy that we would have used always local raw materials that
don’t have a delay in deliver, we have always bought the exact amount of raw materials we needed
for the production planned for every product hence our company never had any raw materials in
stock.

NINTH QUARTER

Results
The ninth quarter, the first of our management, has been overall positive. We have recorded an EBIT
of 2.378.814 € and a share value of 25,20 € which represents an increase of 2,50€.

Forecasted
Actual market Predicted Actual PiVaDa
market
demand PiVaDa sales PiVaDa sales Market share
demand

Fabrics 719.141 668.623 131.843 120.035 17,4 %

Fittings 427.566 433.642 78.387 75.453 17,4 %
Furniture 83.088 78.880 15.233 13.439 17,0 %
Table 3 – results of retail market in Q9 [units]
Demand forecasting before Q9, as we stated in our First Report, has been carried out using Holt
Winters method only. We advise to refer to the First Report for the initial demand forecasting and
production planning.

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Our results in the retail market are shown in Table 3: we were able to gain a good market share for
every product (our target was 16,67%) mostly because of our well-below-average prices: it was, in
fact, the most important competitive factor for this quarter and our unexpected low price gave us a
good advantage. It was unexpected because we were not seeking a price leadership, however the
choices of our rivals were in the direction of higher values. Even with low prices, we managed to get
positive margins, especially with Furniture
Price Margin which we didn’t produce ourselves and were
Fabrics 275 € 5€ cheaper for us. Our quality was, however,

Fittings 97 € 31 € below the market average for all the three

products, being respectively 66,1%, 63,7%
Furniture 797 € 192 €
and 65,8% for Fabrics, Fittings and Furniture.
Table 4 – price and margins for Q9 (retail market)
The lowest value for Fittings is due to a stock
of imported raw materials that, although it was in contrast with our functional strategy for this product,
we didn’t want to waste as was part of an order made from the previous management. The quality of
the offered goods was also threatened by our quality of production for this period (59,9%) which was
by far the lowest of our Group, given by our unsatisfactory investment in automation technology.
In the wholesale market we were able to sell all the 40.000 of Fabrics we offered, with a margin of
20€ per unit.
Our investments were generally below average for this period and therefore our Index of Attraction
has lost a 1% but given our competitive prices our Fabrics Index of Competitiveness gained 5
percentage points while Fittings and Furniture ones gained 1%.
At the end of the period, having purchased two out-of-town outlets, we had more shops than our
competitors, this is aligned with our long-term strategy.

TENTH QUARTER

Retail market demand forecasting

Following our analysis introduced earlier, since Q10 the forecasting of the retail market demand was
composed of two parts:
• The forecast of the very next period, done using the trend offered by the simulator
• The forecast of the other subsequent periods, done using Holt Winters method
For this period, we will display the calculation we made for predicting the demand using the trend,
since Q11 we will only report the results of the calculations.
The trend must be used as a percentage variation of the demand compared to the period before:

5
 FABRICS
Actual demand in Q9: 688.623, trend: 63,64 %
Predicted demand: 688.623 + 688.623 × 0.6364 = 1.126.863
FITTINGS
Actual demand in Q9: 433.642, trend: −65,00 %
Predicted demand: 433.642 − 433.642 × 0.65 = 151.774
FURNITURE
Actual demand in Q9: 78.880, trend: −33,33 %
Predicted demand: 78.880 − 78.880 × 0.3333 = 52.589

Joining these forecasts for Q10 with the others made using Holt Winters method (which has been
done using Excel), we obtained the demand forecasting from Q10 to Q13.

