Joint decision of order allocation and lending in the multi-supplier scenario purchase order financing

Abstract

As an effective financing method for suppliers to solve capital shortage problems before production, Purchase Order Financing (POF) has been widely used. However, in current practices of POF, the separation of the focal firm's order allocation decision and the financial institution's lending decision may inevitably cause the multi-supplier scenario POF business to fall into the dilemma of failed or non-optimal. To deal with this problem, a joint decision-making process is developed to address the deficiencies of the separate order allocation decision and lending decision, namely the information sharing and mutual participation between the focal firm and the financial institution. Then, based on the decision-making process and the interest analysis of all the parties involved, mathematical models for both the joint and separate decisions of order allocation and lending are constructed. After that, an improved genetic algorithm (GA) is designed to solve problem. A numerical study and sensitivity analysis are used to verify the outperformance of the joint decision model and the improved GA. The result shows that the joint decision of order allocation and lending can increase the expected payoff of both the focal firm and the financial institution in the multi-supplier scenario POF.