Asian Journal of Innovation and Policy

Asian Society for Innovation and Policy (아시아기술혁신학회)
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The Flexible Application of Real Options for Subcontractor in the Soft Drink Manufacturing Industry

  • Kume, Katsunori (Department of Electrical and Electronic Information Engineering, Toyohashi University of Technology) ;
  • Fujiwara, Takao (Institute of Liberal Arts and Sciences, Toyohashi University of Technology)
  • Received : 2018.11.26
  • Accepted : 2018.12.23
  • Published : 2018.12.31
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Abstract

In the soft drink industry, especially small and medium enterprises in Japan, there is a possibility of conversion from a labor-intensive industry to a capital-intensive. The demand for soft drinks may not be satisfied in the summer because the supply is too low to meet the demand. To address this situation, this paper proposes optimal investment that integrates demand uncertainty, based on real options approach (ROA) and seasonal autoregressive integrated moving average. Two alternative options are compared and evaluated. One is the Bermudan option: to employ additional workers to elevate efficiency in summer and laying off in winter, this attitude is repeated each year. The other is the American option: to replace equipment to increase machine ability throughout the year. Results in ROA show that the highest improvement is gained if the two options are in a symbiotic relationship. Soft drink producers should search for replacing equipment, using the employees repeatedly. A temporary decision is not equal to an infinite decision.

Keywords

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Figure 2 Asset values movement in binomial lattice model

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Figure 3 Monthly sales results from historical and forecasted data

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Figure 4 Tracking signal

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Figure 5 Probability distribution of PV for NPV

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Figure 6 Probability distribution of volatility

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Figure 7 Probability distribution of American and/or Bermudan options by ROA

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Figure 8 Timing for exercising American option in symbiotic options

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Figure 9 Probability distribution of both American and Bermudan options by finite annuity

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Figure 1 Soft drink sales in targeted plant based on yearly (a) and monthly (b)

Table 1 Averaged historical monthly volatilities from 2008 to 2014

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Table 2 Accounting items and assumptions

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Table 3 Two scenarios for investment

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Table 6 Possible combination of symbiotic options between American and Bermudan options

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Table 2 SARIMA (2, 1, 2) (1, 0, 1)12 model statistics

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Table 3 SARIMA (2, 1, 2) (1, 0, 1)12 model coefficients

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Table 4 Averaged forecasted monthly volatilities from 2015 to 2019

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