PREDICTED DEMAND Q10 Q11 Q12 Q13

Fabrics 1.126.683 345.210 735.541 762.476

Fittings 151.774 502.148 732.548 430.032

Furniture 52.589 120.927 127.532 81.728

Table 5 – Retail market demand forecasting Q10-Q13 [units]

Production planning

PREDICTED DEMAND Q10 Q11 Q12 Q13

Fabrics 206.972 63.289 134.849 139.787

Fittings 27.825 92.061 134.300 78.839

Furniture 9.641 22.170 23.381 14.983

Table 6 – PiVaDa retail demand forecasting Q10-Q13 [units]

Having the necessary data, we updated our production planning for the period Q10 – Q13.
In tables 7, 8 and 9 are reported the initial data used for the programming along with the general
starting hypothesis presented earlier.

h(t) Q10 Q11 Q12 Q13

Fabrics 1,01 1,01 1,01 1,01
Fittings 0,14 0,14 0,14 0,14
Furniture 2,70 2,70 2,70 2,70

Table 7 - Time of production per unit [h/u]

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 m(t) Q10 Q11 Q12 Q13
Fabrics 75,60 74,50 74,50 74,50
Fittings 18,00 17,80 17,80 17,80
Furniture 192,00 189,20 189,20 189,20

Table 8 - Variable cost of production [€/u]

Q10 Q11 Q12 Q13

MaxW(t) 205.500 180.000 170.000 170.000

Table 9 - Maximum production hours available

The results given by Excel Solver are shown in image 1:

Image 1 – Results of linear programming after Q9

As we can see, the model, which minimizes the total costs, saturates the production capacity (with
Fabrics, that we can deduce it has the minimum impact when being kept in stock) starting from Q13
and proceeding backwards thus reducing the stock-keeping costs. It is also important to notice that
after Q9 we already have enough fittings in stock to cover period 10. We also didn’t produce again
Furniture ourselves, for the same reasons presented in our First Report. Please note that the final stock
of Furniture is always shown as 2.891 units because we have set the model in order not to consider
them as items to be produced internally, we are going to keep that stock the lowest possible value
manually (for example buying less products than needed in the next quarters).

Decisions
After the results of the first period that led us to a dominant position in our Group, we decided to
attempt an evolution. We noticed that in the previous period our price was, for all three products, one

7
 of the lowest in the Group, so we decided to increase it for all three lines. We tried to increase our
Company image by investing more. The main investments were made in advertising, customer service
and automation technology.
In terms of operations, the choice was to internally produce Fabrics and also few units of Fittings,
deviating a bit from the production planning offered by the linear programming and to outsource
Furniture as planned and also a small amount of Fittings as the brought-in finished products were
offered us at a good quality and great price. We decided to deviate a little from the model because
since this was a period with very high peaks of demand, we wanted to have even more items in stock
also to accommodate potential second-choice sales.

Given the high peak of demand, to produce only the requested amount of Fabrics and Fittings we had
to lease 50 new machines, saturate our production capacity and if we would have produced everything
internally, we would have incurred in an expense for other new machines, expense which would have
been almost twice of the current one. For this period our strategy was not to offer products to
wholesalers, since we didn’t have enough production capacity and retail market had better margins.

Results
This quarter we had a negative result, with an EBIT of – 6.044.600 € and the share value dropping to
13,70 €, having lost 11,50 €.

Forecasted
Actual market Predicted Actual PiVaDa
market
demand PiVaDa sales PiVaDa sales Market share
demand

Fabrics 1.126.683 1.154.437 206.972 174.684 16,2 %

Fittings 151.774 155.858 27.825 21.855 14,0 %
Furniture 52.589 53.007 9.641 7.922 14,9 %
Table 10 – results of retail market in Q10 [units]

As reported above, even though we had a bad result in this period we managed to have a good level
of sales but, this time, we didn’t reach our target market share of 16,67%. This happened for two
different reasons:
• For Fabrics, we run out of stock: in fact, a lack of effectiveness of our employees has reduced
the maximum sales and we weren’t able to reach the goods availability target. It has been
estimated that we lost 6,4% of potential customers.

