Benefits of working capital sharing in supply chains. Issue 5 (1st May 2017)

• Record Type: Journal Article
• Authors: Protopappa-Sieke, Margarita; Seifert, Ralf W.
• Is Part Of: Journal of the Operational Research Society. Volume 68:Issue 5(2017)
• Page Start: 521
• Page End: 532
• Publication Date: 2017-05-01
• Subjects: financial supply chain management -- supply chain finance -- working capital management -- payment delays -- inventory management; Operations research -- Periodicals; 658.4034
• DOI: 10.1057/s41274-016-0009-2
• Languages: English
• ISSNs: 0160-5682

Abstract

Abstract: Supply chain finance and working capital management are important avenues to reduce supply chain costs. Small suppliers may not have sufficient working capital to finance their operations and efficiently supply their customers. We develop a model that captures the fundamental aspects of financial and operational planning in a two-stage supply chain, with both strong and weak members. A strong member can negotiate for more favorable financing rates, more advantageous payment terms, and shorter lead times than a weaker member. We investigate two working capital allocation scenarios. In the dedicated working capital allocation scenario, the members of the supply chain each have their own working capital. In the joint working capital allocation scenario, the members of the supply chain have a joint pool of working capital. Our results demonstrate significant benefits when the members of the supply chain share the working capital. We also show that extending payment delays to a supplier upstream results in higher overall supply chain costs.