Managing Inventory for a Multidivisional Firm with Cash Pooling

Kevin Shang, Jianan Wang and Yi Yang

Foundations and Trends(R) in Technology, Information and Operations Management, 2017, vol. 10, issue 3-4, 324-337

Abstract: We consider a multi-divisional firm in which each division replenishes its inventory and the headquarter coordinates the cash flow through a master account over a finite horizon. The demands of the divisions are stochastic and may be correlated. The objective is to find an optimal joint inventory replenishment and cash retention policy which maximizes the firm’s working capital. We show that this problem is equivalent to minimizing the total system cost. Due to curse of dimensionality, the optimal policy is difficult to obtain. Nevertheless, we characterize the properties of the optimal policy and develop a simple heuristic that possesses these properties. A numerical study shows that the heuristic is near-optimal. We explore managerial insights through the heuristic. Among others, we find that the value of cash pooling is most significant when the demands of the divisions are negatively correlated.

Keywords: Supplier financing; Supply chain finance; Cost of capital (search for similar items in EconPapers)
JEL-codes: G20 G32 M11 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1561/0200000064 (application/xml)

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:now:fnttom:0200000064

Access Statistics for this article

More articles in Foundations and Trends(R) in Technology, Information and Operations Management from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().