8
 • For Fittings and Furniture our quality-price ratio wasn’t probably enough high to attract the
desired number of customers therefore causing a reduction in both competitive indices (-17%
and -11% respectively). However, these
Price Margin
prices gave us the possibility to have
Fabrics 320 € 5€
good margins on these two products.
Fittings 116 € 31 €
The problems in effectiveness and the
Furniture 920 € 192 €
underperforming sales saturated our shops and
Table 11 – price and margins for Q10 (retail market)
much items had to be kept in stock.
Given our very high investments every area defining our image has grown as planned and our index
of attraction gained 3 percentage points. We had +1,5% in quality of production, +5,7% in quality of
advertising and +2,6% in quality of customer service. These are all important results, however the
quality of production, being at 61,4 % was still very low and the improvements in all areas didn’t
compensate the high investments we made. This latter topic will be discussed in detail later.

Quarter 10 was a critical turning point in terms of performance. We tried to analyse the reason for
our big loss by excluding from this investigation the costs that differed not many from the average of
the previous periods. The costs for automation technology and the commercial expenditure emerged.
Regarding automation technology, compared to an average over past periods of around 1.700.000 €
we decided to invest 5.000.000 €, this decision was guided by two reasons:
• The average value of the investment in the group exceeded 4.000.000 €, so we tried to realign
ourselves with the investments of our competitors.
• Among the competitiveness factors, quality always assumed an important weight, it was not
the most important, but it nonetheless played an important role and we wanted to increase it
as much as we could.
As far as the commercial expenditures are concerned, we first understood what it was made of and
we noticed that it was the sum of investments in customer service, advertising, promotion and
training. The total cost was 16.500.000 € compared to an average of past periods of around 4.000.000
€, we immediately understood that the it was oversized, so we decided to decrease it in the following
periods, still trying to keep it above the market average to be able to compete with our opponents.

ELEVENTH QUARTER

Retail market demand forecasting

According to what we did for the previous period we updated our demand forecasting and our
production planning:

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 Demand forecast for Q11, estimated using the trend is: 384.774 units for Fabrics, 601.160 units for
Fittings and 132.517 units for Furniture. These data refer, as usual, to the total retail market demand.
Putting this forecast together with the updated Holt Winters prevision we obtained the forecast for
the periods from Q11 to Q13 (table 12):

PREDICTED DEMAND Q11 Q12 Q13

Fabrics 384.774 744.714 773.525

Fittings 601.160 673.601 388.934

Furniture 132.517 124.352 79.312

Table 12 – Retail market demand forecasting Q11-Q13 [units]

Production planning
Production planning for the next three periods, starting from the hypothesis shown in tables 13, 14
and 15 is reported in image 2.

h(t) Q11 Q12 Q13

Fabrics 0,95 0,95 0,95
Fittings 0,13 0,13 0,13
Furniture 2,53 2,53 2,53

Table 13 - Time of production per unit [h/u]

m(t) Q11 Q12 Q13

Fabrics 76,80 76,80 76,80
Fittings 18,30 18,30 18,30
Furniture 194,90 194,90 194,90

Table 14 - Variable cost of production [€/u]

Q11 Q12 Q13

MaxW(t) 178.750 202.000 131.500

Table 15 - Maximum production hours available

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 Image 2 – Results of linear programming after Q10

Our initial planning for the period Q10-Q13 was totally different, in fact we were planning to have
143.500 hours available for Q12 and even less for Q13. It was theoretically possible for us still to
produce almost all what we needed in the next three periods, maybe renting a small number of
machines in Q12 if needed (due for example to a higher demand). However, with this machine
configuration, we would have had to keep about 120.000 units of Fabrics in stock from Q11 to Q12
and we didn’t feel safe doing this mostly because of possible incidents that could happen to our large
stock. We therefore decided to buy 40 additional new machines to increase our production capacity
in Q12 and Q13 in order to reduce the future stock. This has proven to be a bad idea because we chose
the alternative with significantly higher costs and we didn’t follow the planning given us by linear
programming which surely minimizes the costs. Furthermore, we had a lot of production capacity
(more than a half) not saturated and we think that this is a missed opportunity.

