Article Contents
Article Contents

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

• * Corresponding author: Yang Xiao

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

• 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.

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

 Citation:

• Figure 1.  CITIC Bank's CWF business process

Figure 2.  Sequence of events

Figure 3.  The Pareto region under CWF

Figure 4.  The Pareto region under TCF

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

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

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

Figures(7)