Two-stage inventory management with financing under demand updates

Tianyun Li, Weiguo Fang and Melike Baykal-Gürsoy

International Journal of Production Economics, 2021, vol. 232, issue C

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 information using 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 an immediate loan if she faces capital constraints and to a 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 state. 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.

Keywords: Supply chain finance; Inventory management; Demand update; Second procurement (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527320302735
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:232:y:2021:i:c:s0925527320302735

DOI: 10.1016/j.ijpe.2020.107915

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().