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Buyer Intermediation in Supplier Finance

Management science, 2018-12, Vol.64 (12), p.5631-5650 [Peer Reviewed Journal]

2017 INFORMS ;COPYRIGHT 2018 Institute for Operations Research and the Management Sciences ;Copyright Institute for Operations Research and the Management Sciences Dec 2018 ;ISSN: 0025-1909 ;EISSN: 1526-5501 ;DOI: 10.1287/mnsc.2017.2863

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  • Title:
    Buyer Intermediation in Supplier Finance
  • Author: Tunca, Tunay I. ; Zhu, Weiming
  • Subjects: Buyers ; Buyers (Retail) ; empirical analysis ; Finance ; Financing ; Game theory ; Industrial suppliers ; Interest rates ; inventory and procurement ; Negotiation, mediation and arbitration ; Producer prices ; Profits ; Savings ; Suppliers ; Supply ; supply chain finance
  • Is Part Of: Management science, 2018-12, Vol.64 (12), p.5631-5650
  • Description: Small suppliers often face challenges to obtain financing for their operations. Especially in developing economies, traditional financing methods can be very costly or unavailable to such suppliers. To reduce channel costs, large buyers have recently begun implementing their own financing methods that intermediate between suppliers and financing institutions. In this paper, we analyze the role and efficiency of buyer intermediation in supplier financing. Building a game-theoretical model, we show that buyer intermediated financing can significantly improve channel performance, and can simultaneously benefit both supply chain participants. Using data from a large Chinese online retailer and through structural regression estimation, we demonstrate that buyer intermediation lowers interest rates and wholesale prices, increases order fill rates, and boosts supplier borrowing. Based on counterfactual analysis on the data, we predict that the implementation of buyer intermediated financing will improve channel profits by 13.05%, increasing supplier and retailer profits by more than 10% each, and yielding approximately $44 million projected savings for the retailer. The online supplement is available at https://doi.org/10.1287/mnsc.2017.2863 . This paper was accepted by Vishal Gaur, operations management.
  • Publisher: Linthicum: INFORMS
  • Language: English
  • Identifier: ISSN: 0025-1909
    EISSN: 1526-5501
    DOI: 10.1287/mnsc.2017.2863
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