Inventory models with financial flows

Abstract

We review the recent developments in dynamic inventory models with financial flow considerations. The focus is on the literature that introduces cash flow dynamics into the classic inventory models that do not explicitly consider the interactions between physical (or material) and financial flows. These augmented models serve two important purposes. First, they help understand the impact of financial flows on inventory dynamics and decisions. Second, with the connection to the classic inventory models, one can leverage the extant results to derive the optimal control policy or to evaluate/optimize the performance of any given type of policy and reveal insights. We summarize models for both single-stage and multi-stage inventory systems, and discuss the implications and applications to decentralized systems within a broader topic of supply chain finance.