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For most firms,especially the small-and medium-sized ones,the operational decisions are affected by their internal capital and ability to obtain external capital.However,the majority of the current studies on dynamic inventory control ignore the firm’s financial status and financing issues completely.An important question that arises is:what are the dynamic optimal inventory and financing policies for firms with limited capital and limited access to external capital?In this paper,we review some of the latest developments in this area.After a brief review of single period models,we focus on multi-period dynamic control of the firm who aims to optimize its xpected terminal wealth.Two cases are discussed in detail:self-finance and short term finance.In the first case,the firm has to rely on its own capital for all ordering decisions,while in the second,the firm can borrow short term loan from lenders.A detailed characterization of the optimal policy is presented and its managerial insights are discussed.Several possible extensions are suggested.
For most firms, especially the small-and medium-sized ones, the operational decisions are affected by their internal capital and ability to obtain external capital. However, the majority of the current studies on dynamic inventory control ignore the firm’s financial status and financing issues completely.An important question that arises is: what are the dynamic optimal inventory and financing policies for firms with limited capital and limited access to external capital? In this paper, we review some of the latest developments in this area. After a brief review of single period models, we focus on multi-period dynamic control of the firm who aims to optimize its xpected terminal wealth. Two cases are discussed in detail: self-finance and short term finance. the first case, the firm has to rely on its own capital for all ordering decisions, while in the second, the firm can borrow short term loan from lenders. A detailed characterization of the optimal policy is presented and its managerial insig hts are discussed.