Impact of Capital Position and Financing Strategies on Encroachment in Supply Chain Dynamics

Channel encroachment and financing decisions are prevalent in practice. Utilizing the Stackelberg game framework, we investigate the impact of a retailer’s capital position and financing strategies on supply chain dynamics in which a supplier considers establishing a direct sales channel. We find that the retailer’s equilibrium financing strategy is impacted by demand volatility and the initial working capital. The supplier’s encroachment decision hinges on the entry cost when neither trade credit financing nor bank credit financing is available. When both types of credit are available, the choice of financing is a complex interplay involving initial working capital, entry cost, and demand volatility. Notably, the supplier’s decision to encroach may shift from a binary stance of either encroaching or not encroaching, or it may oscillate from encroachment to non-encroachment and back to encroachment, particularly with an increase in demand volatility when the entry cost is moderate. The novelty of this study lies in its integration of supplier channel decisions with retailer operational decisions and financing strategies, examining how the capital position and financing strategies impact channel decisions. This study provides managerial insights into the interplay between supplier’s channel dynamics and retailer’s financial considerations, shedding light on unexplored aspects of channel management. In future studies, some assumptions in this study can be modified to obtain more managerial insights.