Selecting the supply chain financing mode under price-sensitive demand: Confirmed warehouse financing vs. trade credit

Qiang Lin; Yang Xiao; Jingju Zheng

doi:10.3934/jimo.2020057

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2021, Volume 17, Issue 4: 2031-2049. Doi: 10.3934/jimo.2020057

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Selecting the supply chain financing mode under price-sensitive demand: Confirmed warehouse financing vs. trade credit

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

^* Corresponding author: Yang Xiao
^* Corresponding author: Yang Xiao

Received: April 30, 2018

Revised: May 31, 2019

Early access: March 2020

Published: July 2021

The authors acknowledge support from National Key R&D Program of China, no.2018YFB1500801 and National Social Science Fund of China [18BGL269].

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Abstract

In a product market with price-sensitive demand, we examine a supply chain consisting of one manufacturer and one capital-constrained retailer. The retailer may purchase by borrowing by securing confirmed warehouse financing (CWF) from a competitive bank or the manufacturer's trade credit financing (TCF), provided that it is also to the latter's benefit to extend TCF. We obtain the manufacturer's optimal pricing decision in the two financing modes under the wholesale price contract that coordinates the supply chain given a wider range of wholesale prices in CWF. We find that CWF is more suitable for the customer segment for which the unit retail price is low and demand is stable, so the product can be monetized quickly; TCF is suitable for the customer segment for which the unit retail price is high and has a high price elasticity of demand and hence for long-term investment. The repurchase price is an important factor affecting the participants' selection of CWF.

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Mathematics Subject Classification: Primary: 91A05, 43K30; Secondary: 37H99.

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Figure 1. CITIC Bank's CWF business process

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Figure 2. Sequence of events

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Figure 3. The Pareto region under CWF

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Figure 4. The Pareto region under TCF

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Figure 5. The manufacturer's profit under CWF and TCF with different retail prices

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Figure 6. The manufacturer's profit under CWF and TCF with different price elasticities of demand

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Figure 7. The supply chain members' profits under CWF with different repurchase prices

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