Supply Chain Finance Decision Analysis with a Partial Credit Guarantee Contract

Considering the risk of SMEs, financial institutions have been cautious about the financing of SMEs. Supply chain finance, through the integration of information chain, capital chain, logistics chain, and so on, forms an internal circulation ecosystem, which is a breakthrough to solve the financing difficulties of SEMs. In the development of supply chain finance in China, the evaluation of the enterprise’s credit, collateral is basically carried out by the bank or the bank commissioned by third parties. Therefore, the main mode of supply chain finance in China is banking-oriented model. At the same time, as the most powerful leading enterprise in the supply chain, the core enterprise can help to improve the whole supply chain with the advantage of information and credit. The credit guarantee financing model, providing credit guarantee for the downstream retailers, gradually appeared.

In the supply chain, only a small number of scholars consider the impact of financial constraints on the supply chain decisions. The research about the decision-making of three echelon supply chain, retailer-manufacturer-bank, is also less. In this paper, the credit guarantee contract is integrated into the supply chain finance model, to study the decision-making of supply chain finance.

This paper studies the decision-making problem of three echelon supply chain, retailer-manufacturer-bank, in centralized and decentralized systems. Through the calculation, it is proved that under the credit guarantee of the core enterprise, the retailer has the optimal ordering strategy, and the core enterprise has the optimal wholesale price. Besides, the optimal profit of the SCF system in centralized system is always higher than the sum of the three SCF participants’ optimal profit in the decentralized system. The retailer’s loan coefficient and the credit guarantee coefficient can narrow the optimal profit gap between the decentralized and centralized system to a certain extent. It is embodied in two aspects. On the one hand, when the retailer’s loan coefficient is consistent with the wholesale price, that the retailer’s loan amount is 0, the optimal profit of the SCF system in centralized system is the same as the sum of the three SCF participants’ optimal profit in the decentralized system. Considering that the principal and interest of the retailer are the retailer’s total sales when the supply chain financial system is balanced, i.e. the retailer’s profit is zero. Hence, the retailer’s loan coefficient can narrow the optimal profit gap between the decentralized and centralized system to a certain extent. On the other hand, the smaller λ is, the narrower optimal profit gap between the decentralized and centralized system is. Considering that the bank’s expect profit is negative when the credit guarantee coefficient is too small, the credit guarantee coefficient can narrow the optimal profit gap between the decentralized and centralized system to a certain extent. There are also shortcomings in this paper. In this paper, the decisions of parameter a and λ are not taken into account in the game model, but the influences on the game result are analyzed. On the other hand, this paper considers a simpler supply chain model. The actual situation is that supply chain finance financing is facing a more complex supply chain system, and involves dynamic evolution.

Article by Yueliang Su and Baoyu Zhong,from South China University of Technology, Guangzhou, China

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