Publication

Gonsalvez, D. and R. Inman (2015)
Supply-Chain  Shared-Risk  Self-Financing  for Incremental Sales
Journal ~ The Engineering Economist
Vol (issue) ~ Published on line 23 Nov 2015
faculty-david-gonsalves-01
Prof. Dr. David Gonsalvez
Chief Executive Officer & Rector
Malaysian Institute for Supply Chain Innovation

Abstract

Lack of credit during periods of financial stress can reduce sales in an entire supply chain. To reduce the reliance on external credit, we introduce a new financing framework, in which key supply chain stakeholders accept delayed payment for a pre-agreed portion of their product or service. By doing so throughout the supply chain, each stakeholder must self-finance only their in-house activities – but not the cost of purchased components and services because those are in turn financed by the suppliers. Intended to account for only a small fraction of sales, this framework is limited to supplying customers who do not qualify for external financing. The payments from these customers are distributed among the value chain stakeholders according to an agreed-upon policy. These additional sales would otherwise be lost for lack of consumer credit. This approach increases sales and profitability for the entire supply chain and is especially advantageous during credit crunches. In addition to describing this new financing framework, this paper places it in the context of other financing arrangements, provides an example with cash flow and net present value calculations, and identifies implementation challenges and characteristics of supply chains that are good candidates.