Improving Supply Chain Profit through Reverse Factoring: A New Multi-Suppliers Single-Vendor Joint Economic Lot Size Model

Beatrice Marchi, Simone Zanoni and Mohamad Y. Jaber
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Beatrice Marchi: Department of Mechanical and Industrial Engineering, Università degli Studi di Brescia, via Branze 38, I-25123 Brescia, Italy
Simone Zanoni: Department of Mechanical and Industrial Engineering, Università degli Studi di Brescia, via Branze 38, I-25123 Brescia, Italy
Mohamad Y. Jaber: Department of Mechanical and Industrial Engineering, Ryerson University, Toronto, ON M5B 2K3, Canada

IJFS, 2020, vol. 8, issue 2, 1-16

Abstract: Supply chain finance has been gaining attention in theory and practice. A company’s financial position affects its performance and survivability in dynamic and volatile markets. Those that have weak financial performance are vulnerable when operating in environments that are uncertain and financially unstable. Companies adopt various solutions and techniques to manage, effectively and efficiently, the flow of money to and from its suppliers and buyers. Reverse factoring is an innovative technique in supply chain financing. This paper develops a joint economic lot size model where a vendor coordinates operational and financial decisions with its multiple suppliers through the establishment of a reverse factoring arrangement. The creditworthy vendor systematically informs a financial institution (e.g., bank) of payment obligations to selected suppliers, enabling the latter to borrow against the value of the relevant accounts receivable at low interest (borrowing) rates. The paper also presents a numerical example and a sensitivity analysis to illustrate the behavior of the model and to compare the economic and operational performance of a supply chain with and without a reverse factoring agreement. The results show that the establishment of a reverse factoring agreement within the supply chain improves the economic performance and impacts on the operational decisions.

Keywords: supply chain management; JELS; inventory management; supply chain finance; reverse factoring (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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