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Keep or return? Managing ordering and return policies in start-up companies

Keep or return? Managing ordering and return policies in start-up companies
Keep or return? Managing ordering and return policies in start-up companies
Start-up companies are considered an important factor in the success of a nation’s economy. We are interested in the decisions for long-term survival of these firms when they have considerable cash restrictions. In this paper we analyse several inventory control models to manage inventory purchasing and return policies. The Markov decision models are formulated for both established companies that look at maximising average profit and start-up companies that look at maximising their long-term survival probability.
We contrast both objectives, and present properties of the policies and the survival probabilities. We find that start-up companies may need to be riskier if the return price is very low, but there is a period where a start-up firm becomes more cautious than an established company and there is a point, as it accumulates capital, where it starts behaving as an established firm. We compare the various models and give conditions under which their policies are equivalent.
inventory, markov processes, dynamic programming
1356-3548
0377-2217
97-113
Possani, Edgar
a811956e-a248-4996-b2a1-5290148e3868
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Archibald, Thomas W.
7b19237f-0d39-4979-88c5-5c40090991ee
Possani, Edgar
a811956e-a248-4996-b2a1-5290148e3868
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Archibald, Thomas W.
7b19237f-0d39-4979-88c5-5c40090991ee

Possani, Edgar, Thomas, Lyn C. and Archibald, Thomas W. (1970) Keep or return? Managing ordering and return policies in start-up companies. European Journal of Operational Research, 179 (1), 97-113. (doi:10.1016/j.ejor.2006.01.044).

Record type: Article

Abstract

Start-up companies are considered an important factor in the success of a nation’s economy. We are interested in the decisions for long-term survival of these firms when they have considerable cash restrictions. In this paper we analyse several inventory control models to manage inventory purchasing and return policies. The Markov decision models are formulated for both established companies that look at maximising average profit and start-up companies that look at maximising their long-term survival probability.
We contrast both objectives, and present properties of the policies and the survival probabilities. We find that start-up companies may need to be riskier if the return price is very low, but there is a period where a start-up firm becomes more cautious than an established company and there is a point, as it accumulates capital, where it starts behaving as an established firm. We compare the various models and give conditions under which their policies are equivalent.

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More information

Published date: 1 January 1970
Additional Information: Article in Press
Keywords: inventory, markov processes, dynamic programming

Identifiers

Local EPrints ID: 35944
URI: http://eprints.soton.ac.uk/id/eprint/35944
ISBN: 1356-3548
ISSN: 0377-2217
PURE UUID: a87fb37c-6c0f-4cc0-bbe6-5b0f2b9a89f0

Catalogue record

Date deposited: 28 Jun 2006
Last modified: 17 Jul 2017 15:46

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Contributors

Author: Edgar Possani
Author: Lyn C. Thomas
Author: Thomas W. Archibald

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