Modeling and simulation for supply chain finance under uncertain environment
Abstract
This paper studies the role of factoring in a bilateral supply chain, where both the supplier and retailer are financially constrained. Applying the stylized Stackelberg game, we analytically present that the supplier’s capital shortage limits the advantage of trade credit provided to the retailer. To overcome this limitation, we design a hybrid strategy composing of trade credit and factoring, and then investigate how the supplier uses factoring strategy to achieve the best performance. Analytical and numerical results show that: (1) each supply chain partner can benefit from factoring, and the benefits depend on operational and financial characteristics; (2) in a fairly priced factoring market, bankruptcy costs reduce the benefits of factoring, but does not change the dominance of full factoring; (3) in a strategically priced factoring market, partial factoring may dominate full factoring. Managerially, our study implies that a supplier may benefit from dividing his accounts receivable when facing a factor with a strong pricing ability.
First published online 28 February 2020
Keyword : operations research, strategy, decision making, game theory
How to Cite
Jin, W. ., & Wang, C. . (2020). Modeling and simulation for supply chain finance under uncertain environment. Technological and Economic Development of Economy, 26(4), 725-750. https://doi.org/10.3846/tede.2020.12054
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Do, T. M. H. (2018). Factoring as a form of financing small and medium-sized enterprises in ASEAN. Applied Economics and Finance, 5(3), 59–64. https://doi.org/10.11114/aef.v5i3.3175
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Gong, X., Chao, X., & Simchi‐Levi, D. (2014). Dynamic inventory control with limited capital and short-term financing. Naval Research Logistics, 61(3), 184–201. https://doi.org/10.1002/nav.21576
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Kiisel, T. (2013). Factoring. In Getting a business loan (pp. 93–99). Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4302-4999-3_9
Klapper, L. (2006). The role of factoring for financing small and medium enterprises. Journal of Banking & Finance, 30(11), 3111–3130. https://doi.org/10.1016/j.jbankfin.2006.05.001
Kouvelis, P., & Zhao, W. (2011). The newsvendor problem and price-only contract when bankruptcy costs exist. Production and Operations Management, 20(6), 921–936. https://doi.org/10.1111/j.1937-5956.2010.01211.x
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Kouvelis, P., & Zhao, W. (2018). Who should finance the supply chain? Impact of credit ratings on supply chain decisions. Manufacturing & Service Operations Management, 20(1), 19–35. https://doi.org/10.1287/msom.2017.0669
Lariviere, M. A., & Porteus, E. L. (2001). Selling to the newsvendor: An analysis of price-only contracts. Manufacturing & Service Operations Management, 3(4), 293–305. https://doi.org/10.1287/msom.3.4.293.9971
Li, H., Mai, L., Zhang, W., & Tian, X. (2019). Optimizing the credit term decisions in supply chain finance. Journal of Purchasing and Supply Management, 25(2), 146–156. https://doi.org/10.1016/j.pursup.2018.07.006
Li, Y., & Gu, C. (2018). Factoring policy with constant demand and limited capital. International Transactions in Operational Research, 00(2018), 1–19. https://doi.org/10.1111/itor.12514
Lin, Q., & Xiao, Y. (2018). Retailer credit guarantee in a supply chain with capital constraint under push & pull contract. Computers & Industrial Engineering, 125, 245–257. https://doi.org/10.1016/j.cie.2018.08.029
Lu, Q., Gu, J., & Huang, J. (2019). Supply chain finance with partial credit guarantee provided by a third-party or a supplier. Computers & Industrial Engineering, 135, 440–455. https://doi.org/10.1016/j.cie.2019.06.026
Mian, S. L., & Smith, C. W. (1992). Accounts receivable management policy: Theory and evidence. The Journal of Finance, 47(1), 169–200. https://doi.org/10.1111/j.1540-6261.1992.tb03982.x
