Reach On Operating Modes Of The Supply Chain Finance Based On The Financial Derivatives Mechanism

Supply Chain Finance (SCF) changes the practice that banks granted credit to a single enterprise which qualified for loaning. Judging from trades of the up-downstream enterprises and the credit status of the key enterprise in the supply chain, the SCF provides financial supports to medium and small enterprises that have trade relations with the key enterprise. The SCF has a bright future because it brings a new competitive edge for banks and 3PLs. Thus, it is important to make a deep and systematic study of the SCF so that we could make it perfect and popular.The paper first induces the connotation and functions of the SCF and exposes the trend of SCF management which caters to supply chain risk-control and optimization supported by Supply Chain Risk Management Theory and Supply Chain Coordination Theory in order to provide a basis for the further study. Then the author puts more efforts into the study of the three basic operating modes of the SCF, which are advance payment financing mode, inventory hypothecation financing mode and account receivables financing mode, to reveal the distinctive financing advantage. By analyzing separately their act mechanisms, the paper helps banks find targeted limitations. They exist in the quantity of stocks, the value of mortgages and the recovery of loans. Then, that triggers careful consideration for solving them, which brings the financial derivatives into the supply chain management. After testified the idea is available, the author designs respectively new business processes of advance payment with option contracts financing mode, inventory hypothecation based on hedging financing mode and account receivables implanted the credit default swap financing mode. The improved modes take full advantage of financial derivatives, overcome the limitations and enhance the competitiveness of the entire supply chain. Finally, the paper demonstrates the good effect of the improved modes. The results are that advance payment with option contracts financing mode, compared with original newsboy models appears Pareto improvement, that hedging works in the inventory hypothecation based on hedging financing mode if the hedging ratio is optimal, and that the account receivables implanted the credit default swap financing mode raises the efficiency of the cooperation between banks and enterprises. The achievement of the paper makes sense to the future studies and practices.