Trade credit insurance: insuring strategy of the retailer and the manufacturer

• Published in: International journal of production research Vol. 60; no. 5; pp. 1478 - 1499
• Main Authors: Li, Hongping, Bi, Gongbing, Song, Wen, Yuan, Xiaoyong
• Format: Journal Article
• Language: English
• Published: London Taylor & Francis 04.03.2022; Taylor & Francis LLC
• Subjects: Bankruptcy; Insurance; insuring strategy; Order quantity; Strategy; supply chain management; Supply chains; trade credit; Trade credit insurance; two-level Stackelberg game
• ISSN: 0020-7543; 1366-588X
• DOI: 10.1080/00207543.2020.1861358

This study analyses the role of trade credit insurance and the insuring strategy of the retailer and the manufacturer in a capital-constrained supply chain with one retailer, one manufacturer, and one insurer. We model the interaction among these three participants as a two-level Stackelberg game and explore their operational and financial decisions. We find that trade credit insurance is adopted when the manufacturer's loss aversion is high or the retailer's initial capital is low. The adoption of trade credit insurance improves the order quantity of the retailer, the performance of each supply chain participant, and supply chain efficiency. However, it also increases the bankruptcy risk of the retailer and the instability of the entire supply chain. In addition, the application of trade credit insurance by the manufacturer alone is more beneficial to the manufacturer, insurer, and entire supply chain as it creates better performance for them. Conversely, the purchase of trade credit insurance by the retailer is more desirable to the retailer as it yields not only a higher profit but also a lower bankruptcy risk.