Collaborative Financing Strategy for Supplier and Manufacturer

Debt-shared bank financing allows the supplier to share the retailer’s bank loan obligation, including principal and interest. We study the operational and financial decisions of a chain with a supplier selling to a capital-constrained retailer via a debt-shared contract. We derive the equilibrium debt-shared coefficient, wholesale price, order quantity, and bank’s interest rate with the retailer in different wealth regions. The very poor retailer always accepts debt-sharing and earns a profit, even if the supplier sets the wholesale price up to the retail price. The medium poor retailer might enter a supplier’s debt-sharing hole (a retailer’s wealth region) and acquire zero profit, by using debt-sharing with a wholesale price up to the retail price. For the medium poor retailer outside the hole or the medium rich retailer, the supplier offers either an optimal debt-shared bank financing contract or an optimal price-only contract at her benefit, mainly depending on the production cost and the retailer’s capital. This financing scheme improves both supplier profit and supply chain efficiency.