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Credit guarantee mechanism with information asymmetry: a single sourcing model

Author

Listed:
  • Cheng-Feng Wu
  • Mahdi Fathi
  • David M. Chiang
  • Panagote M. Pardalos

Abstract

This study concerns small and medium-sized enterprise (SME) suppliers suffering from cash constraints in operations, money shortages with possible disruptions and cost uncertainty because of the distributor’s supply risk and the information asymmetry. Thus, this study adopts the distributor’s (buyer’s) perspective and applies a credit guarantee mechanism with an incentive contract as a risk management tool. The distributor can adopt incentive contracts to reveal the type of its supplier; the higher the inefficient supplier’s contribution to the distributor, the smaller the gap between procurement contract quantities with the efficient supplier and procurement contract quantities with the inefficient supplier. An insight into practice is that incentive contracts are tools for acquiring ideal suppliers in the supply base and help companies such as Li & Fung enhance their competitive capabilities.

Suggested Citation

  • Cheng-Feng Wu & Mahdi Fathi & David M. Chiang & Panagote M. Pardalos, 2020. "Credit guarantee mechanism with information asymmetry: a single sourcing model," International Journal of Production Research, Taylor & Francis Journals, vol. 58(16), pages 4877-4893, July.
    • Handle: RePEc:taf:tprsxx:v:58:y:2020:i:16:p:4877-4893
    DOI: 10.1080/00207543.2020.1727039
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    Cited by:

    1. Gu, Chaocheng & Wei, Juan & Wei, Ying, 2021. "Sourcing under competition: The implications of supplier capital constraint and supply chain co-opetition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    2. David Mhlanga, 2021. "Financial Inclusion in Emerging Economies: The Application of Machine Learning and Artificial Intelligence in Credit Risk Assessment," IJFS, MDPI, vol. 9(3), pages 1-16, July.

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