Optimal Quantity and Pricing Strategies under Supply Chain Finance
Date Issued
2014
Date
2014
Author(s)
Lin, Shu-Cheng
Abstract
Supply chain finance has been a growing trend not only in the real business environment but also in supply chain management. Firms can fund their business by borrowing from banks or from their suppliers, provided they agree postponed payment. Moreover, there are more and more big retailers working with banks that will offer to advance cash to suppliers before the receivables become due. Therefore, the research examines a supply chain consisting of a supplier who decides an optimal whole price and a retailer who decides an optimal order quantity under different funding strategies, which includes bank credit, trade credit and factoring. The research also observes how some exogenous variables, including production costs, risk-free rate, the maximum proportion of receivables allowed to be factored, expected rate of return and demand variability, will affect the supplier and the retailers’ profits, the optimal wholesale price and the optimal order quantity. The research shows that the supplier will set a wholesale price equal to the market price in order to squeeze all of the retailer’s profits and absorb them under the equilibrium of trade credit, by reason of the default risk the supplier has to take. The research also finds that the interest banks charge for credit will make the retailer’s profits under the equilibrium of bank credit lower than the ones under normal condition (with sufficient capital). In addition, the analysis suggests that when the production cost decreases, the equilibrium of funding strategy will shift from bank credit to trade credit and then to factoring. The analysis also proves that the decrease in risk-free rate or the increase in the maximum proportion of receivables and expected rate of return will lead to the equilibrium of factoring.
Subjects
supply chain
supply chain finance
factoring
trade credit
bank credit
pricing
Type
thesis
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ntu-103-R01741019-1.pdf
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