Two-stage inventory management with financing under demand updates

Abstract

Considered is a retailer (she) facing non-stationary stochastic demand. Demand can be fully observed and backlogged, consequently the retailer can update the initial demand by a Bayesian approach. To alleviate the demand risk, the retailer may use a secondary opportunity to replenish through an option contract. In addition, the retailer also has access to immediate loan if she faces capital constraints and risk-free investment if she has surplus funds. The paper presents a recourse approach to solve the two-stage optimization problem and derive the optimal inventory/financing policies. The results show that the option procurement policy has a two-threshold base-stock structure depending on the first procurement, demand update and also the retailer’s financial situation. The initial procurement can be computed subsequently. A sufficiently large initial demand will induce the retailer to seize the secondary procurement opportunity. Finally, a series of numerical examples demonstrate the resulting policy under various inventory/financial situations. This research incorporates the financial and operational decisions into demand updates, and brings new managerial results and insights.

Dynamic lot-sizing in a two-stage supply chain with liquidity constraints and financing options

“…They also studied the interactions between operational and financial decisions and the impact of credit lines on contract coordination. Other studies have investigated capital-constrained multistage single-period inventory models considering a single financing source (Li et al, 2021;Yan et al, 2016;Yuan et al, 2021) and those considering multiple financing sources (Cao et al, 2019;Hua et al, 2019;Huang et al, 2020;Kouvelis and Zhao, 2012;Li et al, 2018;Luo et al, 2020;Nigro et al, 2021;Zhen et al, 2020). The above papers show that there is value in coordinating inventory and financial decisions in multistage systems; however, they do not reflect the effect of ordering or setup costs.…”

Coordinating a supply chain with demand information updating

“…First, demand information updating occurs in the sales season in a two-period modeling framework. The downstream member can use the realized demand in the first period to update the demand forecast for the second period (see ( see [10,12,24,25,42]). For example, Barnes-Schuster et al [4] investigate the role of options in a buyer-supplier system with two-stage correlated demand.…”

Linking Inventory Efficiency, Productivity and Responsiveness to Firm Performance in Pakistan

“…Inventory management can be defined as all the practices carried out to ensure that the customers are provided with the necessary goods and services. It brings together manufacturing, distribution, purchasing, and selling processes to fulfill the marketing as well as the company's needs of providing the final product to the end customer (T. Li, Fang, & Baykal-Gürsoy, 2021). It also involves specifying the size and placement of inventory items to multiple locations in the supply chain to guarantee a smooth flow of production.…”