Safety analysis of manufacturing investment alternatives under uncertainty of product selling price, sales volume and market life

Research output: Contribution to journalArticle

Abstract

With the recent diversification of product preferences and increasing competition among companies, uncertainty of product demand is increasing. Product market life becomes shorter and precise prediction of selling price, sales volume and market life of products is becoming difficult. As an analysis on investment for product manufacturing, it is insufficient to only calculate the profit/loss under their expected values. There is a need for a method to quantitatively evaluate the risk of investment proposals. Within such a social background, this paper considers a method for evaluating the profitability and safety of manufacturing investment alternatives under the assumption that product selling price, sales volume and market life are uncertain. In the research, the concept of safety is first defined as the change in the rate of uncertain factors until the profit becomes zero. Next, the paper proposes a method for visualizing the profitability and safety of investment alternatives. In the method proposed, manufacturing investment alternatives are represented as triangles in the X-Y plane indicating the initial investment amount, annual fixed cost and unit variable cost. This method makes it possible to observe superiority or inferiority of the investment alternatives from the viewpoint of profitability and safety against uncertain change of product selling price, sales volume and market life. In addition, the proposed method by using the X-Y plane can help to examine new investment alternatives with improved profit and safety. For example, it can consider improved alternatives which raise safety against shortening market life while maintaining the target profit by reducing the initial investment amount and increasing the unit variable cost.

Original languageEnglish
Pages (from-to)62-70
Number of pages9
JournalJournal of Japan Industrial Management Association
Volume70
Issue number2
DOIs
Publication statusPublished - 2019 Jan 1

Fingerprint

Sale price
Safety Analysis
Sales
Manufacturing
Uncertainty
Profitability
Alternatives
Safety
Profit
Costs
Life
Market
Alternative investments
Unit
Diversification
Expected Value
Annual
Triangle

Keywords

  • Investment analysis
  • Market life
  • Safety analysis
  • Sales volume
  • Selling price

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Applied Mathematics

Cite this

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title = "Safety analysis of manufacturing investment alternatives under uncertainty of product selling price, sales volume and market life",
abstract = "With the recent diversification of product preferences and increasing competition among companies, uncertainty of product demand is increasing. Product market life becomes shorter and precise prediction of selling price, sales volume and market life of products is becoming difficult. As an analysis on investment for product manufacturing, it is insufficient to only calculate the profit/loss under their expected values. There is a need for a method to quantitatively evaluate the risk of investment proposals. Within such a social background, this paper considers a method for evaluating the profitability and safety of manufacturing investment alternatives under the assumption that product selling price, sales volume and market life are uncertain. In the research, the concept of safety is first defined as the change in the rate of uncertain factors until the profit becomes zero. Next, the paper proposes a method for visualizing the profitability and safety of investment alternatives. In the method proposed, manufacturing investment alternatives are represented as triangles in the X-Y plane indicating the initial investment amount, annual fixed cost and unit variable cost. This method makes it possible to observe superiority or inferiority of the investment alternatives from the viewpoint of profitability and safety against uncertain change of product selling price, sales volume and market life. In addition, the proposed method by using the X-Y plane can help to examine new investment alternatives with improved profit and safety. For example, it can consider improved alternatives which raise safety against shortening market life while maintaining the target profit by reducing the initial investment amount and increasing the unit variable cost.",
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N2 - With the recent diversification of product preferences and increasing competition among companies, uncertainty of product demand is increasing. Product market life becomes shorter and precise prediction of selling price, sales volume and market life of products is becoming difficult. As an analysis on investment for product manufacturing, it is insufficient to only calculate the profit/loss under their expected values. There is a need for a method to quantitatively evaluate the risk of investment proposals. Within such a social background, this paper considers a method for evaluating the profitability and safety of manufacturing investment alternatives under the assumption that product selling price, sales volume and market life are uncertain. In the research, the concept of safety is first defined as the change in the rate of uncertain factors until the profit becomes zero. Next, the paper proposes a method for visualizing the profitability and safety of investment alternatives. In the method proposed, manufacturing investment alternatives are represented as triangles in the X-Y plane indicating the initial investment amount, annual fixed cost and unit variable cost. This method makes it possible to observe superiority or inferiority of the investment alternatives from the viewpoint of profitability and safety against uncertain change of product selling price, sales volume and market life. In addition, the proposed method by using the X-Y plane can help to examine new investment alternatives with improved profit and safety. For example, it can consider improved alternatives which raise safety against shortening market life while maintaining the target profit by reducing the initial investment amount and increasing the unit variable cost.

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