82 / 2024-04-19 13:10:36

Supply Chain Operating with Financing Decisions under Traditional and Blockchain enabled Inventory-based Financing Schemes: Equilibriums with Respect to Credit Scores

blockchain technology,supply chain management,risk management,optimal financing and operating decision,inventory and warehouse finance

Problem Definition: Manufacturers in Inventory Asset-based Finance (IAF) often encounter with payment problems due to market fluctuation or downstream firm`s default, which can, in turn, generate repayment risk for banks and significantly hinder the operating efficiency of IAF. Our paper aims to reveal changes the Blockchain Technology (BCT) can bring to IAF, shedding lights on what is the effects of BCT on exogenous risks management in IAF, and when and how to introduce BCT into IAF. Practical/Academical Relevance: Recently, BCT enabled Supply Chain Finance (SCF) has taken the central place in Fintech applications, providing seemingly effective solutions to risk-protection in IAF. However, there exists theoretical ambiguity and practical challenges on leveraging BCT into IAF, especially regarding the effects on management of exogenous repayment risk. Methodology: Building upon classical newsvendor model, our paper develops two-stage theoretical models on three forms of IAF (DIAF, SIAF, and CIAF) with the presence of two risks (demand risk and credit risk), providing a comparison between traditional and BCT enabled approaches, and analyzing the equilibrium outcomes. Result: Thanks to BCT`s effects of increasing information verifiability, saving expenditures on risk-protections, and enhancing demand forecasting, we find in single-layer IAF forms (DIAF and SIAF), banks can clarify risk-tolerance level and reduce potential credit risk exposures, thereby optimizing the (exogenous) risk management. In multi-layer IAF forms (CIAF), the BCT can strengthen the risk-sharing effects. Further, through analyzing the conditions of financing feasibility to the three IAF forms, we find the BCT can decrease feasible thresholds to each IAF, having the effects of financing inclusive. However, we also find the enhanced demand forecasting has no impacts on the feasible financing regions. More importantly, it is different to common wisdom and may be interested to managers of banks and Fintech service companies that, our finding implies that CIAF can be adopted even when the manufacturer has no advantages of credit score over the associated retailer, while BCT can effectively enlarge this effect. Management Implication: Our paper assists in building theoretical frameworks of BCT`s benefits on risk management, providing guidelines on conditions of introducing BCT into specific SCF schemes, thereby eliminating obstacles and giving suggestions in the development of BCT enabled Fintech applications.