Dynamic inventory management with cash flow constraints |
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Authors: | Xiuli Chao Jia Chen Shouyang Wang |
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Institution: | 1. Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48109‐2117;2. Institute of Systems Science, Chinese Academy of Sciences, Beijing 100080, China |
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Abstract: | In this article, we consider a classic dynamic inventory control problem of a self‐financing retailer who periodically replenishes its stock from a supplier and sells it to the market. The replenishment decisions of the retailer are constrained by cash flow, which is updated periodically following purchasing and sales in each period. Excess demand in each period is lost when insufficient inventory is in stock. The retailer's objective is to maximize its expected terminal wealth at the end of the planning horizon. We characterize the optimal inventory control policy and present a simple algorithm for computing the optimal policies for each period. Conditions are identified under which the optimal control policies are identical across periods. We also present comparative statics results on the optimal control policy. © 2008 Wiley Periodicals, Inc. Naval Research Logistics 2008 |
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Keywords: | dynamic inventory management financial constraint base‐stock policy |
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