The Role of Financial Services in Procurement Contracts

Abstract

This chapter examines the interplay between operational and financial decisions within the context of a two-echelon supply chain. It presents the mathematical formulation including the retailer and supplier payoff functions, the main features of the credit contract and some fundamental assumptions about the market demand. The chapter characterizes the Stackelberg equilibrium under a traditional wholesale contract which author use as a benchmark for comparison. It also investigates the optimal design of the credit contract using a non-cooperative game theoretical framework. The chapter summarizes external financing model, and presents a set of numerical experiments to highlight the main features and insights of the model. It also compares the outcome of the internal and external financing models from the point of view of the agents’ payoffs as well as the entire supply chain efficiency. Controlled Vocabulary Terms financial services; Procurement documents; Supply chain

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