Blockchain-Enabled Deep-Tier Supply Chain Finance
Manufacturing & Service Operations Management (Forthcoming)
48 Pages Posted: 18 Feb 2021 Last revised: 23 May 2022
Date Written: February 1, 2021
Problem Deﬁnition: For many supply chains, deep-tier suppliers, due to their small sizes and lack of access to capital, are most vulnerable to disruptions. We study the use of advance payment (AP) as a ﬁnancing instrument in a multitier supply chain to mitigate the supply disruption risk in a traditional system (with limited visibility) and a blockchain-enabled system (with perfect visibility). The main goal of this paper is to shed light on how blockchain adoption impacts agents’ operational and ﬁnancial decisions as well as proﬁt levels in a multitier supply chain. Academic/Practical Relevance: Traditionally, because of the limited visibility in the deep-tiers, powerful downstream manufacturers’ ﬁnancing schemes oﬀered to their immediate upstream suppliers are not eﬀective in instilling capital into the deep-tiers. Advancements in blockchain technology improve the supply chain visibility and enable the manufacturer to better devise deep-tier ﬁnancing to improve supply chain resilience. Methodology: We develop a three-tier supply chain model and take a game-theoretic approach to compare how blockchain-enabled deep-tier ﬁnancing schemes aﬀect a ﬁnancially constrained supply chain’s optimal risk-mitigation and ﬁnancial strategies. Results: We ﬁnd that although improved visibility via blockchain adoption can help the manufacturer make informed supply chain ﬁnancing decision, whether it can beneﬁt all supply chain members depends on the ﬁnancing schemes in use. Blockchain-enabled delegate ﬁnancing increases risk-mitigation investments and beneﬁts all three tiers of the supply chain only when the tier-2 supplier is severely capital-constrained with the working capital below a threshold. Because delegate ﬁnancing endows the intermediary tier-1 supplier with a leverage over the manufacturer, the ineﬃciency inhibits an all-win outcome when the tier-2 supplier is not severely capital-constrained. Blockchain-enabled cross-tier direct ﬁnancing exhibits a compelling performance as it always leads to win-win-win outcomes (and thus ubiquitously implementable) regardless of the suppliers’ working capital proﬁle. Managerial Implications: Our insights help ﬁrms assess opportunities and challenges associated with enhancing supply chain visibility via blockchain adoption.
Keywords: Supply chain finance, blockchain, deep-tier financing, supply chain visibility, supply disruption, advance payment, technology adoption
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