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Managing inventory and production capacity in start-up firms

Author

Listed:
  • Thomas W Archibald

    (University of Edinburgh Business School, Edinburgh, UK)

  • Edgar Possani

    (Instituto Tecnologico Autonomo de Mexico ITAM, Mexico City, Mexico)

  • Lyn C Thomas

    (University of Southampton, Southampton, UK)

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.

Suggested Citation

  • Thomas W Archibald & Edgar Possani & Lyn C Thomas, 2015. "Managing inventory and production capacity in start-up firms," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 66(10), pages 1624-1634, October.
    • Handle: RePEc:pal:jorsoc:v:66:y:2015:i:10:p:1624-1634
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    Cited by:

    1. Chen, Zhen & Rossi, Roberto, 2021. "A dynamic ordering policy for a stochastic inventory problem with cash constraints," Omega, Elsevier, vol. 102(C).

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