Support SME Suppliers through Buyer-Backed Purchase Order Financing

Wu, Andy; Huang, Boray; Chiang, David Ming-Huang

doi:10.2139/ssrn.2462521

Cited by 7 publications

(8 citation statements)

References 40 publications

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“…Luo and Shang (2013) explore the interaction of the inventory policy and trade-credit in multi-period setting, demonstrating that a simple myopic inventory policy based on a target stock level and the firm's working capital is optimal. Wu et al (2014) explore the buyer backed supplier finance through a centralized two-stage stochastic programming model with exogenous wholesale price, finding that the buyer's guarantee in financing is necessary if the demand is large, supplier's capital is inadequate or the market finance interest rate is high. They also find that in this single decision-maker setting, the buyer can improve her payoff by guaranteeing the supplier's loan.…”

Section: Literature Reviewmentioning

confidence: 99%

Buyer Intermediation in Supplier Finance

2018

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Small suppliers often face challenges to obtain financing for their operations. Especially in developing economies, traditional financing methods can be very costly or unavailable for such suppliers. In order to reduce channel costs, in recent years large buyers started to implement 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 (BIF). Building a theoretical model, we show that without buyer intermediation, traditional supplier financing can be inefficient and can significantly reduce supply chain performance. Using data from a large Chinese online retailer, we demonstrate that BIF induces lower wholesale prices and higher order quantities. Through structural regression estimation, we demonstrate that the retailer overestimates the demand by 10-15%. We also show that the financed suppliers have cash positions of only about 56% of their operating costs, and that BIF improved channel profits by approximately 16.7%, yielding significant annual savings for the retailer.

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Section: Literature Reviewmentioning

confidence: 99%

Buyer Intermediation in Supplier Finance

2018

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“…It is demonstrated that the manufacturer's information advantage about the operational efficiency makes BDF the more preferred financing scheme than POF if the supplier is severely financially constrained. Analogously, Wu et al (2014) consider buyer-backed purchase order financing (BPOF) in which a creditworthy manufacturer supports its unreliable SME supplier to make POF in line with a guarantee agreement. It indicates that BPOF significantly improves the core enterprise's profitability.…”

Section: 22mentioning

confidence: 99%

“…Analogously, Wu et al. (2014) consider buyer‐backed purchase order financing (BPOF) in which a creditworthy manufacturer supports its unreliable SME supplier to make POF in line with a guarantee agreement. It indicates that BPOF significantly improves the core enterprise’s profitability.…”

Section: Supply Chain Financementioning

confidence: 99%

Operations‐Finance Interface in Risk Management: Research Evolution and Opportunities

Wang

Zhao

Huchzermeier

2021

Production and Operations Management

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The operations‐finance interface (OFI) jointly optimizes material, monetary, and information flows under intricate sources of uncertainty. To sketch the broad landscape in this emerging and interdisciplinary field, this study synthesizes literature across diverse themes and dispersed methodologies, screens systematically the research progression from original foundations to recent contributions in each major research stream, and thereby advocates future research innovations on prospective topics in light of the interconnections and potential reciprocity between operations and finance from risk management aspects.

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“…After the seller ships the goods to the buyer, the finance provider debits the principal plus interest from the seller's account on maturity (Global Supply Chain Finance Forum, 2016). Analytical models have been developed to investigate the applications of POF (Reindorp et al , 2015) and to compare it with other SCF solutions (Zhao and Huchzermeier, 2019; Tang et al , 2018; Wu et al , 2014). These reveal the conditions under which POF is an attractive financing option and can improve performance.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The designers must successfully launch their product designs to repay the POF associated with the purchase orders. Thus, their performance represents a major risk to SCSPs in terms of POF (Wu et al , 2014; Tang et al , 2018). The information product designers hold concerning the likelihood that they can successfully deliver an order according to the defined quality specifications, cost and delivery times will differ from that held by SCSPs (Song et al , 2020; Yamanaka, 2016).…”

Section: Introductionmentioning

confidence: 99%

The impact of information integration on purchase order finance and new product launch: a case study

Zhang

Huang

Zhao

et al. 2021

IJOPM

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PurposeIn this study, we examine the implementation of purchase order finance (POF) which is an innovative supply chain finance (SCF) solution by an innovative SCF lender (i.e. supply chain service provider (SCSP)). The effect of information integration between the SCSP (lender) and product designers (borrowers) on the lender's POF decisions and the borrowers' new product launch is investigated.Design/methodology/approachWe conduct a case study in the Chinese smartphone industry. A mixed methods design is used, and data are collected from both the supply chain service provider (SCSP) and product designers. We first conduct a qualitative study. Hypotheses are developed concerning the relationships between information integration, in terms of social interaction and information system integration, POF and new product launch. We then conduct a quantitative study. The multilevel structural equation modelling method is used to test the hypotheses.FindingsWe find that information system integration is positively associated with POF but has no significant effect on new product launch. Social interaction is negatively associated with POF but positively associated with new product launch. POF is positively associated with new product launch.Originality/valueThis study contributes to the literature by empirically examining the implementation of POF from both the lender's and borrower's perspectives. We find that information system integration and social interaction have different effects on POF and new product launch. The results thus provide insights into how a lender makes POF decisions and reveal the benefits of POF for borrowers.

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Support SME Suppliers through Buyer-Backed Purchase Order Financing

Cited by 7 publications

References 40 publications

Buyer Intermediation in Supplier Finance

Buyer Intermediation in Supplier Finance

Operations‐Finance Interface in Risk Management: Research Evolution and Opportunities

The impact of information integration on purchase order finance and new product launch: a case study

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