The Optimal Financing Order Decisions Of A Supply Chain Under Two Different Payments And Risk Preferences

Under the background of production socialization and global integration, supply chain was adopted gradually as an efficient way of social division of labor. Especially since 1980s, in order to seek the least costs, companies carried out outsourcing activities widely. At the same time, the concept of supply chain management emerged as required. Scholars discussed how to control the logistics and information flow to make the supply chain more efficient constantly. However they neglected a common phenomenon that some enterprises of the supply chain tended to be capital constrained. This weakness of these enterprises caused that the benefit of labor division was offset. Hence, we need to look for a better model of supply chain financing management. This research discusses how the payment effects financing order decisions of the supply chain with different risk preferences.Considering a risk-neutral supply chain of a commercial bank, a supplier and a retailer, we first compare with the efficiency of optimal decisions of different participants under the up-front payment and the delayed payment based on a game equilibrium analysis. It shows that the delayed payment leads to a greater optimal order quantity from the retailer compared to the up-front payment under the equilibrium, and improves the whole benefit of the supply chain. The numerical simulation for the random demand following a uniform distribution further verifies our findings. And then, this paper takes the risk-aversion supply chain under these two payments into consideration. The supplier and the retailer will both choose conservative strategies that the qualities of ordering and production will be reduced. And only under the up-front payment can the supply chain achieve the optimal with certain conditions.This study provides new evidence that a dominant supplier who actively offers trade credit helps enhance the whole efficiency of a supply chain.