Optimal financing strategies for a risk-averse supplier under the CVaR criterion in a capital-constrained supply chain

Boshi Tian, Yuanxin Lu, Liangwei Yu and Xiaoxing Chang

Journal of the Operational Research Society, 2024, vol. 75, issue 8, 1643-1661

Abstract: We focus on analyzing the risk preferences of suppliers regarding two types of financing: partial credit guarantee (PCG) and trade credit financing (TCF). Using the conditional value-at-risk (CVaR) criterion, we study each supply chain member’s equilibrium solution and optimal financing strategy under the assumption of demand distributions with an increasing failure rate. Initially, we present an analytical solution of the risk-averse supplier’s wholesale price, and prove that the optimal wholesale price decreases in the risk-averse level and initial capital, and increases in the credit guarantee ratio. Furthermore, we derive optimal financing strategies for both the supplier and the retailer under various circumstances. However, it is important to note that the results reveal a potential trade-off associated with PCG. While risk-averse suppliers may be more inclined to provide PCG compared to risk-neutral suppliers, this financing option can negatively impact the supplier’s utility and the expected profits of the retailers. Finally, we illustrate how the optimal financing strategies shift in response to changes in the risk-averse level and credit guarantee ratio, and present the win-win situations for the supplier and the retailer.

Date: 2024
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DOI: 10.1080/01605682.2023.2269192

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