Abstract
This paper studies the budget-constrained newsvendor problem under risk aversion with financing service and builds a two-stage supply chain decision model on the order quantity and wholesale price. The budget-constrained retailer as a newsvendor faces a nonnegative random demand and the financial institution provides the loan service for the retailer who is risk-averse. This paper first explores the impact of risk aversion on the decisions in financial supply chain. Different from the existing research, we analyze how the financing service of bank loan impacts the risk-averse newsvendor’s decision and how the risk-averse behavior of the retailer influences the optimal strategies in supply chain with CVaR risk measure criterion. It is found that the order quantity decreases in the degree of risk aversion. The optimal order quantity is decreasing in initial budget, wholesale price, and interest rate. It is worth noting that the financing service can improve the profit of the supply chain system when the retailer has a low initial wealth. Finally, to compare with the existing results the theoretical analysis and numerical examples are also illustrated.
Highlights
Supply chain management has been more and more perfect in the information flow and logistics
This paper studies the budget-constrained newsvendor problem under risk aversion with financing service and builds a two-stage supply chain decision model on the order quantity and wholesale price
In traditional newsvendor model it is implicitly assumed that the newsvendor generally pays the supplier for all the ordered items and capital is sufficient
Summary
Supply chain management has been more and more perfect in the information flow and logistics. The important cash flow has not been synchronized with development and the related academic research is relatively scarce. In traditional newsvendor model it is implicitly assumed that the newsvendor generally pays the supplier for all the ordered items and capital is sufficient. The financial market is obtained for powerful suppliers or retailers in developed economies. Empirical studies show that budget constraint is usually a great challenge for many firms (especially start-up, small-, and medium-sized ones). Using data for 76 countries, Ayyagari et al [1] demonstrated that nearly 60% of manufacturing employment was from start-up, small-, and medium-sized ones. Startup, small-, and medium-sized enterprises often do not have sufficient working capital to make their optimal decisions for manufacturing and marketing
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