Research On The Influence Of Debt Financing On Retailer's Inventory Management Under Supply Uncertainty

As an important part of Chinese national economy,SMEs face the dilemma of financing difficulties.This paper shows how debt financing affects the inventory decision of a multi-product retailer with limited funding while facing supply uncertainty.By solving the mathematical model,we obtained the different optimal inventory decisions of retailers funded by the bank financing,trade credit and mixed financing and discussed the inventory distortion by comparing with the first-best inventory strategy.We also discussed how the risk shifting is reflected in different product parameters including retail price,unit cost,out-of-stock cost and supply reliability.After comparing the advantages and disadvantages of different financing models,we propose corresponding inventory recommendations and risk-controlled measures.This paper shows that:(1)due to the existence of agency problems,the optimal inventory decision of a multi-product retailers funded by bank financing will deviate from the 'first best' inventory strategy,which is reflected in the preference of the retailer for products with high cost of out-of-stock and low profits margins.Although bank-funded retailer prefer high-risk product for risk seeking,they attach more attention to product reliability.(2)The retailer's optimal inventory decisions will not deviate from the first-best inventory strategy when the financing is provided by the supplier who can observe the actual order quantities before determining the credit terms.However,this adjustment will only work when trade credits are provided by a single supplier,when multiple suppliers provide trade credit,the inventory decisions of multiproduct retailers deviate from the first-best strategy still;(3)the cost of trade credit financing is higher than the cost of bank financing.When the two cost gaps are sufficient,the multi-product retailers prefer to choose bank financing.When their difference is not obvious,the multi-product retailers prefer to choose trade credit provided by a single supplier.(4)When the multi-product retailer is funded by mixed financing(incorporating bank financing and trade credit),its inventory decisions are better than those trade credits provided by a single supplier.Capital-constrained retailer should try first to obtain bank financing with lower capital cost despite its incentives for risk seeking.Although the trade credit provided by a single supplier can eliminate the distortion in inventory decisions,its capital cost is relatively high,should be used as a sub-optimal option to complement the retailers' lack of financing at the bank.