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Loans, ordering and shortage costs in start-ups: a dynamic stochastic decision approach

Author

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  • E Possani

    (University of Southampton)

  • L C Thomas

    (University of Southampton)

  • T W Archibald

    (University of Edinburgh)

Abstract

Start-up companies are a vital ingredient in the success of a globalised networked world economy. We believe that such companies are interested in maximising the chance of surviving in the long term. We present a Markov decision model to analyse survival probabilities of start-up manufacturing companies. Our model examines the implications of their operating decisions, in particular how their inventory strategy is influenced by purchasing, shortage, transportation and ordering costs, as well as loans to the firm. 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 available.

Suggested Citation

  • E Possani & L C Thomas & T W Archibald, 2003. "Loans, ordering and shortage costs in start-ups: a dynamic stochastic decision approach," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 54(5), pages 539-548, May.
    • Handle: RePEc:pal:jorsoc:v:54:y:2003:i:5:d:10.1057_palgrave.jors.2601547
    DOI: 10.1057/palgrave.jors.2601547
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    References listed on IDEAS

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    1. Cifarelli, Michele D. & Masciandaro, Donato & Peccati, Lorenzo & Salsa, Sandro & Tagliani, Aldo, 2002. "Success or failure of a firm under different financing policies: A dynamic stochastic model," European Journal of Operational Research, Elsevier, vol. 136(3), pages 471-482, February.
    2. T. W. Archibald & L. C. Thomas & J. M. Betts & R. B. Johnston, 2002. "Should Start-up Companies Be Cautious? Inventory Policies Which Maximise Survival Probabilities," Management Science, INFORMS, vol. 48(9), pages 1161-1174, September.
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    Cited by:

    1. Omar Besbes & Dan A. Iancu & Nikolaos Trichakis, 2018. "Dynamic Pricing Under Debt: Spiraling Distortions and Efficiency Losses," Management Science, INFORMS, vol. 64(10), pages 4572-4589, October.
    2. Archibald, Thomas W. & Thomas, Lyn C. & Possani, Edgar, 2007. "Keep or return? Managing ordering and return policies in start-up companies," European Journal of Operational Research, Elsevier, vol. 179(1), pages 97-113, May.

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