Supplier financing service decisions for a capital-constrained supply chain: Trade credit vs. combined credit financing

Qiang Lin; Ying Peng; Ying Hu

doi:10.3934/jimo.2019026

Article Contents

2020, Volume 16, Issue 4: 1731-1752. Doi: 10.3934/jimo.2019026

This issue Previous Article Fast calibration of the Libor market model with stochastic volatility and displaced diffusion Next Article Optimal credit periods under two-level trade credit

Supplier financing service decisions for a capital-constrained supply chain: Trade credit vs. combined credit financing

College of Management and Economics, Tianjin University, Tianjin, 300072, China

^* Corresponding author: Ying Hu
^* Corresponding author: Ying Hu

Received: December 31, 2017

Revised: November 30, 2018

Early access: May 2019

Published: May 2020

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Abstract

In practice, suppliers and third-party logistics providers sometimes both offer credit in supply chain financing. To examine the supplier's financing decision, we firstly design a multiple-participant supply chain finance system comprising a supplier, a capital-constrained retailer, and a 3PL firm. Secondly, we compare combined credit financing (CCF), which includes both the supplier's partial trade credit and the 3PL firm's credit with trade credit financing (TCF), to analyze the supplier's optimal decision given the retailer's initial capital level and immediate payment coefficient. Thirdly, we consider the operational and financial parameters to obtain the optimal decisions of supply chain participants under both TCF and CCF. Finally, we perform a numerical analysis of the retailer's initial capital level and immediate payment coefficient. The results show that: when the retailer's initial capital level is low or the retailer's capital constraint is insignificant, the supplier will choose TCF; otherwise, the supplier would better choose CCF. It is more profitable for the supplier to cooperate with a retailer with limited assets under both TCF and CCF. Moreover, we obtained the threshold level of the retailer's initial capital to ensure the retailer's participation and the immediate payment coefficient that ensures the 3PL firm's participation under CCF.

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Mathematics Subject Classification: Primary: 91A80, 91B06; Secondary: 391B50.

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Figure 1. The operation of the trade credit financing mechanism

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Figure 2. The CCF in a multiple-participant SCF system

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Figure 3. Effects of retailer's initial capital on supplier's expected profit

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Figure 4. Effects of retailer's initial capital on the retailer and 3PL firm's expected profits

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Figure 5. The operation of the trade credit financing mechanism

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Figure 6. The operation of the trade credit financing mechanism

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Figure 7. The operation of the trade credit financing mechanism

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Figure 8. The operation of the trade credit financing mechanism

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Table 1. List of notations

Parameters	Description
$ p $	Retail price
$ c $	Manufacturing cost
$ x $	Random demand, $ x \ge 0 $
$ B $	Retailer's initial capital level
$ \lambda $	The immediate payment coefficient
$ {r_f} $	The risk-free interest rate
$ {r_t} $	The interest rate offered by the supplier
$ P\left( {{a_1}} \right) $	The success rate of financing
$ w $	The supplier's wholesale price
$ q $	The retailer's order quantity
$ r $	The 3PL firm's financing interest rate

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