Optimal Strategy For A Supply Chain System With Advance Sellin

Based on a two-stage news vendor model, this paper tries to solve the manufacturer’s capital constraint through advance selling to the retailer, when the manufacturer cannot borrow from banks or other financial institutions and the manufacturer’s production is a function of its capital input. The supply chain considered in this paper consists of one manufacturer and one retailer with one product. The manufacturer and the retailer are the two players of the Stakelberg Game with the manufacturer as the leader of the game. This paper discusses, when the manufacturer faces capital constraint but adopts advance selling policy, the retailer’s optimal pre-order size, the manufacturer’s optimal production and the manufacturer’s optimal advance selling discount. And this paper finds that when the manufacturer has sufficient capital the manufacturer will not adopt advance selling. When the manufacturer faces a capital constraint, the retailer’s optimal pre-order size is negatively related with the advance selling discount offered by the manufacturer and the manufacturer will not offer an advance selling price lower than the manufacturer’s cost.