A joint inventory-finance model for coordinating a capital-constrained supply chain with financing limitations

• Published in: Financial innovation (Heidelberg) 2021-01, Vol.7 (1), p.1-39, Article 6
• Main Authors: Emtehani, Faranak, Nahavandi, Nasim, Rafiei, Farimah Mokhatab
• Format: Article
• Language: English
• Subjects: Bi-objective optimization; Capital shortage; Economics; Economics and Finance; Financing limitation; Inventory-finance model; Macroeconomics/Monetary Economics//Financial Economics; Political Economy/Economic Systems; Service level; Supply chain coordination; Supply chains
• ISSN: 2199-4730; 2199-4730
• DOI: 10.1186/s40854-020-00223-z

Faced with economic recession, firms struggle to find ways to stay competitive and maintain market share. Effective coordination of the supply chain can solve this problem, but this may fail if existing capital constraints and financial flows are ignored. This study addresses the challenge by exploiting coordination through joint decision-making on the physical and financial flows of a capital-constrained supply chain. We also consider the capital-constrained member's financing limitations that lead to lost sales. Two scenarios based on non-coordinated and coordinated structures are modeled in the form of bi-objective optimization problems that simultaneously optimize system costs and service levels. The models are solved using the ε-constraint method. The results indicate that the non-coordinated model cannot satisfy more than about 50% of the demand due to capital shortage and financing limitations, while the coordinated model can satisfy all of the demand via internal financing. Furthermore, the proposed coordination scheme leads to cost reduction for the members and the total system. To motivate all members to accept the proposed coordination scheme, a cost-sharing mechanism is applied to the coordination procedure. Finally, a sensitivity analysis concerning financial parameters is provided for validating the coordination model.