A dynamic lot-sizing-based profit maximization discounted cash flow model considering working capital requirement financing cost with infinite production capacity

In times of crisis, companies need free cash flow to efficiently react against all uncertainty to ensure solvency. However, classical dynamic lot-sizing models only consider the physical flow of goods. In this paper, we introduce a first link between dynamic lot-sizing and the financial aspects of w...

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Bibliographic Details
Published in:International journal of production economics 2018-02, Vol.196, p.319-332
Main Authors: Bian, Yuan, Lemoine, David, Yeung, Thomas G., Bostel, Nathalie, Hovelaque, Vincent, Viviani, Jean-Laurent, Gayraud, Fabrice
Format: Article
Language:English
Subjects:
Business administration
Delays in payment
Discounted cash flow
Dynamic lot-sizing
Humanities and Social Sciences
Profit maximization
Working capital requirement
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Summary:In times of crisis, companies need free cash flow to efficiently react against all uncertainty to ensure solvency. However, classical dynamic lot-sizing models only consider the physical flow of goods. In this paper, we introduce a first link between dynamic lot-sizing and the financial aspects of working capital requirements (WCR). We propose a new generic WCR model which allows us to evaluate the company's financial situation throughout the planning horizon. Moreover, a dynamic lot-sizing-based, discounted cash flow model is established for single-site, single-level, single-product and infinite capacity cases. It is shown that the zero-inventory ordering property holds for this case and thus a polynomial-time algorithm may be utilized. Numerical tests are presented in order to show the relevance of our approach compared with the traditional dynamic lot-sizing model.
ISSN:0925-5273
1873-7579
DOI:10.1016/j.ijpe.2017.12.002