Selling to the Newsvendor: An Analysis of Price-Only Contracts
Manufacturing & Service Operations Management
Pre-IPO Operational and Financial Decisions
Management Science
Inventory Management with Asset-Based Financing
Management Science
Sale Timing in a Supply Chain: When to Sell to the Retailer
Manufacturing & Service Operations Management
Risk Ownership in Contract Manufacturing
Manufacturing & Service Operations Management
Trust in Forecast Information Sharing
Management Science
Financing newsvendor inventory
Operations Research Letters
Coordinating a three-level supply chain with delay in payments and a discounted interest rate
Computers and Industrial Engineering
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We consider a supply chain with a retailer and a supplier: A newsvendor-like retailer has a single opportunity to order a product from a supplier to satisfy future uncertain demand. Both the retailer and supplier are capital constrained and in need of short-term financing. In the presence of bankruptcy risks for both the retailer and supplier, we model their strategic interaction as a Stackelberg game with the supplier as the leader. We use the supplier early payment discount scheme as a decision framework to analyze all decisions involved in optimally structuring the trade credit contract (discounted wholesale price if paying early, financing rate if delaying payment) from the supplier's perspective. Under mild assumptions we conclude that a risk-neutral supplier should always finance the retailer at rates less than or equal to the risk-free rate. The retailer, if offered an optimally structured trade credit contract, will always prefer supplier financing to bank financing. Furthermore, under optimal trade credit contracts, both the supplier's profit and supply chain efficiency improve, and the retailer might improve his profits relative to under bank financing (or equivalently, a rich retailer under wholesale price contracts), depending on his current “wealth” (working capital and collateral).