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Erschienen in:
Supply Chain Disruptions and Corporate Performance Kapitel lesen Erstes Kapitel lesen

2012 | OriginalPaper | Buchkapitel

8. Risk, Financing and the Optimal Number of Suppliers

verfasst von : Volodymyr Babich, Göker Aydın, Pierre-Yves Brunet, Jussi Keppo, Romesh Saigal

Erschienen in: Supply Chain Disruptions

Verlag: Springer London

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Abstract

Should firms in developed economies work with more or fewer suppliers than firms in developing economies? More generally, how does the number of suppliers for a firm depend on the firm’s economic environment? To answer these questions we identify several economic and business factors that might affect the number of suppliers (and that separate developed and developing economies): supply risk, fixed costs of working with suppliers, and access to financing (particularly trade-credit financing).

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Vorheriges Kapitel Supply Contracting Under Information Asymmetry and Delivery Performance Consideration
Nächstes Kapitel A Reengineering Methodology for Supply Chain Networks Operating Under Disruptions
Anhänge
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Fußnoten
1
For example, Ukrainian government seized assets of a number of firms in a reprivatization campaign following the “Orange Revolution” (see [33]).
 
2
Trade-credit is the delay in payments from the buyer to the supplier of goods. One can think of trade-credit as a loan extended by the supplier to the buyer. The buyer effectively obtains the loan from the supplier by not paying for the purchase initially, but it has to repay the loan later. The typical trade-credit contracts in the United States are “net 30” and “2/10 net 30” (see [30]). According to the former, the buyer does not have to pay for the purchase for 30 days, thus obtaining, effectively, a 30-day interest-free loan. According to the latter contract, the buyer receives a 2% discount if it pays for the purchase within 10 days, and it has up to 30 days to pay for the goods. As [30] points out, the 2% discount is equivalent to the buyer obtaining a 20-day loan at the implicit interest of 43.9%. Trade-credit contracts vary by industry and country. It is not uncommon to see trade-credit terms that have maturity longer and shorter than 30 days, and higher and lower implied interest rates.
 
3
Given the prevalence of trade-credit, examples of companies that rely heavily on this form of financing are easy to find. Consider, for instance, TenderCare International, Inc., which sells disposable baby diapers, natural formula wipes, and related products in the United States. According to this company’s annual report, it had $1.172 million in accounts payable, and $0.007 million in short-term debt out of total $1.218 million in total current liabilities in 2005. In the same year, the company’s cost of goods sold was $2.185 million. Thus, with \(Days\; Payables\;Outstanding = Account\; Payables / COGS \ast 365 \approx 6\,months,\)TenderCare International depends greatly on its suppliers for financing.
 
4
By diversification we mean holding a portfolio of contracts, instead of just one contract. In this chapter specifically, diversification means placing orders with several suppliers.
 
5
As [6] demonstrates, in equilibrium the suppliers and the manufacturer could be indifferent between per-ordered and per-delivered payments.
 
6
See Chap. 30 (pp. 812–840) of [12] for a description of trade-credit contract terms.
 
7
For discussions of factors affecting trade-credit terms, see [9, 35].
 
8
The graphs look either identical or similar when \((r_I,r_S) = (0.1,0.2)\)
 
9
In addition to the capital availability, firms operating in developed and developing economies may also face different costs of capital. Our numerical experiments showed that that the effects of capital costs are predictable: for instance, higher internal financing rate encourages the manufacturer to work with more suppliers.
 
10
See [24] for definitions and discussion of option contracts.
 
11
In this example, \(\mu = 0.6.\)
 
12
This mispricing need not constitute an arbitrage because market imperfections preclude market participants from creating an arbitrage portfolio.
 
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Metadaten
Titel
Risk, Financing and the Optimal Number of Suppliers
verfasst von
Volodymyr Babich
Göker Aydın
Pierre-Yves Brunet
Jussi Keppo
Romesh Saigal
Copyright-Jahr
2012
Verlag
Springer London
Buch
Supply Chain Disruptions

Print ISBN: 978-0-85729-777-8

Electronic ISBN: 978-0-85729-778-5

Copyright-Jahr: 2012

DOI
https://doi.org/10.1007/978-0-85729-778-5_8

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