Should Start-up Companies Be Cautious? Inventory Policies Which Maximise Survival Probabilities

New start-up companies, which are considered to be a vital ingredient in a successful economy, have a different objective than established companies: They want to maximise their chance of long-term survival. We examine the implications for their operating decisions of this different criterion by con...

Full description

Saved in:
Bibliographic Details
Published in:Management science 2002-09, Vol.48 (9), p.1161-1174
Main Authors: Archibald, T. W, Thomas, L. C, Betts, J. M, Johnston, R. B
Format: Article
Language:English
Subjects:
Borrowing
Boundary conditions
Business orders
Business studies
Capital costs
Carrying costs
Corporate profits
Decision making
Dynamic programming
Enterprises
Integers
Inventories
Inventory
Inventory control
Inventory management
Management science
Manufacturing
Markov analysis
Markov Decision Processes
Mathematical models
Mathematical programming
Optimal policy
Order quantity
Probability
Production planning
Start up firms
Startups
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:New start-up companies, which are considered to be a vital ingredient in a successful economy, have a different objective than established companies: They want to maximise their chance of long-term survival. We examine the implications for their operating decisions of this different criterion by considering an abstraction of the inventory problem faced by a start-up manufacturing company. The problem is modelled under two criteria as a Markov decision process; the characteristics of the optimal policies under the two criteria are compared. 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 it has available. The models are extended to allow for interest on investment and inflation.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.48.9.1161.176