Decisions
In order to align our prices to the previous average market prices we decided to reduce them, hoping
to gain more market share. Concerning operations, we decided to produce internally Fabrics and
Fittings and outsourcing Furniture. This combination gave us the better margins. Since we saw that
the wholesale market was completely unsatisfied in the previous period, we also tried to completely
enter the wholesaler market, offering a sixth of the quantity they required for each product. Please
note that production planning shown in image 2 is already considering this decision. As said before,
we decided to decrease some investments that were worthless high like advertising and customer
service. In terms of distribution, we decided to replace six of our out-of-town stores with ten centrals,
trying to increase our company image by having a better location. We eventually decided to buy new
vehicles to replace those that were expelled in this quarter.

11
 Results
We recorded the most negative EBIT in this period: – 8.987.574 € and the share value dropped from
13,70 € to 9,70 €.

Forecasted
Actual market Predicted Actual PiVaDa
market
demand PiVaDa sales PiVaDa sales Market share
demand

Fabrics 384.774 395.065 70.542 82.692 21,4 %

Fittings 601.160 640.864 110.213 102.212 16,3 %
Furniture 132.517 136.339 24.295 19.908 14,6 %
Table 16 – results of retail market in Q11 [units]

The reasons of this bad performance are the following:

• We sold Fabrics with a negative margin: in the attempt to gain more market share, we lowered
the price more than what we should have done. This produced the desired effect, since we
went in stock-out, but selling a product with a negative margin didn’t produce any profit.
• Although we sold all our possible items of Fittings, they had a very small margin.
• Our wholesale market experience has been disastrous, Fabrics and Fittings were sold with a
margin of -39 € per unit and -7 € per unit respectively. Moreover, although we offered 6000
units of Furniture, probably for their not-so-high quality (65,1 %) there were 0 sales for this
product and the produced units were then put in stock, producing also a stock-keeping cost.
• The fees of our shops increased due to the changes we made in order to gain access to a better
location.
Given these factors, we had really small earnings even without considering the majority of the costs
for this quarter: the investments for this period
Price Margin
were planned with a complete different
Fabrics 300 € -14 €
prevision of sales and profits: amounts like
Fittings 100 € 3€
4.000.000 € invested in customer service or
5.000.000 € invested in automation technology
Furniture 860 € 156 €

completely sunk our EBIT. Table 17 – price and margins for Q11 (retail market)

Thanks to our prices, however, our

competitiveness in the market has grown, especially with Fabrics. What kept penalising us was our
quality of production, which, despite our large investments, wasn’t again aligned with the market
average. Since our environmental quality was constantly below average, our Index of attraction in
this period has lost 7 percentage points.

12
TWELFTH QUARTER

Retail market demand forecasting

The forecasted total retail market demand for Q12 was 526.740 units for Fabrics, 854.464 units for
Fittings and 140.879 units for Furniture. As always, Q13 demand is forecasted using Holt Winters
process.

PREDICTED DEMAND Q12 Q13

Fabrics 526.740 804.828

Fittings 854.464 435.956

Furniture 140.879 83.164

Table 18 – Retail market demand forecasting Q12-Q13 [units]

Production planning
Updated production planning had the following starting points:

h(t) Q12 Q13

Fabrics 0,89 0,89
Fittings 0,12 0,12
Furniture 2,37 2,37

Table 19 - Time of production per unit [h/u]

m(t) Q12 Q13

Fabrics 77,90 77,90
Fittings 18,60 18,60
Furniture 197,80 197,80

Table 20 - Variable cost of production [€/u]

