Capital-constrained Supply Chain Research Articles

Optimal decisions in a capital-constrained supply chain under credit guarantee and revenue-sharing contracts

This study proposes a novel Supply Chain Finance scheme (CG-RS), integrating credit guarantees (CG), and revenue-sharing contracts (RS). We analyze a three-party Stackelberg game between a capital-constrained retailer, supplier, and bank. We derived equilibrium strategies under both monopolistic and competitive bank markets to investigate the impact of the CG-RS scheme on the financial performance of each party. From the numerical analysis, we find that all parties can benefit from the CG-RS scheme by mitigating default risk and aligning incentives. The supplier's guarantee coefficient and the retailer's initial capital significantly influence the scheme's outcomes, while the revenue-sharing proportion plays a crucial role in balancing interests. Our findings suggest that the CG-RS scheme offers a promising solution for addressing capital constraints and enhancing supply chain performance.

Trade credit and loan in capital-constrained supply chain network design model

Trade credit and loan in capital-constrained supply chain network design model

Financing a Capital-Constrained Supply Chain under Risk Regulations: Traditional Finance versus Platform Finance

Small- and medium-sized enterprises (SMEs) frequently face challenges in obtaining financial assistance from traditional banks. Platform Supply Chain Finance (PSCF) has emerged as a promising solution for financing issues among SMEs, with an added focus on integrating sustainability aspects. This study focused on a two-tier supply chain as its primary research topic to find strategies to enhance supplier financial viability and improve the efficiency and profitability of the main manufacturing enterprise. In this study, we establish three distinct hypotheses corresponding to the three models involving supplier and manufacturer participation, encompassing parameters such as production batch size, pricing, and supply chain profit. First, it examined financing decisions through the lens of core enterprise-led platform finance. Second, it applied the Stackelberg game theory to investigate financing decisions in three distinct modes: traditional finance, platform internal finance, and external platform finance. Suppliers, manufacturers, and banks can be seen as participants in a Stackelberg game. In this game, suppliers act as leaders, making production and procurement decisions first, while manufacturers and banks act as followers, adjusting their behavior based on the suppliers’ decisions. Finally, it performed a comparative analysis of decisions and supply chain efficiency across these modes. When the risk regulation cost coefficient falls below a certain threshold, suppliers are willing to set up their own PSCF and there is an optimal level of risk regulation effort within the interval (0, 1). We compare platform finance with traditional finance and find that the traditional finance model maximizes profits for suppliers, while the external financing model maximizes profits for manufacturers and the overall supply chain profit. Findings provide insights for platforms, suppliers, manufacturers, and banks to implement optimal financing and channel structures to increase their profits and promote the sustainable development of the financial supply chain. In addition, future research on blockchain platform models would be highly meaningful.

Financing a capital-constrained supply chain: Equity or debt

Many retailers are small and medium enterprises (SMEs) with limited access to capital to finance their operations. Here, we consider a supply chain consisting of a capital-constrained retailer and a manufacturer and examine the effect of equity and debt financing schemes on their operational decisions. Using a game theoretical approach, for the risk-neutral scenario, we take expected profit maximization as the participants’ objective to examine the equilibria of their operational and financing decisions. We also examine the condition under which the manufacturer and retailer adopt equity or debt financing to earn additional profits. We find that when the retailer is highly capital-constrained, she benefits from either financing scheme, but the manufacturer prefers to offer equity financing over debt financing. Otherwise, if the retailer is less constrained, debt financing is preferable. We also extend our analysis to risk-averse participants using the conditional value-at-risk (CVaR) criterion. We show that the decreasing monotone property of the order quantity in the wholesale price, known in the risk-neutral setting, no longer holds. Indeed, the relationship depends on the participants’ risk aversion level; if the manufacturer is highly risk-averse, it chooses to provide equity financing to enhance its CVaR performance; otherwise, it offers debt financing. Our findings provide implications for decision-makers in choosing the optimal financing options and making the associated operations and financing decisions when considering risk attitudes.

