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Zbl 1155.90307
Chao, Xiuli; Chen, Jia; Wang, Shouyang
Dynamic inventory management with cash flow constraints. (English)
[J] Nav. Res. Logist. 55, No. 8, 758-768 (2008). ISSN 0894-069X; ISSN 1520-6750/e

Summary: 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.

MSC 2000:: *90B05 Inventory management

Keywords: dynamic inventory management; financial constraint; base-stock policy

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