Dynamic Product Portfolio Management with Life Cycle Considerations

We consider a portfolio of products in which each product probabilistically transitions through various life cycle stages. The evolution through these life cycle stages is impacted by both marketing support and product launch decisions, which are bound by a financial constraint in the form of restricted working capital. In the model, the joint working capital level serves to finance the portfolio expenditures and is decided a priori by the company. We use an infinite-horizon Markov Decision Process (MDP) to find the optimal decisions to coordinate the operations and finance depending on the composition of the portfolio. We find that the policy optimizing the product launch, marketing support and inventory decisions under a working capital constraint is independent of the correlation between demand levels of the products in the portfolio. We numerically demonstrate that the joint management of the products has a significant positive effect on the total profit, reducing the amount of working capital used per product. We also show that the optimal policy smooths aggregated demand levels as well as cash flows. (C) 2015 Elsevier B.V. All rights reserved.

Interrelating Operational and Financial Performance Measurements

Margarita Protopappa, Ralf Seifert

Financial supply chain management and working capital management are increasingly receiving attention as important avenues to increase profitability in supply chains. By actively managing payment terms and working capital requirements, managers can influence financial performance and achieve significant cost savings. However, measures to improve financial performance implicitly restrict and influence operational performance. In our research we elaborate on the benefits of equally considering both operational and financial aspects in decision-making for the physical and financial supply chain. We develop a mathematical model that determines the optimal purchasing order quantity under working capital restrictions and payment delays. We analyze the trade-offs between the most commonly used financial and operational measurements, such as service level, return on investment, profit margin and inventory level. Our results demonstrate the significance of payment delays: Increases/decreases in the upstream/downstream payment delays favor the system's operations by decreasing operational costs. Moreover increases in the working capital employed in the system decrease the total operational cost, increase the total financial cost and lower the return on working capital investment. (C) 2009 Elsevier B.V. All rights reserved.

Elsevier2010

Interrelating Operational and Financial Performance Measurements in Inventory Control

Ralf Seifert

2008

Inventory Management with Working Capital Restrictions

Cristopher Ariel Zeballos Avila

Working capital restrictions can have disruptive effects on the coordination of the operations and finances of a company. Working capital restrictions may limit the inventory ordering power, reduce revenues, and increase the use of high premium debt. It may restrict the use of marketing and dynamic pricing decisions intended to smooth the variations of demand and revenues that result from the stochastic nature of the product life cycle. Given working capital’s multiplex composition and cost structure, its study requires careful assumptions to adequately capture its effects on the operational and financial sides. For this dissertation, we develop three models that explicitly take into account working capital restrictions. For the first research project, we build on a single-product finite-horizon periodic-review inventory management setting and include key financial aspects such as working capital constraints, payment delays and multiple sources of financing. While the Modigliani and Miller’s irrelevance principle establishes that the financial choices of a firm do not play a role in its valuation, our exploratory study examines the robustness of this result in a richer setting which intrinsically departs from their assumptions. Our numerical experiments show that when short-term debt as such becomes prohibitive or when downstream payment delays increase, the required working capital inflates rapidly. For the second research project, we study how a company should combine its inventory, product launch and marketing decisions to coordinate the operations and finances of a product portfolio that is working capital constrained. Our results show that the product portfolio benefits greatly from the joint management, reducing the amount of working capital required per product, and increasing the benefits per allocated working capital. For the last research project, we study how a company should combine its inventory, product launch and dynamic pricing decisions to coordinate the operations and finances of a product portfolio that is working capital constrained. We find that optimal product launch and pricing decisions help avoid simultaneous peak demands and simultaneous product launches. However, we find that working capital constraints can have strong negative effects on profits and may force not to launch a product in the worst cases.

EPFL2013

Inventory Management with Working Capital Restrictions

Cristopher Ariel Zeballos Avila

EPFL2013