The supplier's optimal guarantee policy in newsvendor finance

Abstract

The retailer is a capital-constrained newsvendor and can borrow money from the bank if necessary. To help the retailer get a bank loan at a lower interest rate, the supplier provides guarantee for the retailer's loan up to a prespecified amount. In a Stackelberg game, the supplier decides the wholesale price and the guarantee amount as a leader, and then the retailer determines the order quantity and the amount of the loan as a follower. The supplier is risk-neutral while the retailer's risk preference is reflected by a spectral risk measure (risk-neutral, risk-averse, or risk-seeking). For a given wholesale price and guarantee amount, the retailer's objective function is quasi-concave in the order quantity. The optimal solutions for the supplier and the retailer are derived. The supplier's expected profit with optimized wholesale price increases with the guarantee amount, and thus the supplier's optimal policy is to provide a full guarantee for the retailer's loan. When the supplier can limit his guarantee responsibility by a proportion of the outstanding loan obligation, the supplier's optimal policy is also to provide a full guarantee. Even if the retailer incurs bankruptcy costs in the event of repayment default, the supplier's optimal guarantee policy remains the same in these two different forms of limited guarantee. However, when the wholesale price is exogenous, that is, not a decision variable, the full guarantee is not necessarily optimal for supplier.

Mixed financing scheme in a capital‐constrained supply chain: bank credit and e‐commerce platform financing

“…The manufacturer has three types of financing schemes: trade credit, bank credit, and mixed equity and bank credit. With a wholesale price contract, Li and Jiang (2020) investigate the supplier's optimal credit guarantee strategy and find that the supplier prefers to offer a full credit guarantee to the retailer. In terms of TCF, Gao et al (2014) show that under TCF, a wholesale price contract can realize Pareto improvement for all supply chain players.…”

Trade and bank credit in a non-cooperative chain with a price-sensitive demand

“…SCF aims to study how to plan, manage and control the financial flow throughout the supply chain (Caldentey and Chen, 2009;Srinivasa and Mishra, 2011;Rhian and Paola, 2014;Yang and Birge, 2017) in order to optimize the financial flows and the allocation of financial resources in the supply chain to increase value (Hofmann et al, 2011). SCF research develops from analysing traditional internal to the supply chain (trade credit) and external (bank credit) financing modes to more recent ones such as electronic business platform financing (Wang et al, 2019), buyer financing (Deng et al, 2018), financially stronger partner's guarantee; supplier does not offer trade credit but a guarantee to help the retailer to obtain better financial conditions from its bank (Jin et al, 2019;Li and Jiang, 2020), and third-party-logistics providers' financing (Chen and Cai, 2011). More recently, Yu et al (2020) try to assess the impact of platforms financing and blockchain technology on Supply Chain Finance.…”

Decision making in trade credit financing: impact of loss aversion and power imbalance

“…Our work focuses on loss aversion in the interface of operations and finance, where the related research is more recent and relatively scarce. Li and Jiang (2020) explore whether a retailer's risk preference influences a supplier's guarantee willingness, where the CVaR criteria is used to measure the retailer's risk attitude. Shen et al.…”