The value of trade credit with rebate contract in a capital-constrained supply chain

Abstract

We investigate the value of an innovative trade credit with rebate contract (TCRC) model in a stylised supply chain. In this supply chain, the capital-abundant manufacturer offers an integrated contract involving trade credit, minimum ordering and sales rebate contract to a capital-constrained retailer. To highlight the value of the TCRC model, we compare it with a traditional trade credit financing (TTCF) model in a ‘selling to the newsvendor model’. First, we show that equilibrium strategies exist between the manufacturer and the retailer under the TCRC or TTCF model. Second, this study investigates equilibrium selection between the TCRC and TTCF models for the individual and the supply chain. Finally, we show the manufacturer’s pricing policy, wherein the TCRC model outperforms the TTCF model for the players. Furthermore, we conduct a set of numerical experiments to show evidence for theoretical analysis and measure the operation efficiency of the TCRC model for players in the supply chain.

Keywords:

• trade credit
• rebate contract
• supply chain
• pareto zone

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Foundation of China [grant number 71472049], [grant number 71502084], [grant number 71531005], and [grant number 71629001]; China Postdoctoral Science Foundation [grant number 2015M571496].