Managing environmental risks with flexibility : case of phosphate fertilizer industry in Morocco

Abstract

This thesis develops and demonstrates, in the context of environmental uncertainties, a process to 1. Quantitatively assess the effects of uncertainties on long-term enterprise performance, 2. Open the design space of strategic planning using real options to mitigate risks and take advantage of positive opportunities. Global warming, which is producing more frequent extreme weather events and driving in-depth societal transformations, increases the need to change usual habits of grounding strategic planning on deterministic forecasts, and pushes for realistic evaluation of potential results under uncertainties. We use a screening model to reproduce enterprise cash-flows and evaluate its net present value under thousands of scenarios (Monte Carlo simulation). This high-level evaluation enables us to test different strategies and compare the distribution of potential outcomes. Overall, we can realistically explore a larger design space for strategic planning, and intentionally integrate flexibility in design with an understanding of potential gains and required preparation. We apply the analysis to a case study inspired by OCP Group, the Moroccan major phosphate mining and fertilizer manufacturer. We examine the fluctuations of commodity markets, and the transformations led by environmental concerns. We recognize that environmental constraints can regionally change the systems of production, the demand, and could deeply impact global fertilizer markets. We especially focus on the risks of an international over-supply, caused by potential drastic decrease in East Asian consumption, and a regional change in the requirements for phosphate rock (e.g., limitation in heavy metals concentration). These could create parallel markets and change the flow of production. Our quantitative analysis indicates the desirability of exploring strategic drivers to complement the traditional price/volume approach. Flexible capacity expansion, in terms of both volume and type of products, coupled with a systemic allocation of production to markets across the industrial bandwidth (instead of a sales strategy by product line), could improve expected NPV significantly.