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Optimal decisions and coordination strategy of a capital-constrained supply chain under customer return and supplier subsidy

Gongbing Bi (University of Science and Technology of China, Hefei, China)
Ping Chen (University of Science and Technology of China, Hefei, China)
Yalei Fei (School of Management, University of Science and Technology of China, Hefei, China)

Journal of Modelling in Management

ISSN: 1746-5664

Article publication date: 14 May 2018

511

Abstract

Purpose

The purpose of the paper is to explore impacts of financing and supplier subsidy on capital-constrained retailer and the value of returns subsidy contract under a situation where the retailer makes joint operations and finance decisions.

Design/methodology/approach

This paper considers a two-level supply chain, including a retailer and a supplier. Facing problems of capital constraints and even customer returns, the newsvendor-like retailer orders from a well-capitalized supplier. The supplier allows the retailer a delay in payment and provides a subsidy contract to alleviate its problems if it is profitable. Considering their difference of initial capital status, the retailer is assumed to be Follower of Stackelberg Game and the supplier is the Leader.

Findings

The supplier return subsidy contract has some merits for both of partners in the chain. And it does not coordinate the supply chain when the retailer has enough initial capital; however, when the retailer is capital constrained, it does. In addition, the retailer’s initial capital level significantly affects the supplier’s subsidy decision.

Research limitations/implications

Return rate is simplified to a fixed proportion of completed demand. In addition, trade credit is only financing source in this paper, and other types of financing methods, such as bank credit, can be taken too.

Originality/value

This paper first incorporates trade credit financing and customer returns into a modeling framework to investigate the capital-constrained retailer’s joint operations and finance decisions and the value of supplier’s subsidy contract.

Keywords

Acknowledgements

The authors thank the associate editor and two anonymous reviewers for their constructive comments in the preparation of the paper. This work is supported by the National Natural Science Foundation of China [grant number 71571174] and the Key Program of the National Natural Science Foundation of China [Grant Number 71731010].

Citation

Bi, G., Chen, P. and Fei, Y. (2018), "Optimal decisions and coordination strategy of a capital-constrained supply chain under customer return and supplier subsidy", Journal of Modelling in Management, Vol. 13 No. 2, pp. 278-301. https://doi.org/10.1108/JM2-12-2016-0142

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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