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Peura, H., Yang, S. A., & Lai, G. (2017). Trade credit in competition: A horizontal benefit. Manufacturing & Service Operations Management, 19(2), 263–289. https://doi.org/10.1287/msom.2016.0608
Seifert, D., Seifert, R. W., & Protopappa-Sieke, M. (2013). A review of trade credit literature: Opportunities for research in operations. European Journal of Operational Research, 231(2), 245–256. https://doi.org/10.1016/j.ejor.2013.03.016
Sopranzetti, B. J. (1998). The economics of factoring accounts receivable. Journal of Economics and Business, 50(4), 339–359. https://doi.org/10.1016/S0148-6195(98)00008-3
Soufani, K. (2002). On the determinants of factoring as a financing choice: Evidence from the UK[J]. Journal of Economics and Business, 54(2), 239–252. https://doi.org/10.1016/S0148-6195(01)00064-9
Wang, C., Fan, X., & Yin, Z. (2019). Financing online retailers: Bank vs. electronic business platform, equilibrium, and coordinating strategy. European Journal of Operational Research, 276(1), 343–356. https://doi.org/10.1016/j.ejor.2019.01.009
Yang, S. A., & Birge, J. R. (2017). Trade credit, risk sharing, and inventory financing portfolios. Management Science, forthcoming. https://doi.org/10.2139/ssrn.2746645
Zha, Y., Chen, K., Yue, X., Yu, Y., & Mukhopadhyay, S. (2019). Trade credit contract in the presence of retailer investment opportunity. Naval Research Logistics, 66,(4), 283–296. https://doi.org/10.1002/nav.21840
Zhan, J., Chen, X., & Hu, Q. (2019). The value of trade credit with rebate contract in a capital-constrained supply chain. International Journal of Production Research, 57(2), 379–396. https://doi.org/10.1080/00207543.2018.1442946
Zhou, Y. W., Wen, Z. L., & Wu, X. (2015). A single-period inventory and payment model with partial trade credit. Computers & Industrial Engineering, 90, 132–145. https://doi.org/10.1016/j.cie.2015.08.003
Chen, Z., & Zhang, R. (2019). A cash‐constrained dynamic lot‐sizing problem with loss of goodwill and credit‐based loan. International Transactions in Operational Research, 00(2019), 1–26. https://doi.org/10.1111/itor.12675
Chod, J. (2016). Inventory, risk shifting, and trade credit. Management Science, 63(10), 3207–3225. https://doi.org/10.1287/mnsc.2016.2515
Chod, J., Lyandres, E., & Yang, S. A. (2019). Trade credit and supplier competition. Journal of Financial Economics, 131(2), 484–505. https://doi.org/10.1016/j.jfineco.2018.08.008
Dada, M., & Hu, Q. (2008). Financing newsvendor inventory. Operations Research Letters, 36(5), 569– 573. https://doi.org/10.1016/j.orl.2008.06.004
Do, T. M. H. (2018). Factoring as a form of financing small and medium-sized enterprises in ASEAN. Applied Economics and Finance, 5(3), 59–64. https://doi.org/10.11114/aef.v5i3.3175
Giannetti, M., Burkart, M., & Ellingsen, T. (2011). What you sell is what you lend? Explaining trade credit contracts. The Review of Financial Studies, 24(4), 1261–1298. https://doi.org/10.1093/rfs/hhn096
Gong, X., Chao, X., & Simchi‐Levi, D. (2014). Dynamic inventory control with limited capital and short-term financing. Naval Research Logistics, 61(3), 184–201. https://doi.org/10.1002/nav.21576
Huang, J., Yang, W., & Tu, Y. (2019). Supplier credit guarantee loan in supply chain with financial constraint and bargaining. International Journal of Production Research, 57(22), 7158–7173. https://doi.org/10.1080/00207543.2019.1581386
Jin, W., Zhang, Q., & Luo, J. (2018). Non-collaborative and collaborative financing in a bilateral supply chain with capital constraints. Omega, 88, 210–222. https://doi.org/10.1016/j.omega.2018.04.001
Kiisel, T. (2013). Factoring. In Getting a business loan (pp. 93–99). Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4302-4999-3_9
Klapper, L. (2006). The role of factoring for financing small and medium enterprises. Journal of Banking & Finance, 30(11), 3111–3130. https://doi.org/10.1016/j.jbankfin.2006.05.001
