Analysis of industrial Cluster’s Profit Based on the

Cluster’s Production load Balance

Chen Wang, Li Guofu , Ye Feifan

Faculty of Engineering
Ningbo University
Ningbo, Zhejiang, 315211, China
E-mail:liguofu@nbu.edu.cn

Abstract—The definition of industrial cluster’s production load

balance and the approximate formula of lg on ρ based on
nonlinear break-even analysis are presented for solving the
problem of industrial cluster’s production load imbalance. Based
on the approximate formula, a cluster’s profit during production
load balance is compared with the cluster’s profit during
production load imbalance under different cluster’s production
load rate. The result shows that production load balance can
make the cluster gain high profit when the cluster’s production
load is appropriate or large. Only when a cluster’s production
load is too small, the conclusion fails.
Keywords- technical economics; production load balance;
nonlinear break-even analysis; industrial cluster
I. INTRODUCTION
Based on the research of industrial clusters in the southeast
region of Zhejiang, such as Beilun die cluster in Ningbo,
bearing cluster in Andong town, the author found the
enterprises’ load are fluctuating largely, and not balanced
allocation in most clusters. In response to this phenomenon,
sharing order or allocating order can be used for solving the
problem. In recent years, for the outsourcing problem of
manufacturing enterprises, scholars abroad put forward multi-
object programming models with the objects of minimizing
the cost of outsourcing, optimizing the products’ quality, and
so on. For example, Ezgi AD combined network analysis with
multi-object mixed integer linear programming model for
solving the outsourcing problem of manufacturing enterprises
[2].
Chinese scholars also put forward many methods of order
allocation. Xiang Jinqian and Huang Peiqing put forward an
order allocating model to maximize the profit of Horizontal-
enterprise group [4]. Ji Xiaoli put forward an order allocating
model to minimize the cost of a supply chain, and use the
hybrid genetic algorithm for solving the model [5].
Cluster’s profit during production load balance is compared
with cluster’s production load imbalance in the paper. The
result is useful for sharing order or allocating order in most
clusters.
II. RELATED CONCEPTS OF PRODUCTION LOAD
The definition of enterprise’s production load is the
numbers of all products in an enterprise of a period time as the
enterprise scale and the level of technology and organization
unchanged.
Gi : The production load of enterprise ‘i’ in a period of
time. G : The production load of industrial cluster in a period
of time. Gl : The production capacity of industrial cluster in a
period of time.
Production load rate of industrial cluster:’ ρ = o ( G ) ’,
o (G l )
numerator and denominator separately express the sum of
production loads and capacities of enterprises with the same
type of business in cluster. (Enterprises with the same type of
business means these enterprises produce same or similar
products)
The production load balance of a cluster for a certain
period of time, its mathematical expression:
⎛ 2⎞
min⎜ ∑ (ρ i − ρ ) ⎟ (2-1)
⎝ i ⎠
‘ ρ i ’ is production load rate of enterprise ‘i’, ρ i = G i , Gli
G li
expresses the production capacity of enterprise ‘i’ for a period
time.
The production load balance of a cluster is based on
production load of cluster and enterprise production capacity of
the cluster being known, and are achieved with measures like
order distribution or sharing. The variables are
Gi , i = 1, " , o(m) in (2-1), the others are constant, o(m ) is
the number of enterprises with the same type of business in a
cluster.
Break-even analysis is to analyze the relation between
output, cost and profit. The more common non-linear break-
even analysis is a quadratic curve analysis [9-10]. When the
corporate income is quadratic function about output, the
enterprise profit formula is:
Bi = k i1Gi − k i 2 (Gi ) 2 − Fi , k i1 > 0, k i 2 > 0 (2-2)

The paper supported by National Natural Science Foundation of China

(No.70871062); Natural Science Foundation of Zhejiang Province, China
(No. Y1080429).

