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Dynamic lot-sizing in a two-stage supply chain with liquidity constraints and financing options

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  • Kajjoune, Oussama
  • Aouam, Tarik
  • Zouadi, Tarik
  • Ranjan, Ravi Prakash

Abstract

Dynamic lot-sizing has typically been studied in the context of optimizing the physical flow of goods to minimize supply chain costs, assuming that there is always enough cash to finance operations. In practice, small- and medium-sized firms are more likely to be financially constrained and find themselves making sub-optimal production and inventory decisions. We consider a supply chain with two capital-constrained firms – a supplier and a manufacturer – and present a model to jointly optimize lot-sizing, initial endowment and short-term amounts to borrow, the capital to subscribe from shareholders, and deposits to invest. The objective is to maximize the net present value of supply chain cash flows subject to operational and financial constraints. Structural properties of the optimal solution are derived, and a dynamic programming algorithm is developed to solve the supply chain problem.

Suggested Citation

  • Kajjoune, Oussama & Aouam, Tarik & Zouadi, Tarik & Ranjan, Ravi Prakash, 2023. "Dynamic lot-sizing in a two-stage supply chain with liquidity constraints and financing options," International Journal of Production Economics, Elsevier, vol. 258(C).
    • Handle: RePEc:eee:proeco:v:258:y:2023:i:c:s0925527323000312
    DOI: 10.1016/j.ijpe.2023.108799
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