3-Party Loan Contract Based Purchase-Order Financing

Abstract

A supply chain with a retailer and a supplier is considered in this paper, where the supplier is a small to medium-sized company with capital constraints and in need of short-term financing and the retailer is a core enterprise, which may or may not have capital constraints but always wants to reduce the working capital need. To meet their capital needs, a 3-party loan contract based purchase-order financing scheme is proposed in this paper. A Stackelberg game with the supplier as the leader and the retailer as the follower is modeled to investigate the strategic interaction in this financing scheme. Decisions involved in optimizing the expected revenues from the supplier's and the retailer's perspectives are analyzed. The computation results of a numerical example show that with the increase of the whole sales price offered by the supplier, the optimal order quantity for the retailer will increase too, which leads to the increase in the expected profit of the supplier. In this game, with the first-mover advantage, the supplier can completely control the profit allocation along the supply chain by manipulating the whole sales price.