Optimal bi-level Stackelberg strategies for supply chain financing with both capital-constrained buyers and sellers

In this paper, we design a supply chain finance system with a manufacturer, a retailer and a commercial bank where both the retailer and manufacturer are capital constrained under demand uncertainties. We formulate a bi-level Stackelberg game for the supply chain finance system in which the bank acts as the leader and the manufacturer as the subleader. Considering the bankruptcy risks of the manufacturer and the retailer, we analyze the optimal financing interest rate for the commercial bank, the optimal order for the retailer and the optimal wholesale price for the manufacturer, respectively. We compare our model with two benchmark cases, that is, no financing scheme and infinite-credit-line financing scheme, to find out the important interactions between the operational and financial decisions in the supply chain finance system. It concluded that the different interest rates and credit lines would affect the supply chain operations. Finally, we demonstrate the impacts of different capital levels and interest rates on the optimal decisions through numerical studies that validate our theoretical analysis. Copyright © 2014 John Wiley & Sons, Ltd.