Retailer's Optimal Ordering and Financing Policies under Two -Level Credit Ratings

• Published in: IFAC-PapersOnLine Vol. 55; no. 10; pp. 3052 - 3057
• Main Authors: Xiaoli, Wu, Haixin, Yang
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 2022
• Subjects: credit rating; newsvendor; partial trade credit; supply chain finance; partial trade credit; credit rating; newsvendor; supply chain finance
• ISSN: 2405-8963; 2405-8963
• DOI: 10.1016/j.ifacol.2022.10.197

Different from bank credit rating, the dominant supplier usually ranks retailers to different credit ratings according to their transaction history, such as their order quantities. In this paper, the retailer is ranked either at low credit level or high credit level according to the retailer's historical order quantities. The retailer with low credit rating can only operates from hand to mouth whereas the retailer with high credit rating can apply for partial trade credit as well as a bank loan through the credit guarantee provided by supplier. We analytically derive the retailer's optimal ordering and financing policies. The trade credit and bank financing model is shown to be better off than self-financing model in terms of the retailer's optimal ordering. Hence it is worth to implement credit rating differentiation by the supplier. Observing from the retailer's ordering behavior, the upstream supplier can gain more information on its downstream's capital position through differentiating the credit level by ordering.