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

  • * Corresponding author: Ying Hu

    * Corresponding author: Ying Hu
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  • 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.

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


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  • Figure 1.  The operation of the trade credit financing mechanism

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

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

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

    Figure 5.  The operation of the trade credit financing mechanism

    Figure 6.  The operation of the trade credit financing mechanism

    Figure 7.  The operation of the trade credit financing mechanism

    Figure 8.  The operation of the trade credit financing mechanism

    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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