The impact of buyback support on financing strategies for a capital-constrained supplier

Song-Man Wu, Felix T.S. Chan and S.H. Chung

International Journal of Production Economics, 2022, vol. 248, issue C

Abstract: In this paper, we investigate the optimal operational decisions and financing strategies of a supply chain with one financial-constrained supplier and one reputable retailer. In particular, two pre-shipment financing mechanisms, buyback support buyer-backed purchase order financing (BSBPOF) and buyback support advance payment discount (BSAPD), are chosen to ease the supplier's financial pressures. Both financing methods indicate that the supplier promises to buy back the unsold items after the sales season, but the difference is that the former means that the financial institution lends money to the supplier which the retailer needs to guarantee, while the latter means that the retailer pays in advance. Our research shows that: 1) the difference between the buyback price of the unsold product and its salvage value has an impact on the optimal operational decisions (such as the supplier's capacity level, the discount rate under BSAPD, and the financial institution's interest rate under BSBPOF); 2) when both financing instruments are available, if the buyback price is above a certain level and the difference between the buyback price and the salvage value is less than a certain range, the financing equilibrium is BSBPOF. Otherwise, BSAPD is preferred. Furthermore, the results provide managerial insights on how to address the operational and financing issues, and relevant conclusions are drawn by extending the model to consider stockout costs.

Keywords: Supply chain management; Supply chain finance; Buyback support buyer-backed purchase order financing; Buyback support advance payment discount; Salvage value (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:248:y:2022:i:c:s0925527322000500

DOI: 10.1016/j.ijpe.2022.108457

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