Q12 Q13
MaxW(t) 202.000 167.500

Table 21 - Maximum production hours available

13
 The output of the optimization process is shown in image 3:

Image 3 – Results of linear programming after Q11

Decisions
The most notable change, already visible in the production planning, is the internal production of
Furniture, in fact, this time, we decided to use the most production capacity we had, in order not to
have too much of it unused. Given our previous bad experience, we decided to completely exit the
wholesale market and this decision gave us even more production capacity at our disposal. In terms
of pricing, we decided to increase them in order to prevent another quarter with negative margins.
Most of the decisions were taken trying to reduce the commercial expenditure: we lowered our
overheads in promotions, training and automation technology. To ensure an even better quality of our
locations and to be able to sell all the target sales we purchased two other central outlets. In this
period, we bought new vehicles too, to replace those whose useful life had ended. We also wanted to
adjust the effectiveness of salesmen as we have noticed that despite having a training level of 100%
our effectiveness was around 85%. We linked this percentage reduction to the increasing number of
outlets, in fact we noticed that prior to that the average number of salesmen per outlet was around 28
and we had a 100% effectiveness. We were now at 22 salesmen per store, so we hired 50 new
employees to bring the average at 25,5 people per store, thus however increasing total wages and
therefore our costs.

Results
Our EBIT for the period was: – 3 .850.196 € and the share value lost 1,30 € being at this point 8,40€.

14
 Forecasted
Actual market Predicted Actual PiVaDa
market
demand PiVaDa sales PiVaDa sales Market share
demand

Fabrics 526.740 522.368 96.569 100.724 19,3 %

Fittings 854.464 837.116 156.652 157.554 18,8 %
Furniture 140.879 138.370 25.828 26.316 19,0 %
Table 22 – results of retail market in Q12 [units]

With the corrections we made, we were able to obtain a better result for this quarter, although it was
still very negative in terms of earnings. On the positive side, we had good market shares for all the
three products (all above our target of 17%), our competitiveness indices at their maximum thanks to
our prices just below average and our increased quality of environment that has also given 11
percentual points to our Index of attraction. We managed to reduce the commercial expenditure even
further than the previous period, bringing it at around 10.000.000 €, and it seemed a good result, as
we had already consolidated a leading
Price Margin position in the fields where we were already
Fabrics 315 € 15 € strong and we were able to limit expenses in

Fittings 100 € 11 € investments.

On the negative side we had a decreasing
Furniture 895 € 78 €
quality of production (-0.7%) due to our
Table 23 – price and margins for Q12 (retail market)
investment below a very high average of the
market, a quality of offered goods again below average and overall revenue that couldn’t repay all
the costs we had, producing once again a negative EBIT.

THIRTEENTH QUARTER

Retail market demand forecasting and production planning

Our final demand forecast for the last quarter is shown in Table 23:

PREDICTED DEMAND Q13

Fabrics 659.490

Fittings 516.242

Furniture 96.416

Table 24 – Retail market demand forecasting for Q13 [units]

15
 For quarter 13 we didn’t need a proper production planning optimization as our task was to produce
only what was necessary for this last period, leaving the minimum amount of goods in stock in order
to minimise the costs.
In order to be through we report anyway the usual operational parameters for Q13: the time of
production per unit was 0,83 h/u for Fabrics, 0,11 h/u for Fittings and 2,22 h/u for Furniture; the
variable cost of production per unit was 79,10 €/u, 18,80 €/u and 200 €/u respectively for Fabrics,
Fittings and Furniture. Our total production capacity was 111.250 hours.

Decisions
This quarter marked an important step for our company. We decided to completely reconsider what
we had done before in order to finally start to recover from our poor situation.
We understood that all our investments weren’t rewarding us with more earnings: starting from this
quarter we dropped them as much as we could, even more than necessary, because we had to recover.
We also realized that our price policy wasn’t so clear: we had to increase prices even if that would
have meant losing some market share. However, given the high importance of the price in customer
perception this quarter (consumers would hardly accept a price higher than the market average and
therefore consumers would accept second-rate sales even from companies with a lower competitive
level), we expected that our competitors would have lowered theirs, so our strategy for this period
was to keep them constant, also because we didn’t have a great margin the quarter before. We changed
our production mix, in fact for this quarter we have stopped producing everything internally and
therefore quality decreased in order to have a lower cost (to guarantee the possibility of earning even
with the low prices that the market imposed). The only product for which we have maintained the
internal production was Fabrics, a line that we have always wanted to produce internally since the
first period because, according to our analysis, it was the one with the most chance of earnings. Like
the previous period, we didn’t offer anything to wholesalers as we thought it wasn’t profitable for us.
We sold a good part of our owned machines (110 units) because, given the previous statements, we
didn’t need any more all that production capacity. We were now, at this point, taking back the strategy
of the ninth period, the most successful one.

