Reference : Purchase Order Financing: Credit, Commitment, and Supply Chain Consequences
Scientific journals : Article
Business & economic sciences : Production, distribution & supply chain management
http://hdl.handle.net/10993/36901
Purchase Order Financing: Credit, Commitment, and Supply Chain Consequences
English
Reindorp, Matthew [> >]
Tanrisever, Fehmi [> >]
Lange, Anne mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)]
2018
Operations Research
66
5
1287-1303
Yes
[en] We study a supply chain where a retailer buys from a supplier who faces financial constraints. Informational problems about the supplier’s demand prospects and production capabilities restrict her access to capital. By committing to a minimum purchase quantity, the retailer can mitigate these informational problems and expand the supplier’s feasible production set. We assume a newsvendor model of operations and analyze the strategic interaction of the two parties as a sequential game. Key parameters in our model are the supplier’s ex ante credit limit, her informational transparency—which conditions the amount of additional capital released by the commitment—and the demand characteristics of the final market. We show that in equilibrium the supplier can benefit from a lower ex ante credit limit or lower informational transparency. The retailer always benefits from an increase in these parameters. We also indicate limits to the commitment approach: under certain conditions, the retailer may prefer to relax the supplier’s financial constraint by adjusting the wholesale price, or a combination of wholesale price and commitment. Our study provides a novel perspective on capital market frictions in supply chains. The e-companion is available at https://doi.org/10.1287/opre.2018.1727.
http://hdl.handle.net/10993/36901
10.1287/opre.2018.1727
https://doi.org/10.1287/opre.2018.1727

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