When facing capital constraints, a retailer fails to procure or order optimally, which not only significantly influences his own profitability, but also harms the competitiveness of the upstream supplier. Therefore, as a core firm of a supply chain, the supplier generally has an incentive to offer trade credit to alleviate the retailer's capital constraints problem. As a financing tool, trade credit has received extensive attention in supply chain finance area. However, the majority of extant literature focuses on the optimal trade credit contract decision by assuming that the credit-offer (i.e., supplier) is risk-neutral and the credit-receiver (i.e., retailer) only uses trade credit to finance inventory. In fact, the supplier may limit the retailer's credit line for the reason of controlling the potential loss risk. As a result, the capital-constrained retailer may adopt other financing tools such as bank credit besides trade credit to satisfy his financing need.
Based on the practical background, two interesting questions arise, that is, how a risk-averse supplier designs a trade credit contract to alleviate the retailer' capital constraints and how the retailer's financing structure is influenced by the supplier's risk aversion. To answer the two questions, a two-echelon supply chain consisting of one risk-averse supplier and one capital-constrained retailer is considered. Based on the classical supply chain finance model, the financing decision model consisting of a supplier, a retailer and a bank is built. By adopting backward induction and non-linear optimization method, the retailer's optimal order decision is first solved and then the supplier's optimal trade credit contract design is analyzed. In addition, the bank's optimal interest rate can be determined on basis of competitively priced principle.
The results show that:when the supplier's risk aversion is lower than a critical threshold value, he prefers to offer full credit to the retailer, and as a result, the retailer's financing structure is trade credit; however, when the supplier's risk aversion is higher than the threshold value, he prefers to offer partial credit to the retailer, and consequently, the retailer's financing structure is the portfolio of bank credit and trade credit. To examine the theoretical results, the data used in the existing literature is further used to simulate the corresponding conclusions. Our research can enrich the existing supply chain finance literature, and can provide decision support for the supply chain core enterprise and the bank.
JIN Wei, LUO Jian-wen
. Optimal Credit Contract Design for a Capital-constrained Supply Chain Incorporating into Risk Aversion[J]. Chinese Journal of Management Science, 2018
, 26(1)
: 35
-46
.
DOI: 10.16381/j.cnki.issn1003-207x.2018.01.004
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