Dynamic Inventory Management with Inventory-based Financing
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AbstractThis study considers a stochastic inventory management problem where a capital-constrained firm can obtain additional working capital through inventory-based financing (IBF) by pledging its inventory to obtain loans from a lender. We show that the firm's optimal inventory policy in each period may order new inventory up to a state-dependent order-up-to level subject to the firm's capital and IBF loan constraints, or salvage existing inventory down to a state-dependent salvage-down-to level. We further partially characterize the structures of the two state-dependent levels in each period. Through analytical and numerical studies, we offer a number of new insights regarding the optimal inventory management for a capital-constrained firm with access to inventory-based financing. In particular, we find that when the firm anticipates a shortage of capital with which to meet high demands in a future period, it may strategically over-stock its inventory in earlier periods in order to secure the necessary capital. Through extensive numerical studies, our study also demonstrates how some of the key parameters may affect the optimal inventory policy and the value of IBF.
Acceptance Date26/09/2020
All Author(s) ListKe Fu, Xiting Gong, Vernon N. Hsu, Jiye Xue
Journal nameProduction and Operations Management
Volume Number30
Issue Number5
Pages1313 - 1330
LanguagesEnglish-United States
Keywordsinventory control, financial constraint, inventory-based financing, optimal policy

Last updated on 2021-27-07 at 23:58