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

Abstract

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.

Supply chain finance, financial constraints and corporate performance: An explorative network analysis and future research agenda

“…There are several theoretical explanations for these results. For example, lower working capital levels result in lower financing and interest costs (Brandenburg, 2016;Bian et al, 2018). In addition, firms may be forced to draw capital away from alternative value-enhancing projects if they have too much capital tied up in working capital positions (opportunity costs) (Deloof, 2003;Baños-Caballero et al, 2014).…”

“…These results correspond to the findings of Lorentz et al (2016), who stated that the smaller and the further up the value chain a company is, the more it should be prepared to bear the burden of trade credit. 3 It follows that when a focal company decides on payment terms for goods and services, the specific supply chain position of the respective partner should be taken into account in order to counterbalance potential variations in working capital requirements (Bian et al, 2018). Our last proposition therefore reads as follows: Differentiated (payment terms) strategies toward down-and upstream supply chain partners have a positive impact on a focal company's performance.…”

A Model and an Algorithm for a Large-Scale Sustainable Supplier Selection and Order Allocation Problem

“…Supply chain models typically only consider the physical transformation activities and disregard the financial implications of those activities. Recently, however, the literature on supply chain management (SCM) became aware of the real-world situation that financing and operational problems are closely connected and, thus, optimizing the two problems jointly could improve the entire performance of a supply chain [24,25]. However, only a few related papers were found on an SSOA with a working capital requirement (WCR).…”

“…Bendavid et al [27] studied a buyer's replenishment problem with a single type of item using a more sophisticated flow balance equation for the working capital constraint. Bian et al [24] presented a new generic working capital requirement model for a single-item lot sizing problem. They presented a mixed integer programming model, including a flow balance equation, for operating working capital requirement (OWCR).…”

“…Consequently, we assumed that the OWCR for replenishing a unit of product depends on the money invested in the related operations, for example, purchasing, setup, transportation, inventory holding, and shortage costs. Also, as in Bian et al [24], it is assumed that the profit portion of the sales revenue is not accounted for in the OWCR. Profit can be allocated to other higher priority objectives of the firm (e.g., debt reduction, dividend payments, or internal and external investment).…”