Optimal production and financing portfolio strategies for a third‐party remanufacturing supply chain with capital constraint

Abstract

This paper considers a supply chain comprising one loss‐averse third‐party remanufacturer (TPR) and one capital‐constrained original equipment manufacturer (OEM), then investigates its optimal production and financing portfolio strategies when OEM finances through three strategies: pure bank loan (PBL), full delay‐in‐payment with bank loan (FDP‐with‐BL), and partial delay‐in‐payment with bank loan (PDP‐with‐BL). It is found that the optimal structure of PDP‐with‐BL strategy depends on the relative size of TPR's actual loss aversion and a threshold value. When TPR's loss aversion intensifies, PDP‐with‐BL gradually replaces FDP‐with‐BL as the most favorable financing strategy for third‐party remanufacturing. OEM prefers PBL strategy, while TPR and the supply chain prefer PDP‐with‐BL strategy.