Results
Our operating profit for this quarter was: 341.419 €, while the EBIT was penalized by the sale of
the machines and was – 3.058.583 €. The share value was 4,30 €.

16
 Forecasted
Actual market Predicted Actual PiVaDa
market
demand PiVaDa sales PiVaDa sales Market share
demand

Fabrics 659.490 657.802 120.906 96.247 14,6 %

Fittings 516.242 508.877 96.644 73.952 15,6 %
Furniture 96.416 97.292 17.676 14.079 14,7 %
Table 25 – results of retail market in Q13 [units]

We consider this as an overall positive quarter: even though we didn’t reach our target market share
of 16,67 % with any product, we were the best company of our Group: in fact our EBIT was 2.000.000
€ (and our operating profit was even 5.000.000 €) better that the best-of-others. This happened for
the following reasons:
Price Margin
• We resisted the temptation to lower our
Fabrics 310 € -4€
prices: as said before, our prices were
Fittings 105 € 26 €
already on the edge, the only error for
Furniture 900 € 176 €
us was with Fabrics having sold with a
Table 26 – price and margins for Q13 (retail market)
negative margin. Seeing the average
prices of the market we can suppose that the other companies had largely negative margins in
this period.
• We didn’t invest much in this period: given the conditions of the market and the social
perceptions this wasn’t the right period to invest high values. Since everyone would have
lowered their prices it is natural that everyone would have had less margins and therefore less
profits to refund the investments.
The other five companies, which in our opinion didn’t follow these considerations, registered in this
period losses from – 5.000.000 € up to -12.000.000 €.
We, however, noticed that we went in stock-out for all the three lines, so our profits could have been
even bigger. The problem wasn’t due to wrong calculations on our market share but to a reduced
effectiveness in our shops that reduced our maximum sales capacity. Thanks to our previous high
investments we were able to maintain a high Index of attraction and good levels of competitiveness,
especially for Fabrics, which had the best quality (72,0 %) since was produced internally.

17
 SECTION 4 – OVERALL ANALYSIS

In this section, we want to analyse the evolution of the most important parameters in a general
perspective, explaining how our and other competitors decisions affected the market and the
companies’ health.

Demand seasonality
In order to verify the accuracy of our Holt Winters forecasting and see if it will be applicable also in
future periods, we decided to check if demand in 2019 had the same seasonality of 2018 (and therefore
2017). In chart 1 is highlighted the demand per product in each period, where we can see that the
demand has followed the same seasonality as the past two years with similar peaks and lows.

Chart 1 – Time series of the demand in the last three years

For a more detailed analysis we calculated the autocorrelation coefficient (rk) The coefficient,
calculated with 𝑘 = 4 between 2018 and 2019 for each product, confirmed our theory, being
respectively for Fabrics, Fittings and Furniture, 0,946, 0,979 and 0,997. So, we can advise the future
management to still consider the demand as seasonal for each of the three products.