978-1-4244-4639-1/09/$25.00 ©2009 IEEE

In (2-2), ‘ Bi ’ means the profit of enterprise ‘i’, k i1 , k i 2 and curves are intersectant. ρ 4 : Production load rate when profit
Fi are constants. Fi : The unchanged cost of enterprise ‘i’. per unit production is largest. Two points are selected around
ρ 4 , recorded as ρ 3 、 ρ 5 ,satisfying that when ∀ρ 、
k i1 : The dispersion between price and variable cost per unit
ρ + δρ ∈ [ ρ 3 , ρ 5 ] ， lg( ρ ) ≅ lg( ρ + δρ ) . When
of product. k i 2 : The dispersion between the variable quantities
of price and variable cost per unit of product. ρ < ρ 3 , satisfying: ρ ↓ ， lg ↓↓ . When ρ > ρ 5 ,
Based on (2-2), the formula of profit per unit product is: satisfying: ρ ↑ ， lg ↓↓ .
lg i = k i1 − k i 2 Gli ρ i − Fi / (ρ i * Gli ) （2-3） So, you can use a relatively simple formula to replace the
According to the relationship between lg i and ρ i , the formula (2-3). This is a piecewise function. In the following
analysis, we use this formula for analyzing the cluster profit as
curve of profit per unit product about production load rate is a
convex upward curve. In the following figure 1,2 and the production load balance. Piecewise function lg i (ρ i ) :
process of obtaining correlative formula, lg i , k i1 ,−k i 2 Gli ρ i ρ i − ρ i1
lg i = ( ) * lg i , max ，0 < ρ i < ρ i 3；
and − Fi / (ρ i * Gli ) is replaced by lg, k1 ,− k 2 Gl ρ and ρ i 3 − ρ i1
− F / (ρ * Gl ) . ρ − ρi
lg i = ( i 2 ) * lg i , max ， ρ i 5 < ρ i < ∞;
ρ i2 − ρ i 5
lg k1 lg i = lg i, max， ρ i 3 ≤ ρ i ≤ ρ i 5； i = 1, " , m
ρ i1 : The first breakeven point of enterprise ‘i’; ρ i3 : The
floor lower limit of expectation of production load rate; ρ i5 :
ρ3 ρ4 ρ5
The upper limit of expectation of production load rate; ρi2 :
ρ The second breakeven point.
According to piecewise function, an enterprise gains
−F/(ρ*Gl )
maximum profit per unit of production as ρ i ∈ [ ρ i 3 , ρ i 5 ] . In
this paper, we make these enterprises known as Class Ⅱ
− k 2 Gl ρ
enterprises. [ ρ i 3 , ρ i 5 ] is the best production load rate area for
Figure1 the figure of lg, k1 ,− k 2 Gl ρ and − F / (ρ * Gl ) an enterprise. The enterprises are called Class Ⅰ enterprises
when their production load rates in the range of (0, ρ i 3 ) .
lg
They are called Class Ⅲ enterprises when their production
2 load rates in the range of ( ρ i 5 , ∞) .

1 3 III. ANALYSIS OF CLUSTER’S PROFIT AND THE RESULTS

ρ i = ρ + δ i : Production load rate of an enterprise,

ρ ∀i, δ i are variables, k: Segment 1 in figure 2; k1: Segment 3

ρ1 ρ3 ρ4 ρ5 ρ2 in figure 2.
Nature (1): the same type enterprises in a cluster, their
Figure2 the formula of profit per unit product lg − ρ curves are similar.
The curve of ‘ − F / (ρ * Gl ) ’ is one of hyperbola First, resources can be shared. Second, the competition and
cooperation in a cluster accelerates the high-speed flows of
( ρ >0 ). ρ → 0,− F / (ρ * Gl ) → −∞; human resources, production technology and information [13-
ρ → ∞,− F / (ρ * Gl ) → 0 . − k 2 Gl ρ and k1 are two 14]. So Nature (1) is tenable for most clusters.
Nature (2): ∀i, ρ i = ρ + δ i , if
beeline. As ρ → 0 , formula (2-3) depends on the magnitude
lg i = lg i ,max , δ i =constant. For an enterprise, when the
of − F / (ρ * Gl ) . As ρ → ∞ , formula (2-3) depends on
production load rate is in the best range, obtaining maximum
the magnitude of − k 2 Gl ρ . profit per unit of production. For its own benefit, the
lg max is obtained when − k 2 Gl ρ and − F / (ρ * Gl ) ’s enterprise does not change its production load. So Nature (2)
is correct.
 We can see the difference between industrial cluster and involved in the process of production load balance.
enterprise groups or multinational corporations from Nature Particularly, the cooperation of enterprises can bring
(2). The groups and multinational corporations’ aim are synergistic effect, so the cluster profit after load balance not
maximizing whole benefit, so the production load of each equal to the sum of enterprises’ profit of the cluster. But in
enterprise or factory is decided by groups or multinational order to facilitate analysis, it is assumed that the cluster profit
corporations’ whole benefit. But clusters are different, the after load balance not equal to the sum of enterprises’ profit of
production load of any enterprise in a cluster is decided by the cluster.
itself benefit. Nature (2) is correct for cluster but not groups or It is known that ,
multinational corporations.
G = const ∑t
t

