Optimal financing strategies of a dual-channel closed-loop supply chain

Abstract

Closed-loop supply chains (CLSCs) have attracted more attention due to its sustainability. However, few studies considered the capital constraints problem of the dual-channel CLSCs. We investigate the manufacturer’s financing strategies in a dual-channel CLSC consisting of a capital-constrained manufacturer and a retailer. The manufacturer can adopt four financial strategies: bank credit financing (BCF) strategy, retailer credit financing (RCF) strategy, and two mixed financing (MF) strategies (i.e., MF strategy of bank credit and equity financing (MF-BE), and MF strategy of retailer credit and equity financing (MF-RE)), respectively. We find that, when the retailer’s interest rate is equal to the bank’s interest rate, the manufacturer prefers to borrow money from the bank, and the MF-BE strategy is the optimal financing strategy for the manufacturer if the equity financing ratio satisfies certain condition. Interestingly, we also find that the retailer’s profits under the MF-RE strategy decrease with the equity financing ratio while the retailer’s profits under MF-BE strategy increase with the equity financing ratio.