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Inventory Management with Asset-Based Financing

Most of the traditional models in production and inventory control ignore the financial states of an organization and can lead to infeasible practices in real systems. This paper is the first attempt to incorporate asset-based financing into production decisions. Instead of setting a known, exogenou... Full description

Journal Title: Management Science 2004-09-01, Vol.50 (9), p.1274-1292
Main Author: Buzacott, John A
Other Authors: Zhang, Rachel Q
Format: Electronic Article Electronic Article
Language: English
Subjects:
Quelle: Alma/SFX Local Collection
Publisher: Linthicum: INFORMS
ID: ISSN: 0025-1909
Link: http://econpapers.repec.org/article/inmormnsc/v_3a50_3ay_3a2004_3ai_3a9_3ap_3a1274-1292.htm
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recordid: cdi_jstor_primary_30046233
title: Inventory Management with Asset-Based Financing
format: Article
creator:
  • Buzacott, John A
  • Zhang, Rachel Q
subjects:
  • Accounts receivable
  • Analysis
  • asset
  • asset-based financing
  • Assets
  • Assets (Accounting)
  • Bank capital
  • Bank loans
  • Bankruptcy
  • based financing
  • Business studies
  • Capital market
  • Cash
  • Commercial loans
  • Finance
  • Financial management
  • Financial risk
  • Financing
  • Interest rates
  • Inventories
  • Inventory
  • Inventory control
  • Inventory management
  • loan limits
  • Loans
  • Management
  • Management science
  • Mathematical models
  • production
  • production/inventory management
  • Retail stores
  • Studies
  • supply chain management
  • Supply chains
  • Unsecured loans
ispartof: Management Science, 2004-09-01, Vol.50 (9), p.1274-1292
description: Most of the traditional models in production and inventory control ignore the financial states of an organization and can lead to infeasible practices in real systems. This paper is the first attempt to incorporate asset-based financing into production decisions. Instead of setting a known, exogenously determined budgetary constraint as most existing models suggest, we model the available cash in each period as a function of assets and liabilities that may be updated periodically according to the dynamics of the production activities. Furthermore, our models allow different interest rates on cash balance and outstanding loans, which is an enhancement over most traditional models in that inventory financed by a loan may be more expensive than that by out-of-pocket cash. We demonstrate the importance of joint consideration of production and financing decisions in a start-up setting in which the ability to grow the firm is mainly constrained by its limited capital and dependence on bank financing. We then explain the motivation for asset-based financing by examining the decision making at a bank and a set of retailers in a newsvendor setting.
language: eng
source: Alma/SFX Local Collection
identifier: ISSN: 0025-1909
fulltext: fulltext
issn:
  • 0025-1909
  • 1526-5501
url: Link


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descriptionMost of the traditional models in production and inventory control ignore the financial states of an organization and can lead to infeasible practices in real systems. This paper is the first attempt to incorporate asset-based financing into production decisions. Instead of setting a known, exogenously determined budgetary constraint as most existing models suggest, we model the available cash in each period as a function of assets and liabilities that may be updated periodically according to the dynamics of the production activities. Furthermore, our models allow different interest rates on cash balance and outstanding loans, which is an enhancement over most traditional models in that inventory financed by a loan may be more expensive than that by out-of-pocket cash. We demonstrate the importance of joint consideration of production and financing decisions in a start-up setting in which the ability to grow the firm is mainly constrained by its limited capital and dependence on bank financing. We then explain the motivation for asset-based financing by examining the decision making at a bank and a set of retailers in a newsvendor setting.
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subjectAccounts receivable ; Analysis ; asset ; asset-based financing ; Assets ; Assets (Accounting) ; Bank capital ; Bank loans ; Bankruptcy ; based financing ; Business studies ; Capital market ; Cash ; Commercial loans ; Finance ; Financial management ; Financial risk ; Financing ; Interest rates ; Inventories ; Inventory ; Inventory control ; Inventory management ; loan limits ; Loans ; Management ; Management science ; Mathematical models ; production ; production/inventory management ; Retail stores ; Studies ; supply chain management ; Supply chains ; Unsecured loans
ispartofManagement Science, 2004-09-01, Vol.50 (9), p.1274-1292
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abstractMost of the traditional models in production and inventory control ignore the financial states of an organization and can lead to infeasible practices in real systems. This paper is the first attempt to incorporate asset-based financing into production decisions. Instead of setting a known, exogenously determined budgetary constraint as most existing models suggest, we model the available cash in each period as a function of assets and liabilities that may be updated periodically according to the dynamics of the production activities. Furthermore, our models allow different interest rates on cash balance and outstanding loans, which is an enhancement over most traditional models in that inventory financed by a loan may be more expensive than that by out-of-pocket cash. We demonstrate the importance of joint consideration of production and financing decisions in a start-up setting in which the ability to grow the firm is mainly constrained by its limited capital and dependence on bank financing. We then explain the motivation for asset-based financing by examining the decision making at a bank and a set of retailers in a newsvendor setting.
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