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Modeling of financial supply chain

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  • Gupta, Sushil
  • Dutta, Kaushik

Abstract

The research work on supply-chain management has primarily focused on the study of materials flow and very little work has been done on the study of upstream flow of money. In this paper we study the flow of money in a supply chain from the viewpoint of a supply chain partner who receives money from the downstream partners and makes payments to the upstream partners. The objective is to schedule all payments within the constraints of the receipt of the money. A penalty is to be paid if payments are not made within the specified time. Any unused money in a given period can be invested to earn an interest. The problem is computationally complex and non-intuitive because of its dynamic nature. The incoming and outgoing monetary flows never stop and are sometimes unpredictable. For tractability purposes we first develop an integer programming model to represent the static problem, where monetary in-flows and out-flows are known before hand. We demonstrate that even the static problem is NP-Complete. First we develop a heuristic to solve this static problem. Next, the insights derived from the static problem analysis are used to develop two heuristics to solve the various level of dynamism of the problem. The performances of all these heuristics are measured and presented.

Suggested Citation

  • Gupta, Sushil & Dutta, Kaushik, 2011. "Modeling of financial supply chain," European Journal of Operational Research, Elsevier, vol. 211(1), pages 47-56, May.
    • Handle: RePEc:eee:ejores:v:211:y:2011:i:1:p:47-56
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    2. Faranak Emtehani & Nasim Nahavandi & Farimah Mokhatab Rafiei, 2021. "A joint inventory–finance model for coordinating a capital-constrained supply chain with financing limitations," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-39, December.
    3. WeiMing Mou & Wing-Keung Wong & Michael McAleer, 2018. "Financial Credit Risk Evaluation Based on Core Enterprise Supply Chains," Sustainability, MDPI, vol. 10(10), pages 1-17, October.
    4. Cheng, Yuxiang & Wen, Fenghua & Wang, Yiming & Olson, David L., 2023. "Who should finance the supply chain? Impact of accounts receivable mortgage on supply chain decision," International Journal of Production Economics, Elsevier, vol. 261(C).
    5. Seock-Jin Hong & Hossein Najmi, 2020. "The Relationships between Supply Chain Capability and Shareholder Value Using Financial Performance Indicators," Sustainability, MDPI, vol. 12(8), pages 1-16, April.
    6. Longinidis, Pantelis & Georgiadis, Michael C., 2014. "Integration of sale and leaseback in the optimal design of supply chain networks," Omega, Elsevier, vol. 47(C), pages 73-89.
    7. Lang Zhang & Haiqing Hu & Dan Zhang, 2015. "A credit risk assessment model based on SVM for small and medium enterprises in supply chain finance," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 1(1), pages 1-21, December.
    8. Mou, W.M. & Wong, W.-K. & McAleer, M.J., 2018. "Financial Credit Risk and Core Enterprise Supply Chains," Econometric Institute Research Papers EI2018-27, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    9. Zhang, Tiantian & Zhang, Cherry Yi & Pei, Qifan, 2019. "Misconception of providing supply chain finance: Its stabilising role," International Journal of Production Economics, Elsevier, vol. 213(C), pages 175-184.
    10. Zhefan Piao & Kun Yang & Ning Su & Zihan Zheng, 2024. "Network working capital management, supply chain concentration, and corporate performance of focal companies," Operations Management Research, Springer, vol. 17(3), pages 982-995, September.
    11. Ivakina, A. & Zenkevich, N., 2016. "Supply chain cooperative strategies: Trends and gaps," Working Papers 6452, Graduate School of Management, St. Petersburg State University.
    12. Ivakina, A. & Zenkevich, N., 2018. "Working capital optimization under liquidity constraints in collaborative supply chains," Working Papers 15110, Graduate School of Management, St. Petersburg State University.
    13. Seifert, Daniel & Seifert, Ralf W. & Protopappa-Sieke, Margarita, 2013. "A review of trade credit literature: Opportunities for research in operations," European Journal of Operational Research, Elsevier, vol. 231(2), pages 245-256.
    14. Tseng, Ming-Lang & Lim, Ming K. & Wu, Kuo-Jui, 2019. "Improving the benefits and costs on sustainable supply chain finance under uncertainty," International Journal of Production Economics, Elsevier, vol. 218(C), pages 308-321.
    15. Wuttke, David A. & Blome, Constantin & Sebastian Heese, H. & Protopappa-Sieke, Margarita, 2016. "Supply chain finance: Optimal introduction and adoption decisions," International Journal of Production Economics, Elsevier, vol. 178(C), pages 72-81.
    16. Wang, Mengyue & Huang, Hongxuan, 2019. "The design of a flexible capital-constrained global supply chain by integrating operational and financial strategies," Omega, Elsevier, vol. 88(C), pages 40-62.
    17. Sim, Jaehun & Prabhu, Vittaldas, 2017. "A microcredit contract model with a Black Scholes model under default risk," International Journal of Production Economics, Elsevier, vol. 193(C), pages 294-305.
    18. Georgios Kolias & Nikolaos Arnis & Kostas Karamanis, 2020. "The Simultaneous Determination of Cash Conversion Cycle Components," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 19(2), pages 311-332, June.
    19. Wetzel, Philipp & Hofmann, Erik, 2019. "Supply chain finance, financial constraints and corporate performance: An explorative network analysis and future research agenda," International Journal of Production Economics, Elsevier, vol. 216(C), pages 364-383.
    20. Margarita Protopappa-Sieke & Ralf W. Seifert, 2017. "Benefits of working capital sharing in supply chains," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(5), pages 521-532, May.
    21. Hahn, G.J. & Brandenburg, M. & Becker, J., 2021. "Valuing supply chain performance within and across manufacturing industries: A DEA-based approach," International Journal of Production Economics, Elsevier, vol. 240(C).
    22. Zhao, Lima & Huchzermeier, Arnd, 2015. "Operations–finance interface models: A literature review and framework," European Journal of Operational Research, Elsevier, vol. 244(3), pages 905-917.
    23. Chakuu, Sumeer & Masi, Donato & Godsell, Janet, 2019. "Exploring the relationship between mechanisms, actors and instruments in supply chain finance: A systematic literature review," International Journal of Production Economics, Elsevier, vol. 216(C), pages 35-53.

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