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Benefits of working capital sharing in supply chains

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Journal of the Operational Research Society

Abstract

Supply chain finance and working capital management are important avenues to reduce supply chain costs. Small suppliers may not have sufficient working capital to finance their operations and efficiently supply their customers. We develop a model that captures the fundamental aspects of financial and operational planning in a two-stage supply chain, with both strong and weak members. A strong member can negotiate for more favorable financing rates, more advantageous payment terms, and shorter lead times than a weaker member. We investigate two working capital allocation scenarios. In the dedicated working capital allocation scenario, the members of the supply chain each have their own working capital. In the joint working capital allocation scenario, the members of the supply chain have a joint pool of working capital. Our results demonstrate significant benefits when the members of the supply chain share the working capital. We also show that extending payment delays to a supplier upstream results in higher overall supply chain costs.

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Authors and Affiliations

  1. Department of Supply Chain Management and Management Science, University of Cologne, Albertus-Magnus-Platz, 50923, Cologne, Germany

    Margarita Protopappa-Sieke

  2. College of Management of Technology, Ecole Polytechnique Fédérale de Lausanne, 1015, Lausanne, Switzerland

    Ralf W. Seifert

  3. IMD, Chemin de Bellerive 23, P.O. Box 915, 1001, Lausanne, Switzerland

    Ralf W. Seifert

Authors
  1. Margarita Protopappa-Sieke
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  2. Ralf W. Seifert
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Correspondence to Margarita Protopappa-Sieke.

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Protopappa-Sieke, M., Seifert, R.W. Benefits of working capital sharing in supply chains. J Oper Res Soc 68, 521–532 (2017). https://doi.org/10.1057/s41274-016-0009-2

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  • DOI: https://doi.org/10.1057/s41274-016-0009-2

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