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Journal article
Purchase Order Financing: Credit, Commitment, and Supply Chain Consequences
Operations research, v 66(5), pp 1287-1303
01 Sep 2018
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
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.
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Details
- Title
- Purchase Order Financing: Credit, Commitment, and Supply Chain Consequences
- Creators
- Matthew Reindorp - Drexel UniversityFehmi Tanrisever - Bilkent UniversityAnne Lange - University of Luxembourg
- Publication Details
- Operations research, v 66(5), pp 1287-1303
- Publisher
- Informs
- Number of pages
- 17
- Grant note
- DII1000016 / Dutch Ministry of Economic Affairs (pilot programme Service Innovation and ICT) DB Schenker Lab at TU Darmstadt
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Decision Sciences (and Management Information Systems)
- Web of Science ID
- WOS:000446179500008
- Scopus ID
- 2-s2.0-85062438688
- Other Identifier
- 991019168858404721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Management
- Operations Research & Management Science