It is assumed that profit and production of enterprises in a ∑G t

, ,
cluster meet conic relationship in the following analysis. ρ= t
= const ∑G lt ρ t = ∑ Gt
A cluster’s profit in a period of time: ∑G t
lt
t t

∑ lg i Gi = ∑ k v ( ρ + δ v − ρ v1 )Glv ( ρ + δ v ) + ∑ k h ( ρ h3 − ρ h1 )Glh ( ρ + δ h ) + ( ρ + δ t ) = ∑ Glt ρ + ∑ Glt δ t = ∑ Gt + ∑ Glt δ t = ∑ Gt , it is

i v h ∑G lt

∑k
t t t t t t
1
( ρ + δ t − ρ t 2 )Glt ( ρ + δ t )
∑G δ
t
t obtained that lt t = 0 . According to Nature (1), meet:
(3-1) t
v = 1, ", mV , h = 1, " , m H , t = 1, " , mT , mV + m H + mT = m ∑k 1
t (2 ρ − ρ t 2 )
. All enterprises of Class Ⅲ ,
. The first part of formula (3-1) is the sum of Class Ⅰ ∀t , k (2 ρ − ρ t 2 ) ≅
1
t
t

mT
enterprises’ profit. The second part is Class Ⅱ, the last part the second half of their lg- ρ curves are similar. So
Class Ⅲ. ‘m’ is the number of the same type enterprises in a
cluster.
∑k G
h
1
h lh ( ρ + δ h )( ρ h 5 − ρ h 2 ) + ∑ k t1Glt [( ρ ) 2 − ρρ t 2 + (δ t ) 2 ]
t

ρ = min (ρ13 ," , ρ m 3 )

D
3 ， ρ 3 = max(ρ13 , " , ρ m 3 ) ， ≤ ∑ k h1Glh ( ρ + δ h )( ρ h 5 − ρ h 2 ) + ∑ k t1Glt [( ρ ) 2 − ρρ t 2 ] − mT ∏ ( ( − k t1 )Glt δ t ),
h t t

ρ 5 = max(ρ15 , ", ρ m 5 ) ρ 5D = min (ρ 15 ," , ρ m 5 ) . ∑ (−k t1 )Glt δ t

Only as ∀t , (−k 1 )G δ = , obtaining equal sign.
[ ρ 3M , ρ 5M ] = {[ ρ 13 , ρ 15 ] ∩ " ∩ [ ρ m 3 , ρ m 5 ]} .
t
t lt t
mT
If [ ρ 3 , ρ 5 ] = φ , the analysis can be divided into five So as ∀t , δ t = 0 , there is high cluster profit as production
M M

cases to discuss. （1） ρ ∈ [ ρ 5 , ∞ ) ，（2） ρ ∈ [ ρ 3 , ρ 5 ) load of enterprises in a cluster balance.

