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Should start up companies be cautious? Inventory policies which maximise survival probabilities

Should start up companies be cautious? Inventory policies which maximise survival probabilities
Should start up companies be cautious? Inventory policies which maximise survival probabilities
New start-up companies, which are considered to be a vital ingredient in a successful economy, have a different objective than established companies: They want to maximise their chance of long-term survival. We examine the implications for their operating decisions of this different criterion by considering an abstraction of the inventory problem faced by a start-up manufacturing company. The problem is modelled under two criteria as a Markov decision process; the characteristics of the optimal policies under the two criteria are compared. It is shown that although the start-up company should be more conservative in its component purchasing strategy than if it were a well-established company, it should not be too conservative. Nor is its strategy monotone in the amount of capital it has available. The models are extended to allow for interest on investment and inflation.
markov decision processes, inventory, start-up firms
0025-1909
1161-1174
Thomas, L.C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Archibald, T.W.
5b85bd2f-e4de-4a93-8d7a-9cc5f5ac4e48
Betts, J.
7138f156-5b9c-4d4d-820d-730ebb7059f4
Johnston, R.W.
1fc231d9-326b-4806-a47a-d05cdfaae3d9
Thomas, L.C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Archibald, T.W.
5b85bd2f-e4de-4a93-8d7a-9cc5f5ac4e48
Betts, J.
7138f156-5b9c-4d4d-820d-730ebb7059f4
Johnston, R.W.
1fc231d9-326b-4806-a47a-d05cdfaae3d9

Thomas, L.C., Archibald, T.W., Betts, J. and Johnston, R.W. (2002) Should start up companies be cautious? Inventory policies which maximise survival probabilities. Management Science, 48 (9), 1161-1174. (doi:10.1287/mnsc.48.9.1161.176).

Record type: Article

Abstract

New start-up companies, which are considered to be a vital ingredient in a successful economy, have a different objective than established companies: They want to maximise their chance of long-term survival. We examine the implications for their operating decisions of this different criterion by considering an abstraction of the inventory problem faced by a start-up manufacturing company. The problem is modelled under two criteria as a Markov decision process; the characteristics of the optimal policies under the two criteria are compared. It is shown that although the start-up company should be more conservative in its component purchasing strategy than if it were a well-established company, it should not be too conservative. Nor is its strategy monotone in the amount of capital it has available. The models are extended to allow for interest on investment and inflation.

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Published date: 2002
Keywords: markov decision processes, inventory, start-up firms

Identifiers

Local EPrints ID: 35843
URI: http://eprints.soton.ac.uk/id/eprint/35843
ISSN: 0025-1909
PURE UUID: cf05cfc2-e379-4c34-90e0-aabf3f49a1ff

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Date deposited: 24 May 2006
Last modified: 15 Mar 2024 07:54

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Contributors

Author: L.C. Thomas
Author: T.W. Archibald
Author: J. Betts
Author: R.W. Johnston

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