Non-collaborative and collaborative financing in a bilateral supply chain with capital constraints

Abstract

We consider three kinds of financing strategies for a bilateral supply chain in which both the supplier and retailer are financially constrained. The three financing strategies are bank financing separately (BFS), bank financing with trade credit (BF-with-TC) and bank financing with the supplier's guarantee (BF-with-SG). The first one is regarded as a non-collaborative strategy, and the last two are regarded as collaborative strategies. By comparing the equilibrium decisions under the three financing strategies, we find that: (1) overall, collaborative strategies dominate non-collaborative strategy for the supplier and whole supply chain, whereas the reverse holds for the retailer; (2) BF-with-SG strategy performs the same as BFS strategy for all partners when the supplier provides no guarantee; (3) BF-with-SG strategy may outperform BF-with-TC strategy for the whole supply chain, depending on partners’ capital level as well as the supplier's guarantee ratio; (4) surprisingly, collaborative strategies do not necessarily result in less risk for the bank compared to non-collaborative strategy. Managerially, our results show that in some cases, all supply chain partners can perform better if the leader acts as a guarantor rather than as an intermediary creditor.