Single product, finite horizon, periodic review inventory model with working capital requirements and short-term debt

In this paper, 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. We numerically solve for the optimal working capital target and the order-up-to level using an embedded Nelder and Mead optimization, and we perform sensitivity analysis on cash flows and short-term debt levels. Our numerical experiments show that when access to short-term debt is granted, the expected cash flows are indeed fairly insensitive to varying short-term debt premiums. However, when short-term debt becomes prohibitive or when downstream payment delays increase, the required working capital target inflates rapidly.