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Inventory Control Under Financial Turbulence

In: Cross-Functional Inventory Research

Author

Listed:
  • Lucy Gongtao Chen
  • Lawrence W. Robinson
  • Robin O. Roundy
  • Rachel Q. Zhang

Abstract

In global supply chains, both the operational costs and discount factors of a firm can be strongly affected by unpredictable national and international economic forces. In this chapter, we investigate the impact of these financial uncertainties on inventory decisions by modeling the operational costs, discount factors, and demands as stochastic processes that evolve as financial uncertainties are realized over time. To illustrate the benefits of incorporating stochastic discount factors, we conduct a case study of four types of Mexican firms who conduct sizeable business with the U.S.With a discount factor model fitted to data, we conduct a numerical study and show that both the business type and the stockout protocol strongly affect the optimal inventory decisions, and that the cost penalty for ignoring the dynamic nature of the financial environment can exceed 36%.

Suggested Citation

  • Lucy Gongtao Chen & Lawrence W. Robinson & Robin O. Roundy & Rachel Q. Zhang, 2016. "Inventory Control Under Financial Turbulence," World Scientific Book Chapters, in: Srinagesh Gavirneni (ed.), Cross-Functional Inventory Research, chapter 3, pages 51-87, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813144347_0003
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    More about this item

    Keywords

    Inventory Management; Cross-Functional Approach; Business Strategy;
    All these keywords.

    JEL classification:

    • M19 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Other

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