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Managing inventory and production capacity in start-up firms

Managing inventory and production capacity in start-up firms
Managing inventory and production capacity in start-up firms
We consider the problem of managing inventory and production capacity in a start-up manufacturing firm with the objective of maximising the probability of the firm surviving as well as the more common objective of maximising profit. Using Markov decision process models, we characterise and compare the form of optimal policies under the two objectives. This analysis shows the importance of coordination in the management of inventory and production capacity. The analysis also reveals that a start-up firm seeking to maximise its chance of survival will often choose to keep production capacity significantly below the profit-maximising level for a considerable time. This insight helps us to explain the seemingly cautious policies adopted by a real start-up manufacturing firm.
start-up firms, inventory, production capacity, stochastic modelling, markov decision processs
0160-5682
1624-1634
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Possani, E
b7ed7f3e-169c-48df-a326-d4d908b5e5c4
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Possani, E
b7ed7f3e-169c-48df-a326-d4d908b5e5c4

Thomas, Lyn C. and Possani, E (2014) Managing inventory and production capacity in start-up firms. Journal of the Operational Research Society, 66, 1624-1634. (doi:10.1057/jors.2014.110).

Record type: Article

Abstract

We consider the problem of managing inventory and production capacity in a start-up manufacturing firm with the objective of maximising the probability of the firm surviving as well as the more common objective of maximising profit. Using Markov decision process models, we characterise and compare the form of optimal policies under the two objectives. This analysis shows the importance of coordination in the management of inventory and production capacity. The analysis also reveals that a start-up firm seeking to maximise its chance of survival will often choose to keep production capacity significantly below the profit-maximising level for a considerable time. This insight helps us to explain the seemingly cautious policies adopted by a real start-up manufacturing firm.

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More information

Accepted/In Press date: 1 October 2014
e-pub ahead of print date: 17 December 2014
Keywords: start-up firms, inventory, production capacity, stochastic modelling, markov decision processs
Organisations: Centre of Excellence in Decision, Analytics & Risk Research

Identifiers

Local EPrints ID: 380297
URI: https://eprints.soton.ac.uk/id/eprint/380297
ISSN: 0160-5682
PURE UUID: 7f857648-3f34-42b6-a8a6-75207c8f22a2

Catalogue record

Date deposited: 08 Sep 2015 13:11
Last modified: 19 Jul 2019 20:36

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