Optimal selection of supply chain financing programmes for a financially distressed manufacturer

Availability of working capital is a challenge for the smooth functioning of any supply chain, particularly when the manufacturer is financially distressed. This gives rise to the issue of selection of optimal sup-ply chain finance programmes. Addressing the limited working capital issue of a financially distressed manufacturer, we construct in this study a Stackelberg game model of a dual-channel supply chain and a multi-echelon supply chain, as an extension, to analyze the effects of reverse factoring and non-reverse factoring (external financing and trade credit) supply chain finance programmes on supply chain profit under price-sensitive demand. We also analyze the impacts of hybrid reverse factoring (an extension of the reverse factoring programme) on supply chain profit. We find that the supply chain finance pro-gramme with reverse factoring brings higher profits to the manufacturer and retailer than the other pro-grammes. However, when the market size is sufficiently large, the trade credit programme generates a higher total supply chain profit than the other programmes. We also find that the retailer and manufac-turer prefer reverse factoring and non-reverse factoring to hybrid reverse factoring, even though the total supply chain profit is almost equal in both cases. We also provide a case study to illustrate the model outcomes. (c) 2022 Elsevier B.V. All rights reserved.

Automated summary

Availability of working capital is a challenge for supply chain operation, especially for financially distressed manufacturers. This study analyzes the effects of supply chain finance programs, specifically reverse factoring and non-reverse factoring, on supply chain profit. The findings suggest that reverse factoring brings higher profits for manufacturers and retailers, while trade credit programs generate higher total supply chain profit when the market size is large. The preference for reverse factoring and non-reverse factoring over hybrid reverse factoring is also observed, despite similar total supply chain profit.