Working Capital Management Strategy From Supply Chain Perspective

As more and more enterprises are plagued by working capital issues, or even bankruptcy, the problem of working capital is becoming concerned by scholars. Collaborating enterprise procurement, production and sales capital, improving the efficiency of enterprise working capital, easing pressure of working capital are the problems that the entrepreneurs and the scholars who engaged in corporate research common concern and efforts to seek solutions. In the face of working capital, it is often thought of obtaining funds through financial institutions. But most of the small and medium-sized enterprises are difficult to obtain the necessary funds from the banks and other financial institutions directly. Therefore, from the perspective of supply chain using credit financing to manage the working capital of enterprises has gradually become a hot issue in the practical area and academia. Working capital management based on the supply chain can be divided into two kinds of situations:internal financing and external financing. Internal financing refers to the matching and coordination of the amount and time of working capital in the supply chain by changing the terms of payment. For example, through the delay payment, option purchase and early sales change working capital payment time and payment number; external financing refers to the bank or other financial institutions through the analysis of supply chain transaction structure, prived the trade financing for the upstream and downstream of the lack of credit enterprise according to the core enterprise’s credit. For example, through the credit lending between supply chain members, or by a high credit rating of suppliers, distributors or retailers provide credit guarantees, banks and other financial intermediaries provide loans to other supply chain members. The core idea of the working capital management based on the supply chain is that it is no longer from the separated supply chain, but from the whole supply chain. The working capital management of supply chain can effectively solve the following problems:1) with the upstream or downstream disadvantaged firms of supply chain obtain capital, the capital imbalance and mismatch problem of the supply chain can be solved; (2) with the combining of the purchase behavior and commercial credit of the upstream and downstream enterprises of supply chain, the commercial credit can be enhanced. Therefore, the supply chain working capital management can effectively improve the operational efficiency and reduce the cost of the whole supply chain.In the paper, two kinds of supply chain working capital management modes, internal financing and external financing, are combined, on the one hand, through option purchase and early sale to change the working capital payment time and quantity; on the other hand, through the bank credit financing to solve the imbalance and mismatch problem of working capital. Through the effective integration of the two modes, further improve the efficiency of working capital and reduce the risk of working capital. The specific research results are as follows:(1) Based on integrating and balance thoughts, this paper develops an integrate profit maximization model to analyze the optimal solution of releasing the working capital constraint. By analyzing and comparing, the paper concludes that there exists a unique optimal discount rate of advance selling under normal distribution demand.(2) Examining the operating performance for a supply chain with supplier, retailer and bank, in which the supplier and the retailer have financial constraints simultaneously. Through the integration of early sale and trade credit, the supply chain realized the performance improvement and risk reduction. The paper analyzes the optimal order quantity and early sale discount rate for the retailer, the optimal wholesale price for the supplier and the optimal loan rate for the bank and provides the explicit expressions and existence conditions. By comparing, the paper finds that the combination of internal financing and external financing is the most efficient way, it can improve the supply chain perfermance and can achieve the whole optimization.(3) Analyzing the optimal decisions in a risk-averse supplier-retailer supply chain with demand uncertainty. Introducing option contract, the paper establishes the mean-variance utility model and analyzes the optimal procurement financial allocation strategy (e.g. option, firm order, or spot market purchases quantities) for the retailer and production and pricing strategies for the supplier under different supply contracts: option and firm order, option order only, firm order only etc. And the paper compares the decision results of the different supply contracts and provides the managerial insights for the firms.(4) Investigating the optimal trade credit decision and retailer pricing and supplier supply policy for the retailer dominant supply chain. The paper analyzes the internal credit between supply chain partners and loan from bank in two different supply chain structures, retailer-supplier and retailer-bank-supplier. By analyzing, the paper provides the explicit expressions of the optimal wholesale price and supply quantity and proves the existence and uniqueness conditions of the loan interest. Finanlly, the paper compares both of the financing modes and provides the managerial insights for the retailer dominant supply chain.(5) Analyzing the effects of the relationship among supply chain members to the efficiency of working capital empirically. Through defining the supply chain dependency as a measure of relationship among the supply chain members, and choosing the supply chain of the listed companies in the pharmaceutical industry as the sample, the paper analyzes the effects of the supply chain dependency on the supply chain working capital efficiency. The study found that the supply chain dependency can significantly improve the efficiency of working capital and shorten the enterprise and supply chain working capital turnover periods. The specific results are as follows:the higher the supplier dependency and customer dependency, the shorter the core enterprise working capital turnover period; the higher the supply chain dependency, the shorter the supply chain overall working capital turnover period. The conclusions from the practice perspective proved that the working capital management mode based on supply chain can significantly improve the efficiency of working capital and reduce the risk of working capital.