Retailer credit guarantee in a supply chain with capital constraint under push & pull contract

Abstract

Abstract We study the credit guarantee scheme used in a supply chain finance (SCF) system including a manufacturer with capital constraint, a retailer and a bank in the competitive credit market. Established a Stackelberg model with the retailer as the leader, we study the operational and financial strategies under different order contracts (push contract and pull contract). Different order contracts result in different inventory risk allocation in supply chain, thus the retailer adopts different variables to influence the manufacturer’s decision (push contract: the order quantity; pull contract: credit guarantee level). And we perform a comparative analysis of the optimal strategies among the two scenarios, including a traditional supply chain without SCF as well as one with credit guarantee financing. The results show that the retailer can gain more income while the financing risk is higher under the pull contract. When the manufacturer’s capital level is less than a certain threshold, the retailer can provide credit guarantee to bring more benefits to all participants. In addition, a numerical analysis is conducted about the impact of manufacturer’s initial capital level and bank inventory supervision cost on the bank’s interest rate. The results help the retailer to manage different types of manufacturer, the manufacturer with capital constraint to decide how to finance, and the bank to better control financing risk.