Platform vs. 3PL financing: Strategic choice of lending model for an e-tailer under operational risk

Sambit Brata Rath, Preetam Basu, Kannan Govindan and Prasenjit Mandal

Transportation Research Part E: Logistics and Transportation Review, 2024, vol. 184, issue C

Abstract: In addition to providing logistics services, third-party logistics (3PL) firms (e.g., S.F. Express) have recently started extending financial services to capital-constrained e-tailers (referred to as 3PL financing (LF)). Another novel financing mode available for e-tailers is platform financing (PF), in which online platforms such as Amazon and Alibaba provide loans to e-tailers on their platforms. Both LF and PF facilitate trade in a capital-constrained supply chain. However, in the presence of an e-tailer’s operational risk, the lenders are exposed to credit risk, which can negatively impact the whole supply chain. Moreover, when both financing modes are available, the e-tailer must develop an optimal borrowing strategy. Multiple factors, such as bankruptcy cost, referral fee, and shipping fee, can significantly influence players’ financing decisions. Therefore, this paper examines supply chain members’ optimal operational and financing decisions under LF and PF. We study a three-tier supply chain in which an e-tailer, exposed to operational risk, procures a product from a supplier via the 3PL firm and resells it to end customers through the online platform. The e-tailer obtains the working capital either through LF or PF. We find that at low (high) levels of operational risk, the e-tailer chooses LF (PF). Surprisingly, the 3PL firm and the platform do not always benefit from the LF and PF. We recommend a decision support framework for the e-tailer’s optimal financing strategy for different product categories based on its operational risk. We show that for products with a low (moderate and high) referral fee, LF (PF) achieves a win-win-win outcome under low (high) operational risk. Further analysis shows that the e-tailer’s initial working capital, logistics, and product costs can alter the players’ financing decisions.

Keywords: E-commerce; Platform financing; 3PL financing; Operational risk; Game theory (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1016/j.tre.2024.103459

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