Investments
There has been immediately after Q8 a significant increase of the average investments of the market.
In table 27 this situation is reported. Considering that improvements made by investments depend
only by the deficit/surplus regarding the average of the market investments we can state that the more
the average increased, the more the companies were disadvantaged. In fact, a higher average gives
only more general costs to everyone. A more collaborative behaviour from all the players (identified
in general less investments) would have allowed to gain the same advantages with significant less
costs. This is a clear situation of collaborative/not-collaborative behaviours modelled by the game

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theory: in fact, a very high investment for one or two periods could bring significant improvements
and a potentially leadership in that specific area for the player who decided to “exceed” in that
investment. We have been tempted by the latter situation during most of the periods and especially
in Q10, but we can now conclude that, given the already low-price level of the market and our even
lower prices we definitely overdid with the amount of investments. We started the correction of this
situation in Q13, significantly decreasing every investment well below the average and we advise the
future management to take extra care in this area, trying to balance the trade-off between the reduction
of the amount of the investments and the results desired in specific areas (automation technology,
environmental, customer service and advertising). Furthermore, it is very important to take in account
that the amount of each investment can’t be “fixed”. It is necessary to modify it in accordance to the
profitability of the period which can be evaluated in the forecasted total demand. Periods of low
seasonality will correspond to less revenues and an investment amount that can be bearable in a
standard period, won’t be tolerable in that, potentially creating a negative EBIT.

Mean of 2017 and 2018 Mean of 2019 plus Q13

Technology 993.750 4.084.323

Environmental 337.500 564.357

Customer service 468.750 2.191.516

Advertising 918.750 1.626.290

Table 27 – comparison between the market average investments before and during our management

Automation technology

We cosidered this as the most important

area of investment, given the high impact
it has on the production quality. Without
a good production quality, in fact, even
having local raw materials, it is not
possible to gain a quality advantage over
the other competitors. As we can see from
chart 2, despite our considerable
investments in this area we were not able
Chart 2 – Investment in automation technology and
quality of production trend. Comparison between the to increase our production quality over
market average and PiVaDa the market average in any period, with
our production quality permanentely

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 under the average. The average investment in this area has been inexplicably high already since Q9
and is by far the higest of all. As we can see again from chart 2, in Q9 we didn’t expect such an high
expenditure from other players and we were well below the average, we tried to correct this situation
in order to not loose to much in quality but we couldn’t afford so high expenses even in this very
important area: this, in part, has led to our largely negative EBITs. Starting from Q12, we began to
decrease our investments because the massive values of Q10 and Q11 weren’t any more bearable.
The cosequence was a deterioration of the quality of production. The situation has never been ideal
in this specific area.

Environmental
Chart 3 – Investment in environmental issues and
quality trend. Comparison between the market
average and PiVaDa
This area was the less expensive in terms
of money invested. As we didn’t invest
over the average of the market for the first
period, our quality trend was rapidly
decreasing. We tried to invert this trend in
Q11 and Q12 in order to increase our
brand. Since we reached a good
environmental quality, in Q13 we reduced
again the investment also in order to save
more money.

Customer service
There has been a reasonable start in this
area in Q9, with the average investment
similar to the previous one. However, in
the following quarter we invested a great
amount in this area trying to improve our
attractiveness. Now it can be said that our
investment was a lot higher than necessary
and that the gained quality in customer Chart 4 – Investment in customer service and its
service wasn’t enough to refund the cost quality trend. Comparison between the market
that represented to us. We repeated this average and PiVaDa

error also in the next quarters, before fixing the problem in Q13, were we invested well below the
average to reduce our costs, being able to keep our quality stable.

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Advertising
Chart 5 – Investment in advertising and its quality
trend. Comparison between the market average and
PiVaDa
With advertising, after a drop of quality in
Q9, we decided to invest in Q10 a big
amount in order to increase the quality.
Here as well, the high investment was not
recompensed with such a high increase in
sales. We therefore immediately decided
to decrease the amount of the expenditure
in this area, with a resulting continuous
decrease in quality.

Prices
As can be found in our First Report, regarding to prices, our corporate strategy was to keep them as
low as possible although we were not seeking for a price leadership in the market. However, this
turned out to be a particularly dangerous strategy: in insight it is safe to say that with our quality of
raw materials (almost always local), the increasing variable costs of production and with our generally
high level of investments, our low prices were simply not affordable for us.
As we predicted in our First Report, the variable cost of production for each product kept increasing
in each period and product. This led to potentially less margins and it is one of the reasons why we
should have increased more our prices throughout the periods. In table 28 is highlighted the evolution
of these costs.

