Start-up manufacturing firms: operations for survival
Abstract
Start-up firms play an important role in the economy. Statistics show that a large
percent of start-up firms fail after few years of establishment. Raising capital, which
is crucial to success, is one of the difficulties start-up firms face. This Ph.D thesis
aims to draw suggestions for start-up firm survival from mathematical models and
numerical investigations. Instead of the commonly held profi t maximizing objective,
this thesis assumes that a start-up firm aims to maximize its survival probability during the planning horizon. A firm fails if it runs out of capital at a solvency check.
Inventory management in manufacturing start-up firms is discussed further with mathematical theories and numerical illustrations, to gain insight of the policies for start-up firms. These models consider specific inventory problems with total lost sales, partial
backorders and joint inventory-advertising decisions. The models consider general cost
functions and stochastic demand, with both lead time zero and one cases.
The research in this thesis provides quantitative analysis on start-up firm survival,
which is new to the literature. From the results, a threshold exists on the initial
capital requirement to start-up firms, above which the increase of capital has little
effect on survival probability. Start-up firms are often risk-averse and cautious about
spending. Entering the right niche market increases their chance of survival, where
the demand is more predictable, and start-ups can obtain higher backorder rates and
product price. Sensitivity tests show that selling price, purchasing price and overhead
cost have the most impact on survival probability. Lead time has a negative effect on
start-up firms, which can be offset by increasing the order frequent. Advertising, as an
investment in goodwill, can increase start-up firms' survival. The advertising strategies
vary according to both goodwill and inventory levels, and the policy is more
flexible
in start-up firms. Externally, a slightly less frequency solvency check gives start-up
firms more room for fund raising and/or operation adjustment, and can increase the
survival probability. The problems are modelled using Markov decision processes, and
numerical illustrations are implemented in Java.