Optimal ordering and financing decisions under advance selling and delayed payment for a capital-constrained supply chain

Abstract

We compare two different financing strategies, advance selling, and delayed payment, for a supply chain with a capital-constrained retailer facing uncertain demand. We firstly establish the retailer’s optimal ordering and financing decisions under advance selling and delayed payment, respectively. In case of advance selling, we find that a strikingly different price discount rate should be adopted when the retailer changes to being capital-constrained. In case of delayed payment, we analytically investigate the impact of the retailer’s capital level on her own performance. Furthermore, we identify the conditions under which advance selling strategy or delayed payment strategy is preferable. In particular, advance selling strategy is preferable for the retailer when she is sufficiently capital-constrained or customers are relatively price sensitive; In contrast, delayed payment strategy is preferable for the supplier and the entire supply chain when the retailer is sufficiently capital-constrained.

Keywords:

• Inventory
• supply chain
• advance selling
• delayed payment
• capital constraint

Acknowledgement

The authors are grateful to the editors and two anonymous referees for their valuable comments and suggestions.