Joint logistics and financial services by a 3PL firm

Abstract

Integrated logistics and financial services have been practiced by third party logistics (3PL) firms for years; however, the literature has been silent on the value of 3PL firms as credit providers in budget-constrained supply chains. This paper investigates an extended supply chain model with a supplier, a budget-constrained retailer, a bank, and a 3PL firm, in which the retailer has insufficient initial budget and may borrow or obtain trade credit from either a bank (traditional role) or a 3PL firm (control role). Our analysis indicates that the control role model yields higher profits not only for the 3PL firm but also for the supplier, the retailer, and the entire supply chain. In comparison with a supplier credit model where the supplier provides the trade credit, the control role model yields a better performance for the supply chain as long as the 3PL firm's marginal profit is greater than that of the supplier. We further demonstrate that, for all players, both the control role and supplier credit models can outperform the classic newsvendor model without budget constraint.

Supply Chain Finance in China: Business Innovation and Theory Development

“…Likewise, banks cannot offer logistics services to borrowing companies. This is distinct from that of a market economy, in which more logistics companies, such as DHL and UPS, offer financing as part of their supply-chain services, as indicated by some studies [18,53,54], or vice versa. This difference identified by the present study is, however, reflective of national characteristics in implementing SCF.…”

The Value of Supply Chain Finance

“…Their analysis indicates that the control role model yields higher profits not only for the 3PL firm but also for the supplier, the retailer, and the entire supply chain. In order to inspect the value of supply chain finance, in this current chapter we would mostly summarize some of the results and highlights from Chen and Wan (2011), Xie (2009), andCai (2011). This chapter emphasizes on understanding of SCF and 3PL firm's value in the capital-constrained supply chain.…”

“…Under symmetric information, the optimal interest rate B in a monopolistic bank is given by: F ; is always less than the optimal ordering level Q . (refer to Chen and Cai, 2011). We then show that B Q .…”

“…Under symmetric information, regardless the 3PL firm playing TR or CR, at a given interest rate on a loan r B in a monopolistic financial market (1) the optimal ordering quantity of the retailer, Q , is given by F Q w r B F wQ B r B ; (2) the capital-constrained retailer should get a loan with size wQ B . (Refer to Chen and Cai, 2011). As the retail price is normalised to 1, F represents the retailer's expected marginal revenue from ordering an additional unit, while the expected marginal cost of ordering an additional unit is w r F wQ B r B .…”

“…The mitigation of financing risk allows the capital-constrained firm in the supply chain more capital to be raised, capital to be accessed sooner or capital to be raised at lower rates 1 . Before characterizing the value of SCF in the supply chain with capital constraints, we further illustrate the meanings of SCF by the following three examples in real business operations (Caldentey and Chen 2010, Chen and Wan 2011, Chen and Cai 2011. Chinese Material Shortage Transportation Group (CMST) is one of the largest logistics enterprises in China.…”