Inventory decisions to maximise survival probability subject to a joint service level constraint

Organisations with limited access to finance often need to prioritize effective cash-flow management over profit maximization. For example, this might be the case for start-up firms or SMEs unable to obtain loans due to a lack of credit history. At the same time, service level is an important factor for sustainability and growth. It follows that organisations must balance the ability to meet their financial commitments with the ability to meet customer expectations. This paper proposes a model to maximize the survival probability of a capital-constrained retailer subject to a minimum service level. Demand is assumed to be stochastic and non-stationary. A scenario-based method and a sample average approximation (SAA) method are developed to solve the model. A rolling horizon approach is proposed for problems with long planning horizons. Numerical results show that the rolling horizon approach together with the stochastic models can solve realistically sized problems in reasonable time.