Modifying Confirming Warehouse Financing For Supply Chain Coordination

Resource allocation is the core issue of economy. Market and enterprise are two ways to achieve the goal. Supply chain management takes advantages of both market and enterprise. As supply chain competition is becoming more and more popular, supply chain coordination in complex situation comes to be an important issue. Existing researches on supply chain coordination focus on logistics coordination, especially inventory coordination. So supply chain cash flow problem is becoming a significant research direction. In traditional supply chain, these core enterprises usually occupy small supply chain partners’ liquidity for purpose of working capital management and risk control. Supply chain finance is the key to optimize supply chain cash flow.Confirming Warehouse Financing(CWF) has shown great benefit in improving supply chain efficiency in cash flow. However, when the customer demand is uncertain and affected by the retailer’s sales effort, CWF, typically requiring a 100% buyback, fails to coordinate the supply chain. To understand the root cause of supply chain inefficiency and propose a solution, traditional CWF and 3 modified modes(discount compensation CWF, deposit withholding CWF and buyback compensation CWF) are examined. Based on these 4 existing CWF modes, this article promotes mutual compensation CWF.Through parametric model and numerical example, we get the following results: 1) the root cause of supply chain inefficiency is irrational allocation of expected revenue and expected cost between supply chain partners; 2) traditional CWF can’t coordinate the supply chain, discount compensation CWF, deposit withholding CWF and buyback compensation CWF may partly coordinate the supply chain, and mutual compensation CWF can coordinate the supply chain; 3) for manufacturers, mutual compensation CWF makes the biggest profit, discount compensation CWF is the simplest mode that makes considerable profit, deposit withholding CWF is suitable for the condition in which retailers keep high reserved profit and buyback compensation CWF in fact cannot increase manufacturers’ profit.