The Operational Decisions And Coordination Of The Two-echelon Capital-constrained Supply Chain

With the development of economic globalization and intensive market competition, many firms, especially start-up and fast-growing firms, often face a capital constraint problem in operation. On the other hand, in the study of the traditional supply chain management, people mainly consider the logistics flow and information flow of supply chain, but insufficiently consider the capital flow. Therefore, it is crucial to investigate operational decisions and coordination for the two-echelon supply chain under the capital constraint.Firstly, we investigate the operational decisions of the two-echelon supply chain with a capital-constrained loss-averse retailer. With limited working capital, the retailer might need to borrow money from a bank to executive his order. We conclude that the retailer’s optimal order quantity decreases in the degree of loss aversion. In the presence of retailer’s bankruptcy risk, if the probability of bankruptcy is not higher than a threshold, then increases in the retailer’s wealth lead to decreased retailer’s optimal order quantity and supplier’s wholesale price, but without retailer’s bankruptcy risk the retailer’s optimal order quantity and supplier’s wholesale price stay the same.Then, under trade credit, we explore the operational decisions of the two-echelon supply chain with a loss-averse retailer. We conclude that there exists a unique Stackelberg equilibrium between supplier and retailer, the retailer’s equilibrium order quantity decreases in the degree of loss aversion and the supplier’s equilibrium wholesale price increases in the degree of loss aversion; retailer’s equilibrium order quantity decreases in working capital and the supplier’s equilibrium wholesale price increases in working capital. When trade credit financing and bank credit financing are both viable, if interest rate is no larger than a threshold, trade credit financing is better; otherwise, bank credit financing is better.Finally, we consider a supply chain with a supplier and multiple competing retailers. We explore the issue of supply chain coordination by considering trade credit, its risk and competition among retailers. It shows that if allocating demand among the retailers proportional to their order quantities, then there exists a unique Nash equilibrium order quantity which increases in default risk and the number of retailers respectively; and trade credit fails to coordinate the supply chain when competition is weak. In order to coordinate the supply chain, we assume that supplier grants trade credit and revenue sharing. Then, we analytically examine the impacts of retailer’s default risk and competition among retailers on coordinating contract parameters. Our results show that supplier’s wholesale price and risk premium increase in default risk, but the revenue-sharing ratio that is allocated to retailers decreases in it; supplier’s wholesale price and risk premium increases in the number of retailers, but the revenue-sharing ratio decreases in it. Further, we obtain that when the retailers’ default risk is higher and the competition among retailers is more intensive, it is worse to the retailers but is better to the supplier. Finally, we demonstrate the theoretical results of the proposed model through a numerical example.