The cost bearing mechanism for advertising in a capital-constrained supply chain

With rising market competition, increasing numbers of firms are launching adverting to attract customers and promote product sales. The increase in operating costs caused by advertising places greater pressure on small retail businesses that are prone to capital shortages, leading them to seek financing from upstream firms. However, in the financing process, upstream and downstream firms may not be able to acquire all of one another's real information, which inevitably has a significant impact on their operating strategies. In this paper, by constructing a Stackelberg game, we study the effects of information asymmetry on the retailer's initial capital and the manufacturer's financing rate on their advertising strategies. We find that in a capital-constrained supply chain with symmetric information, when the advertising cost coefficient is low, manufacturer advertising is the superior strategy and increases the profits of the retailer and the manufacturer, consumer surplus and social welfare; when it is moderate, retailer advertising is the superior policy; but when it is high, retailer advertising is more beneficial for the manufacturer's profit, consumer surplus and social welfare but is more unfavorable for the retailer's profit. In addition, information asymmetry on the manufacturer's financing rate affects the advertising strategies of the manufacturer and the retailer, but information asymmetry on the retailer's initial capital fails. Additionally, we further extend the model to the Nash game scenario and cooperative advertising scenario and draw some different conclusions. The findings provide new theoretical implications for the formulation of firm advertising strategies.

Value of loan credit insurance in the capital-constrained supply chain

Value of loan credit insurance in the capital-constrained supply chain

Horizontal cooperation strategies for competing manufacturers in a capital constrained supply chain

Many studies concentrate on the vertical collaboration between upstream and downstream enterprises in the supply chain. However, we have observed that some competing manufacturers also engage in horizontal collaboration in practice, where they hold minority ownership shares in their rival, especially for those with limited initial capital. Although such collaboration has become increasingly prevalent, achieving the expected effects remains challenging due to frequent conflicts in collaboration mechanisms. This study considers a two-echelon supply chain with one supplier and two manufacturers with different financial statuses, where manufacturer 2 not only engages in Cournot competition with manufacturer 1, but also offers a horizontal collaboration contract as a collaborator. By incorporating the initial capital of manufacturer 1, we develop a benchmark sufficient capital model, and two other models such as capital constrained model and the horizontal collaboration model. The impact of horizontal cooperation on the optimal decisions of manufacturers is analyzed to investigate whether a collaboration strategy exists that can mitigate these conflicts while improving the profits of all participants. We prove that the horizontal collaboration can benefit both manufacturers when manufacturer 1 is highly capital constrained and holds a large equity share in itself. However, collaborating with a competing manufacturer 2 does not always benefit the capital-constrained manufacturer 1 compared to a situation where both manufacturers have sufficient capital, but it can increase the profits of manufacturer 2 and the entire supply chain in certain conditions. There exists an optimal collaboration mechanism that can achieve a win–win situation, where manufacturer 2 transfers partial payments to the capital-constrained manufacturer 1. The transfer payment is influenced by the cost differences between the manufacturers and the shareholding ratio. These findings can provide valuable management insights to enable competitors to adopt the optimal collaboration method in the face of capital constraints.

Financing a dual capital-constrained supply chain: Profit enhancement and diffusion effect of default risk

Supply chain finance (SCF) benefits participants by alleviating capital constraints and generating additional profits but also brings a host of disadvantages. This study examines and compares how various SCF schemes affect participants’ profits and the contagion and diffusion effects of default risk in a dual capital-constrained supply chain. This study used a game theoretical approach to investigate a dual capital-constrained supply chain. The financially constrained manufacturer and retailer may be funded by bank credit or trade credit from their upstream participants, forming four financing structures. The findings suggest that although trade credit offered by the manufacturer brings more profits to the supply chain participants than bank credit, it increases the expected losses of the creditors and incurs both the contagion and diffusion effects of default risk. Pure bank financing cannot completely coordinate the supply chain but can control the contagion and diffusion effects of default risk. These effects are also weakened over time. The findings offer implications for participants who implement financing and operational actions to improve their performance and control the contagion and diffusion effects of default risk along a supply chain.

