TY - JOUR
T1 - Optimal replenishment and inventory financing strategy in a three-echelon supply chain under the variable demand and default risk
AU - Yao, Ming Jong
AU - Lin, Jen Yen
AU - Lee, Chieh
AU - Wang, Po Hung
PY - 2020
Y1 - 2020
N2 - As supply chains span across one or more continents, an intermediate firm becomes an inevitable supply chain component. While seller-financing options (e.g. delay in payment), are well studied, researchers have rarely investigated them from the perspective of an intermediate firm in a supply chain. We construct a three-echelon supply chain that consists of a supplier, distributor, and retailer. In our model, the supplier and distributor may offer seller financing to their buyer, but only the distributor is subject to the buyer’s default risk. We consider a seller-financing supply chain wherein either all or none of the sellers premise delay in payment and a special case where the distributor may coordinate with the supplier or retailer. An algorithm solves optimal replenishment and delay-in-payment decisions. Numerical analyses illustrate managerial insights, which show that when the retailer’s default risk is high, the distributor’s best strategy is not to offer any delay-in-payment. When the distributor–retailer coordination can subsidise the retailer’s default risk, the distributor’s best strategy is coordination with the retailer and bargaining for more financial support from the supplier. In contrast, as the retailer’s default risk is inevitable, the distributor–supplier integration is the optimal supply chain financing strategy.
AB - As supply chains span across one or more continents, an intermediate firm becomes an inevitable supply chain component. While seller-financing options (e.g. delay in payment), are well studied, researchers have rarely investigated them from the perspective of an intermediate firm in a supply chain. We construct a three-echelon supply chain that consists of a supplier, distributor, and retailer. In our model, the supplier and distributor may offer seller financing to their buyer, but only the distributor is subject to the buyer’s default risk. We consider a seller-financing supply chain wherein either all or none of the sellers premise delay in payment and a special case where the distributor may coordinate with the supplier or retailer. An algorithm solves optimal replenishment and delay-in-payment decisions. Numerical analyses illustrate managerial insights, which show that when the retailer’s default risk is high, the distributor’s best strategy is not to offer any delay-in-payment. When the distributor–retailer coordination can subsidise the retailer’s default risk, the distributor’s best strategy is coordination with the retailer and bargaining for more financial support from the supplier. In contrast, as the retailer’s default risk is inevitable, the distributor–supplier integration is the optimal supply chain financing strategy.
KW - credit dependent demand
KW - delay-in-payment
KW - Heuristic
KW - Inventory financing
KW - retailer’s default risk
KW - three-echelon supply chain
UR - http://www.scopus.com/inward/record.url?scp=85087609291&partnerID=8YFLogxK
U2 - 10.1080/01605682.2020.1776165
DO - 10.1080/01605682.2020.1776165
M3 - Article
AN - SCOPUS:85087609291
SN - 0160-5682
JO - Journal of the Operational Research Society
JF - Journal of the Operational Research Society
ER -