Kouvelis, P., & Zhao, W. (2011). The newsvendor problem and price-only contract when bankruptcy costs exist. Production and Operations Management, 20(6), 921–936. https://doi.org/10.1111/j.1937-5956.2010.01211.x
Kouvelis, P., & Zhao, W. (2012). Financing the newsvendor: Supplier vs. bank, and the structure of optimal trade credit contracts. Operations Research, 60(3), 566–580. https://doi.org/10.1287/opre.1120.1040
Kouvelis, P., & Zhao, W. (2018). Who should finance the supply chain? Impact of credit ratings on supply chain decisions. Manufacturing & Service Operations Management, 20(1), 19–35. https://doi.org/10.1287/msom.2017.0669
Lariviere, M. A., & Porteus, E. L. (2001). Selling to the newsvendor: An analysis of price-only contracts. Manufacturing & Service Operations Management, 3(4), 293–305. https://doi.org/10.1287/msom.3.4.293.9971
Li, H., Mai, L., Zhang, W., & Tian, X. (2019). Optimizing the credit term decisions in supply chain finance. Journal of Purchasing and Supply Management, 25(2), 146–156. https://doi.org/10.1016/j.pursup.2018.07.006
Li, Y., & Gu, C. (2018). Factoring policy with constant demand and limited capital. International Transactions in Operational Research, 00(2018), 1–19. https://doi.org/10.1111/itor.12514
Lin, Q., & Xiao, Y. (2018). Retailer credit guarantee in a supply chain with capital constraint under push & pull contract. Computers & Industrial Engineering, 125, 245–257. https://doi.org/10.1016/j.cie.2018.08.029
Lu, Q., Gu, J., & Huang, J. (2019). Supply chain finance with partial credit guarantee provided by a third-party or a supplier. Computers & Industrial Engineering, 135, 440–455. https://doi.org/10.1016/j.cie.2019.06.026
Mian, S. L., & Smith, C. W. (1992). Accounts receivable management policy: Theory and evidence. The Journal of Finance, 47(1), 169–200. https://doi.org/10.1111/j.1540-6261.1992.tb03982.x
Montibeller, G., Belton, V., & Lima, M. V. A. (2007). Supporting factoring transactions in Brazil using reasoning maps: A language-based DSS for evaluating accounts receivable. Decision Support Systems, 42(4), 2085–2092. https://doi.org/10.1016/j.dss.2004.11.011
Peura, H., Yang, S. A., & Lai, G. (2017). Trade credit in competition: A horizontal benefit. Manufacturing & Service Operations Management, 19(2), 263–289. https://doi.org/10.1287/msom.2016.0608
Seifert, D., Seifert, R. W., & Protopappa-Sieke, M. (2013). A review of trade credit literature: Opportunities for research in operations. European Journal of Operational Research, 231(2), 245–256. https://doi.org/10.1016/j.ejor.2013.03.016
Sopranzetti, B. J. (1998). The economics of factoring accounts receivable. Journal of Economics and Business, 50(4), 339–359. https://doi.org/10.1016/S0148-6195(98)00008-3
Soufani, K. (2002). On the determinants of factoring as a financing choice: Evidence from the UK[J]. Journal of Economics and Business, 54(2), 239–252. https://doi.org/10.1016/S0148-6195(01)00064-9
Wang, C., Fan, X., & Yin, Z. (2019). Financing online retailers: Bank vs. electronic business platform, equilibrium, and coordinating strategy. European Journal of Operational Research, 276(1), 343–356. https://doi.org/10.1016/j.ejor.2019.01.009
Yang, S. A., & Birge, J. R. (2017). Trade credit, risk sharing, and inventory financing portfolios. Management Science, forthcoming. https://doi.org/10.2139/ssrn.2746645
Zha, Y., Chen, K., Yue, X., Yu, Y., & Mukhopadhyay, S. (2019). Trade credit contract in the presence of retailer investment opportunity. Naval Research Logistics, 66,(4), 283–296. https://doi.org/10.1002/nav.21840
Zhan, J., Chen, X., & Hu, Q. (2019). The value of trade credit with rebate contract in a capital-constrained supply chain. International Journal of Production Research, 57(2), 379–396. https://doi.org/10.1080/00207543.2018.1442946
Zhou, Y. W., Wen, Z. L., & Wu, X. (2015). A single-period inventory and payment model with partial trade credit. Computers & Industrial Engineering, 90, 132–145. https://doi.org/10.1016/j.cie.2015.08.003