Optimal financing and sales channel strategies for a capital-constrained supply chain with different risk preferences

In a volatile market environment, it is an important issue whether a manufacturer with capital constraints should establish an online direct sales channel to encroach the retail market. In addition to loans from financial institutions, third-party logistics (3PL) financing provides an alternative way for the manufacturer to solve its capital difficulties. Considering that the manufacturer exhibits diversified risk preferences for uncertain demand, we build an analytical model to examine the financing and sales channel decisions of the manufacturer, retailer and 3PL. Further, the impacts of differentiated freight rates and portfolio financing on key decisions are explored. Our results mainly contribute to the literature in two aspects: In terms of financing strategies, the 3PL tends to conduct financial business at a lower interest rate under a single-channel strategy, but a reduction in the 3PL interest rate prevents the manufacturer from adopting 3PL financing. In contrast, a larger financing need promotes the 3PL to offer a loan with a higher interest rate under a dual-channel strategy, which in turn drives the manufacturer to enhance its preference for bank financing. 3PL financing is always more conducive to improving the retailer’s profit. In terms of sales strategies, a smaller establishment cost of the online channel or greater risk tolerance encourages the manufacturer to implement the dual-channel strategy, while lower price competition and online channel preference prevent the manufacturer from encroaching so that it only employs a single offline channel for sales. An increase in price competition between channels encourages the manufacturer to establish the online channel, and manufacturer encroachment weakens the retailer’s profit. Furthermore, differentiated freight rates reduces the participants’ propensity for 3PL financing, while portfolio financing enhances the manufacturer’s motivation to develop the online sales channel.

The impact of blockchain on restricting the misuse of green loans in a capital-constrained supply chain

Nowadays, green loans have been widely promoted to support the capital-constrained supply chain under carbon regulation. However, the borrowers in the supply chain may use the preferential green loans for other purposes which are not related to green development. That phenomenon is mainly attributed to the lack of valid information investigation under traditional information technology. Blockchain, as an innovative technology, can provide valid financial information and identify liability in the use of green loans, which could be an effective tool to restrict the misuse behavior. But will the high operating cost weaken the advantage of blockchain? To address this question, we consider a supply chain system composed of a supplier and a capital-constrained manufacturer. The manufacturer may misuse part of the green loans to purchase primary components from the supplier. Two operational modes corresponding to no-blockchain adoption (N case) and blockchain adoption (B case) are designed, in which the supplier determines the wholesale price, and the manufacturer determines the order quantity under green loans. By comparing the optimal decisions of supply chain members, we put forward and differentiate three types of effects: the carbon regulation effect, the information verification effect, and the blockchain cost effect, which influence the adoption of blockchain technology in the supply chain. In addition, we show that blockchain can restrict the misused amount of green loans and improve the environmental performance, but decrease the consumer surplus.

External financing, channel power structure and product green R&D decisions in supply chains

