The influence of positive and negative salvage values on supply chain financing strategies

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

Research output: Journal article publicationJournal articleAcademic researchpeer-review

2 Citations (Scopus)


We establish a supply chain finance scheme containing a cash-strapped supplier, a creditworthy retailer as well as a financial institution to explore whether the positive or negative salvage value has a crucial impact on the order decisions and financing strategies. Buyer-backed purchase order financing and advanced payment discount (APD) financing are considered to settle the supplier’s fund shortage problem. We found that the positive and negative salvage values affect (1) the retailer’s optimal order quantity. The buyer orders more products with positive salvage value than those with no salvage value and reduces orders for items with negative salvage value; (2) the profits in the supply chain. Ordering items with a positive salvage value can reduce the risk of loss compared to orders with no salvage value, which leads to more gains for the buyer and the whole supply chain, while orders for items with negative salvage increase the losses, resulting in lower profits; (3) the threshold of the retailer’s internal asset level under single financing. The higher salvage value brings more inventory risk to the retailer; hence the retailer should have a higher asset level to ensure that there is sufficient capital to finance the supplier via APD. Finally, we verify the results by numerical experiments and present some managerial implications for different industries.

Original languageEnglish
Pages (from-to)535-563
Number of pages29
JournalAnnals of Operations Research
Issue number1
Publication statusPublished - Aug 2022


  • Advance payment discount
  • Buyer-backed purchase order financing
  • Positive and negative salvages
  • Supply chain finance

ASJC Scopus subject areas

  • Decision Sciences(all)
  • Management Science and Operations Research


Dive into the research topics of 'The influence of positive and negative salvage values on supply chain financing strategies'. Together they form a unique fingerprint.

Cite this