Management Information Systems Commons^™

Financing Multiple Heterogeneous Suppliers In Assembly Systems: Buyer Finance Vs. Finance, Shiming Deng, Chaocheng Gu, Gangshu (George) Cai

Information Systems and Analytics

Buyer finance has been practiced by manufacturers/assemblers for years; however, few papers have investigated the efficacy of buyer finance in an assembly system with multiple suppliers. This paper fills the literature gap by comparing buyer finance with bank finance in a supply chain with one assembler and multiple heterogeneous capital-constrained component suppliers. We characterize the equilibrium solutions for different financing schemes (i.e., buyer finance, bank finance, and no finance). We show that in buyer finance the assembler should charge the suppliers the lowest possible interest rate, which may be even below its own unit capital opportunity cost, leading to interest …