PurposeThis study aims to focus on the optimal green R&D of a capital-constrained supply chain under different channel power structures as well as the impact of capital constraint, financing cost, channel power structure and cost-reducing efficiency on green R&D and supply chain profitability.Design/methodology/approachA two-echelon supply chain is considered. The upstream firm engages in green R&D but has capital constraints that can be overcome by external financing. Green R&D is beneficial to reduce production costs and increase consumer demand. Based on whether or not the upstream firm is capital constrained and dominates the supply chain, four models are developed.FindingsCapital constraints significantly lower green R&D and supply chain profitability. Transferring leadership from the upstream to the downstream firms leads to higher green R&D levels and downstream firm profitability, whereas the upstream firm's profitability is increased (decreased) if green R&D investment efficiency is high (low) enough. Greater financing costs reduce green R&D and downstream firm profitability; however, the upstream firm's profitability under the model in which it functions as the follower increases if the initial capital is sufficient. More importantly, empirical analysis based on practice data is used to verify the theoretical results reported above.Practical implicationsThis study reveals how upstream firms in supply chains decide green R&D decisions in situations with capital constraints, providing managers and governments with an understanding of the impact of capital constraint, channel power structure, financing cost and cost-reducing efficiency on supply chain green R&D and profitability.Originality/valueThe major contributions are the exploration of supply chain green R&D by taking into consideration channel power structures and cost-reducing efficiency and the validation of theoretical results using practice data.

Optimal financing strategies for a risk-averse supplier under the CVaR criterion in a capital-constrained supply chain

We focus on analyzing the risk preferences of suppliers regarding two types of financing: partial credit guarantee (PCG) and trade credit financing (TCF). Using the conditional value-at-risk (CVaR) criterion, we study each supply chain member’s equilibrium solution and optimal financing strategy under the assumption of demand distributions with an increasing failure rate. Initially, we present an analytical solution of the risk-averse supplier’s wholesale price, and prove that the optimal wholesale price decreases in the risk-averse level and initial capital, and increases in the credit guarantee ratio. Furthermore, we derive optimal financing strategies for both the supplier and the retailer under various circumstances. However, it is important to note that the results reveal a potential trade-off associated with PCG. While risk-averse suppliers may be more inclined to provide PCG compared to risk-neutral suppliers, this financing option can negatively impact the supplier’s utility and the expected profits of the retailers. Finally, we illustrate how the optimal financing strategies shift in response to changes in the risk-averse level and credit guarantee ratio, and present the win-win situations for the supplier and the retailer.

Optimal Green Input Level for a Capital-Constrained Supply Chain Considering Disruption Risk

Under increasingly stringent environmental regulations, inadequate green input levels from manufacturers may lead to substandard emissions and production shutdown, which further results in the disruption risk of the supply chain. This work investigates a green supply chain (GSC) consisting of one environmentally regulated manufacturer and one capital-constrained retailer who faces stochastic market demand. The manufacturer needs to make decisions on the green input level, which is related to the investment cost as well as supply disruption risk. The retailer has to determine product order quantities and financing decisions. We derive the operational equilibriums for the GSC system under three scenarios: no financing, trade credit financing (TCF), and bank credit financing (BCF), and recommend the optimal financial selection for the retailer via the comparison of three financial modes. The analytical and numerical results reveal that the manufacturer should improve the green input level within the financial capability to enhance the sustainable operation level of the supply chain. In addition, we find that the capital-constrained retailer will choose financing, since either BCF or TCF will result in a higher profit than no financing. Moreover, we obtain the threshold of green input level, with which we can decide whether to choose TCF or BCF under the given corresponding parameters.

Financing strategy of the capital-constrained supply chain under uncertainty: the impact of blockchain technology on the credit period

PurposeThis paper explores the effectiveness of using blockchain technology to solve financial constraints faced by small- and medium-sized suppliers in a capital-constrained supply chain.Design/methodology/approachTo characterize the impact of blockchain on credit period and enterprise credit level, the study formulates a newsvendor model to analyze a supply chain in which a financially constrained supplier sells products to a financially sound manufacturer, subject to uncertain demand. The study investigates three repayment methods: the benchmark case without blockchain and two blockchain-enabled cases with the hybrid repayment mode and single repayment mode (SRM), respectively. The study derives and compares the equilibria under each repayment method to characterize their impact.FindingsWhen the bank interest rate is low and the carbon cap is also low, choosing to implement blockchain technology leads to higher profitability for the manufacturer than not utilizing it. Within the framework of blockchain technology, when comparing the two repayment models, the manufacturer exhibits a preference for SRM. Furthermore, under specific conditions of the bank interest rate, blockchain technology can effectively facilitate consensus among supply chain members in terms of channel selection.Practical implicationsThe results derived in this paper provide novel managerial implications to the capital-constrained members in terms of pricing decisions and order quantity under demand uncertainty considering blockchain technology, which transfers the creditor's rights to the bank and shortens the collection time. In addition, blockchain technology enables efficient and intelligent collaborative development of supply chains, which can reduce carbon emissions during the transportation of goods.Originality/valueFew studies incorporate blockchain technology into supply chain finance, and this paper considers the credit period and capital's time value for a capital-constrained supplier facing the adoption of blockchain technology within a stochastic demand environment.

