Optimal Stratety For A Supply Chain System With Buyer-backed Financing

In the field of Operations Management,research on the optimal inventory and production strategy of supply chains has always been one of the hot topics.The traditional Operation Management model usually assumes that the members of the supply chain do not have budget constraints.This assumption brings a lot of convenience to theoretical research.For example,the output of a manufacturer can be expanded indefinitely,and there is no upper limit on the amount of orders for retailers.The ability of members to make optimal decisions is not limited by funds.In reality,however,any company's funds are limited.When the company' s limited funds impose restrictions on its optimal decision,we call the company's capital constraints.At this time,the company may be willing to raise funds for production activities to increase the expected profit.This article examines a supply chain consisting of a supplier and a retailer,and the supplier may face budget constraints.When the supplier is short of funds,and he cannot obtain financing directly from financial institutions,the retailer has the incentive to assist supplier in financing to increase the supplier's capacity,if the retailer cannot find alternative supplier in the short term.Under the Buyer-backed Financing,the retailer gets financing from banks by her creditworthiness and full guarantee,and provides the supplier with production use.When the market demand is realized,the retailer purchases on demand,and if the order amount is not enough to repay the loan principal,the retailer makes up for the difference.This paper studies the optimal financing strategy for retailer in this scenario.The study found that when the supplier is budget constrained,the retailer's optimal decision is to provide financing,and the optimal amount of financing is affected by the supplier's own initial funds and the profitability of both parties.Even if the supplier's initial capital is sufficient,when the retailer's profit rate is higher than the supplier's profit rate,and the supplier's profit rate is low,the retailer and the supplier still have the intention to reach a financing agreement.At this time,the retailer replaces the supplier and becomes the party in the newsvendor model who bears the inventory risk.