Buyer Intermediation in Supplier Finance

Tunca, Tunay I. and Weiming Zhu, Buyer Intermediation in Supplier Finance, 2018, Management Science, 64 (12), 5631-5650.

Posted: 28 May 2019

See all articles by Tunay I. Tunca

Tunay I. Tunca

University of Maryland - Robert H. Smith School of Business

Weiming Zhu

University of Navarra, IESE Business School

Date Written: December 1, 2018

Abstract

Small suppliers often face challenges to obtain financing for their operations. Especially in developing economies, traditional financing methods can be very costly or unavailable to such suppliers. To reduce channel costs, large buyers have recently begun implementing their own financing methods that intermediate between suppliers and financing institutions. In this paper, we analyze the role and efficiency of buyer intermediation in supplier financing. Building a game-theoretical model, we show that buyer intermediated financing can significantly improve channel performance, and can simultaneously benefit both supply chain participants. Using data from a large Chinese online retailer and through structural regression estimation, we demonstrate that buyer intermediation lowers interest rates and wholesale prices, increases order fill rates, and boosts supplier borrowing. Based on counterfactual analysis on the data, we predict that the implementation of buyer intermediated financing will improve channel profits by 13.05%, increasing supplier and retailer profits by more than 10% each, and yielding approximately $44 million projected savings for the retailer.

Keywords: Supply Chain Management, Contracts, Reverse Factoring

Suggested Citation

Tunca, Tunay I. and Zhu, Weiming, Buyer Intermediation in Supplier Finance (December 1, 2018). Tunca, Tunay I. and Weiming Zhu, Buyer Intermediation in Supplier Finance, 2018, Management Science, 64 (12), 5631-5650. . Available at SSRN: https://ssrn.com/abstract=3380640

Tunay I. Tunca (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Weiming Zhu

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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