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

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

Research output: Journal article publicationJournal articleAcademic researchpeer-review

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.

Original languageEnglish
Article number108457
JournalInternational Journal of Production Economics
Volume248
DOIs
Publication statusPublished - Jun 2022

Keywords

  • Buyback support advance payment discount
  • Buyback support buyer-backed purchase order financing
  • Salvage value
  • Supply chain finance
  • Supply chain management

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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