Internal incentives for carbon emission reduction in a capital-constrained supply chain: A financial perspective.

Capital constraints hinder enterprises' carbon reduction efforts and affect the sustainability of the supply chain. To alleviate this limitation, the core enterprise considers offering two financial-based carbon reduction incentive mechanisms: cost-sharing mechanism (CS) and preferential financing mechanism (PF). In a supply chain with the dual sensitivity of market demand to price and carbon reduction, we model each incentive mechanism, discussing their impact, value, and selection strategies. The results show that neither party under CS pursues an excessively high share ratio. Only a below-threshold sharing ratio can promote the supplier's carbon reduction behavior and improve efficiency for both parties. Conversely, PF has a stable incentive effect on the supplier's carbon reduction behavior and can effectively increase the retailer's profits. However, a reasonable carbon reduction standard is needed to attract the supplier. In addition, as market demand becomes more sensitive to carbon reduction, the feasible range of CS narrows and that of PF expands. We compare players' preferences of PF and CS and find a Pareto region in which all players prefer PF to CS. Finally, we test the robustness of our findings by an extending model. Our study provides guidance for supply chain decisions facing dual pressures of financial constraints and carbon reduction.

Price timing and financing strategies for a capital-constrained supply chain with price-dependent stochastic demand

We investigate the pricing timing strategy in the context of trade credit (TC), under which the capital-constrained retailer applies for deferred payments from its supplier. Based on the wholesale price offered by the supplier, the retailer determines the order volume before observing the random demand and the selling price after observing it (a.k.a., price postponement). We formulate the Stackelberg game to show how their equilibrium decisions and profits are affected by: the pricing timing, financing mode, the demand structure. In a multiplicative demand framework, the analytical and numerical results indicate that TC alleviates double marginalization problem, depending on price timing and demand structure. With the traditional bank finance (BF) as a benchmark, the supplier is reluctant to provide TC to the retailer without postponement when the market is extremely sensitive to price. Postponement not only benefits both members, but also enhances retailer’s repayment ability and thus participants’ preference for TC. They can reach an agreement on utilizing price postponement and trade credit as long as the supplier choose a suboptimal wholesale decision for deferred payment that is slightly lower the optimal one. We further extend our results to consider the additive demand structure.

Who should finance the supply chain? Impact of accounts receivable mortgage on supply chain decision

We attempt to understand the role of accounts receivable mortgage in a capital-constrained supply chain and to capture the interaction of firms' operations decisions within non-cooperation or cooperation conditions based on different bank credit policies. We consider a short-term loan directly to the retailer as a supplement to accounts receivable financing. Given different bank credit policies based on the retailer's and manufacturer's original operational capacity, we identify optimal decisions in different situations, finding that supply chain efficiency is better attained using bank short-term loans. Generally, firms with high solvency order more compared to low solvency firms. Specifically, we find that the optimal sourcing choices depend on the ratio of the share of the manufacturer with the share of the retailer (RMR). When RMR is low, trade credit would be better for sourcing. Conversely, bank credit would be the better choice for a capital-constrained supply chain. Finally, we present empirical evidence to demonstrate the results of our study.

