Research On The Optimization Of Inventory Financing Under Unified Credit Mode

Inventory financing,one of the primary areas of supply chain financing,is of great value for boosting economic development and promoting enterprise competitiveness.Unified credit mode,as a vitally important operating pattern in inventory fianncing,has gradually gained wide-spread use in recent years.Under this mode,financing institutions,such as banks,give a certain line of credit to third party logistics(3PLs)which are chosen based on their qualifications,and then 3PLs directly conduct financing business with small and medium-sized enterprises(SMEs)and provide loans to them.Compared with other inventory financing modes,unified credit mode can not only help to simplify business operating process,mobilize 3PLs' enthusiasm in participation,but also it is an effective way for banks to reduce their credit risks and lower their incentive costs and bonding costs arisen from 3PLs.However,under this financing mode,3PLs may face SMEs default risks.Since loan-to-value(LTV)ratios and loan rates are two key indicators for risk control,optimization on these indicators can help 3PLs cut down risks.Thus,research on loan-to-value(LTV)ratios and loan rates is theoretically significant and practically valuable.To optimize LTV ratios and loan rates in inventory financing under unified credit mode,theories including game theory,risk management theory and supply chain management theory are integratively applied in this paper which is studied from the perspective of 3PLs.Also optimal financing decisions in a supply chain composed of core enterprises,SMEs and 3PLs is analyzed.Main contents of this paper are illustrated as follows:Firstly,optimization on LTV ratios under uncertain price and demand is studied.With regard to the problem about making LTV ratios decisions in inventory financing,3PLs expected profit model is developed by means of piece-wise function with the object of maximizing 3PLs' expected profits,which is assumptively based on different default probability in different financing enterprises.To solve this model and derive optimal LTV ratio,analytical method was applied.This part of study lays theoretical foundation for practical inventory financing busniess in a market with uncertain price and demand.The study shows that:(1)In inventory financing,in order to lower financing risks and to boost economic income,3PLs should offer a relatively high LTV ratio to the SMEs with relatively low default possibility and vice versa.(2)3PLs should pay constant attention to market price(mean value)of pledging inventory and as well as its volatility range(variance value),and also consider the influence of collaterals' price fluctuation on market demand when making rational LTV ratio decision.Next,optimization on LTV ratios is studied when SMEs' credit line,affected by their initial money and state of operation,is taken into account.In such case,it is assumed that SMEs will place their order in two phases.LTV ratios optimization method is proposed considering SMEs' credit line,order strategy and collaterals'market price.Credit line can be derived by analyzing whether SMEs choose to pay back their loans,and knowing credit line,optimal LTV can be calculated when both 3PLs and SMEs achieve their maximum expected profits.This research suggests that 3PLs tend to set a relatively high LTV ratio with high collateral market demand and large collateral quantity.Also,LTV ratios calculated by using this method can bring more benefits for 3PLs and SMEs.After that,both LTV ratios and loan rates are analyzed and optimized under the mode of chattel mortgage after acceptance.Based on SMEs' default possibilities,financing decision model of chattel mortgage after acceptance is developed under two different circumstances,whether 3PLs take default risks.Analytical method was applied to solve this model,and optimal LTV ratios and optimal loan rates are gained in both circumstances.The research shows that:(1)If 3PLs take default risks,optimal loan rate equals to regulated interest rate,and loss rate should be relatively small to ensure that down-side-averse method has an effect on risk aversion.(2)Borrowers' s default risk has certain influence on LTV ration decision;thus,3PLs should consider SMEs credit standing and financial standing to reduce SMEs' default risk and increase 3PLs'expected profits in inventory financing.(3)3PLs should keep close eye on collaterals'sales status.When their price rises,LTV ratios can be increased to add expected profits and vice versa.(4)Cost reduction is also important for 3PLs in unified credit financing.3PLs should control their cost and set a relatively high LTV ratio to make more profits.Finally,joint optimization is studied with core enterprise payback guarantee.Given stochastic market demand of collaterals,joint decision model with all parties achieving equilibrium is constructed based on asymmetric Nash negotiation principle.The findings of this study can provide a scientific basis for SMEs,core enterprises and 3PLs in decision-making on order quantity,repurchase rate and LTV ratio respectively.The study concludes that:(1)When market price goes up,SMEs should increase order quantity,core enterprices should decrease repurchase rate,and 3PLs should decrease LTV ratio;(2)When exogenous default probability rises,SMEs should order less,core enterprices should lower repurchase rate(or repurchase price),and 3PLs should lower LTV ratio.The study result is of great theoretical significance for the promotion of in-depth development of inventory financing under unified credit mode.By applying the theory and method of risk control to practical problems,this paper provides new management perspective and scientific technological foundation for all parties involved in inventory financing to increase their own profits,and it also presents vital practical guidance for joint decision made by 3PLs as well as other parties in a supply chain.