As [ ρ 3 , ρ 5 ] = φ , case (2) is
M
ρ ∈ [ ρ 3 , ρ 5 ) , and as
M
，（3） ρ ∈ [ ρ 5D , ρ 3 ) ， （ 4 ） ρ ∈ [ ρ 3D , ρ 5D ) ， （ 5 ）
[ ρ 3M , ρ 5M ] ≠ φ ,case (2) is ρ ∈ [ ρ 5D , ρ 5 ) . The processes
ρ ∈ (0, ρ 3D ) .
of analysis of the two cases are similar as ρ ∈ [ ρ 5 , ∞ ) .
If [ ρ 3 , ρ 5 ] ≠ φ , the analysis can be divided into other
M M

five cases to discuss. （ 1 ） ρ ∈ [ ρ 5 , ∞ ) ， （ 2 ）

As [ ρ 3M , ρ 5M ] ≠ φ , ρ ∈ [ ρ 3 , ρ 5D ) ,meet
∀i, ρ i = ρ , lg i = lg i ,max . When it is meet that
ρ ∈ [ ρ 5D , ρ 5 ) ， （ 3 ） ρ ∈ [ ρ 3 , ρ 5D ) ， （ 4 ）
ρ ∈ [ ρ 3D , ρ 3 ) ，（5） ρ ∈ (0, ρ 3D ) .
∑ lg i , max
∀i, lg i ,max ≅ i
= lg max , the cluster profit as load balance:
m
ρ range of high profit as load balance ⎛ ⎞
A. lg max G = ⎜ ∑ lg i Gi ⎟ . So there is highest cluster profit as
It is assumed that the production load rates of enterprises in ⎝ i ⎠ max
load balance.
a cluster can be absolutely balanced. It means enterprises in a
cluster can meet: ∀i, i = 1, " , o(m ), ρ i = ρ . B. ρ range of low profit as load balance
Through order distribution or sharing, part of production
load of enterprises of Class Ⅲ is moved to the enterprises of As [ ρ 3M , ρ 5M ] = φ , ρ ∈ [ ρ 5D , ρ 3 ) , enterprises’
Class Ⅰ , it can increase the profit of enterprises of both production loads balanced in a cluster, then the cluster profit:
Classes. As ρ ∈ [ ρ 5 , ∞ ) , it means the load of cluster is ∑ lg
i
i Gi = ∑ k v ( ρ − ρ v1 )Glv ρ + ∑ k h ( ρ h3 − ρ h1 )Glh ρ +∑ k t1 ( ρ − ρ t 2 )Glt ρ
v h t

larger or even too large. Through enterprises’ load adjustment (3-2)

in a cluster, make the enterprises of Class Ⅰbecome Class Ⅱ. Through order distribution or sharing to make load balance,
Then the cluster profit formula becomes: part of production load of enterprises of Class Ⅲ is moved to
∑ lg G = ∑ k
i
i i
h
1
h ( ρ h5 − ρ h 2 )Glh ( ρ + δ h ) + ∑ k t1 ( ρ + δ t − ρ t 2 )Glt ( ρ + δ t )
t
the enterprises of Class Ⅰ , it can increase the profit of
h = 1,", m H , t = 1, ", mT , m H + mT = m enterprises of both Classes. So as [ ρ 3M , ρ 5M ] = φ ,
Based on Nature (2), enterprises of Class Ⅱ are not
ρ ∈ [ ρ 5D , ρ 3 ) , there is low cluster profit as load balance. IV. CONCLUSIONS
Production load balance will lead to a cluster obtain high
As [ ρ 3 , ρ 5 ] = φ , ρ ∈ [ ρ 3 , ρ 5 ) . ρ ∈ [ ρ 3 , ρ 5 ) ,it
M M D D D D
profit when the industrial cluster’s production load is suitable
means the cluster production load is low, through adjustment or large. Production load balance will lead to the cluster obtain
of enterprises load in the cluster, make the enterprises of Class low profit when the industrial cluster’s production load is too
Ⅲ become enterprises of Class Ⅱ. Then the cluster profit: low.
∑ lgi Gi = ∑ k h (ρ h3 − ρ h1 )Glh (ρ + δ h ) + ∑ kv ( ρ + δ v − ρ v1 )Glv (ρ + δ v )
i h v
The results of analysis in this paper provide a theoretical
basis for order distribution or sharing in a cluster. When a
h = 1,", m H , v = 1, ", mV , m H + mV = m cluster production load is suitable or large, making the
enterprises’ production load balance in the cluster in one way
According to Nature (1), meet: or another, the cluster can obtain high cluster profit.
∑ k v (2 ρ − ρ v1 )
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