Carbon allowance approach for capital-constrained supply chain under carbon emission allowance repurchase strategy

PurposeThe purpose of this study is to investigate which of the two carbon allowance allocation methods (CAAMs), i.e. grandfathered system carbon allowance allocation (GCAA) and baseline system carbon allowance allocation (BCAA), is more beneficial to capital-constrained supply chains under the carbon emission allowance repurchase strategy (CEARS).Design/methodology/approachAdopting CEARS to ease the capital-constrained supply chains, this study develops two-period game models with manufacturers as leaders and retailers as followers from the perspective of profit and social welfare maximization under two CAAMs (GCAA and BCAA), where the first period produces normal products, and the second period produces low-carbon products.FindingsFirst, higher carbon-saving can better use CEARS and achieve a higher supply chain profit under the two CAAMs. However, the higher the end-of-period carbon price is, the lower the social welfare is. Second, when carbon-saving is small, GCAA achieves both economic and environmental benefits; BCAA reduces carbon emissions at the expense of economic benefit. Third, the supply chain members gain higher profits and social welfare under GCAA, so the government and supply chain members are more inclined to choose GCAA.Originality/valueBy analyzing the profits and total carbon emissions of capital-constrained supply chains under GCAA and BCAA, this study provides theoretical references for retailers and capital-constrained manufacturers. In addition, by comparing the difference in social welfare under GCAA and BCAA, it provides a basis for the government to choose a reasonable CAAM.

Agricultural insurance and power structure in a capital-constrained supply chain

This study focuses on an agricultural supply chain with a capital-constrained manufacturer, a bank and an insurer under three power structures: insurer-led Stackelberg (IS), bank-led Stackelberg (BS) and vertical Nash (VN). By establishing a two-level Stackelberg game, we examine the application condition and role of agricultural insurance under three channel structures and reveal the preferences of the supply chain and its participants for different channel structures. This study shows that, in either model, the manufacturer purchases agricultural insurance when the bank is highly loss-averse, but the probability of the manufacturer adopting agricultural insurance in the BS model is lower than that of the VN model but higher than that of the IS model. In these three models, the manufacturer’s application of agricultural insurance increases the profits of the manufacturer, bank and insurer but reduces supply chain efficiency. In addition, from the perspective of the profit level and profit share of supply chain participants, for the manufacturer, the VN model of the two-level supply chain power structure betters than the BS and IS models of the three-level supply chain power structure, but the BS model is superior to the IS model; for the bank and the insurer, the higher their leadership positions in which power structure model, the better the power structure model. From the perspective of the overall profit and efficiency of the agricultural supply chain, the model preference of the supply chain is the same as that of the manufacturer. The findings provide new theoretical insights for the application of agricultural insurance and power relationship in the agricultural supply chain.

Operational decisions of green supply chain under financial incentives with emission constraints

This paper investigates how financial incentives with emission reduction constraints affect the operational decisions and environmental performance of the capital-constrained supply chain. Two financial incentives are explored: green credit subsidies and price-based incentives. We conduct game-theoretic models to examine the characteristics and effects of two financial incentives on the supply chain under high emission restriction (HER) and low emission restriction (LER) conditions. Our results reveal that: (1) both the incentive policies fail under excessively stringent emission restrictions and generate lower optimal profit for supply chain members under HER condition; (2) both financial incentives can transform the heavy polluting manufacturer under HER eligible for LER condition; the optimal emission reduction level only touches the passing level of emission requirements under HER condition, while increasing with the government subsidies under the LER condition; (3) under the LER condition, green credit subsidies policy is efficient at increasing social welfare, while price incentives are better at increasing supply chain profits. Further, we demonstrate that it is less expensive for the government to provide subsidies to banks that require compliance with environmental regulations as a precondition of green loans in most cases. Our findings have significant implications for the government in developing more refined policies to reconcile incentives and constraints on emissions reductions.