VARIABLE COST
Q9 Q10 Q11 Q12 Q13 Total variation
OF PRODUCTION

Fabrics 74,50 € 75,60 € 76,80 € 77,90 € 79,10 € + 4,60 €

Fittings 17,80 € 18,00 € 18,30 € 18,60 € 18,80 € + 1,00 €

Furniture 189,20 € 192,00 € 194,90 € 197,80 € 200,80 € + 11,60 €

Table 28 – Evolution of variable cost of production from Q9 to Q13

As can be seen from the charts 6, 7 and 8, we kept the

prices below the average in Q9, Q11 and Q12 and
above the average in the other two quarters for every
product. The price level has always been a trade-off
between having good margins per every unit sold and
having a good market share. This situation reflects the

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 fluctuation of our prices, since we were always trying
to keep our market share above 17% for every product
but we also needed enough high margins to overcome
the total costs. We can conclude that our prices
weren’t high enough to face all the costs we had,
however the high-competitive market we were facing
didn’t let us much room for manoeuvre. We think that
the best combination we had was in Q13, with a price
slightly higher than the average, that could anyway
guarantee us a quite good market share (still a bit far
from our target of 17% unfortunately) and not-so-
high investments.

Chart 6, 7 and 8 – Comparison between the market

average prices and PiVaDa’s ones.
Blue – Fabrics, Orange – Fittings, Grey – Furniture

SECTION 5 – CONCLUSION

Drawing our conclusions, our decisions led often to bad results, we particularly misjudged the right
amount of investments needed and how our medium-high quality products needed higher prices to
have a profitable business model. However, we can’t help to make a general consideration about the
game and other players. There were Groups (“gironi”) which made great profits (the best group EBIT
was over 226.000.000 €) while there were others, where the total EBIT of the Group was largely
negative. We were part of the second case, with our “girone” having the second worse EBIT of all.
We believe that this could be one of the reasons of our poor results: in fact we were stuck in a market
which was highly competitive (prices, in general, were really low) and where the quality due to
investments in various fields was always growing because other companies were continuously
investing high quantities of money. We think that, somehow, our “girone” wasn’t profitable, because
its price levels combined with its investment requirements were not supportable by anyone: in fact,
no one of our direct competitors were able to obtain a positive EBIT at the end of the five quarters of
our management. A clear example of this hypothesis is the last quarter, where because of the price
importance in social perception, other players lowered their prices while maintaining their
investments at about the same level (trying not to lose their competitiveness) and this combination of
factors “killed” their EBITs. On the other end, we believe that the best-performing “gironi” were,

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probably, on the opposite strategy: since the six companies of every group work in a closed market
(indeed the “girone”) they could afford to create a sort of “collaborative” market were they set very
high price averages and low investments levels. With this configuration it is possible to obtain the
best results in terms of profits.

We, therefore, advise the future management of our company to try to invert the trend we have just
described and make the best of the trade-off between investments and prices. We leave a SWOT
matrix where we identify our strengths and our weaknesses.

STRENGHTS WEAKNESSES

• Easy production process

• Distribution channel employees
• Quality of produced goods
training
• Distribution channel effectiveness
• Stores location
• Incurred debt
• Quality of advertising, environment
and customer service
OPPORTUNITIES THREATS

• Retail market (Fabrics)

• Local raw materials quality • Wholesale market
• Finished goods market (Fittings and • Market investments level
Furniture) • Market prices level
• Seasonal demand

Table 29 – SWOT Analysis

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 SECTION 6 – BIBLIOGRAPHY

• Giovanni Azzone, Umberto Bertelè, L' impresa. Sistemi di governo, valutazione e

controllo, Editore: ETAS
• Andrea Sianesi, La gestione del sistema di produzione, Editore: ETAS
• Gianluca Spina, La gestione dell'impresa, Editore: ETAS

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