Optimal channel strategies in a supply chain under green manufacturer financial distress with advance payment discount

• Date: 01 May 2021
• Author: Peng Ma,Chong Zhang,Yaxian Wang
• DOI: http://doi.org/10.1111/itor.12841
• Published date: 01 May 2021

Intl. Trans. in Op. Res. 28 (2021) 1347–1370

DOI: 10.1111/itor.12841

INTERNATIONAL

TRANSACTIONS

IN OPERATIONAL

RESEARCH

Optimal channel strategies in a supply chain

under green manufacturer financial distress with

advance payment discount

Chong Zhanga,∗, Yaxian Wangaand Peng Mab

aSchool of Management, Nanjing University of Posts and Telecommunications, Nanjing 210003, P. R. China

bSchool of Management Science and Engineering, Nanjing University of InformationScience and Technology, Nanjing

210044, P. R. China

E-mail: czhang@njupt.edu.cn [Zhang]; jianchi.9.14@qq.com [Wang]; mapeng88@126.com [Ma]

Received 28 November2019; received in revised form 6 May 2020; accepted 3 June 2020

Abstract

Green manufacturers are always faced with capital constraints in reality, while the previous literature has

shown that internal financing is more effective than external financing. Given manufacturers’ financial con-

straints, this paper studies and compares the optimal green decisions and profits under single-channel or

dual-channel strategies with and without green investment. Therefore, the main contribution of the paper

is determining the optimal channel strategy of supply chains under advance payment financing. The results

indicate that the retailer’s optimal channel strategy is to provide advance payment financing to the manufac-

turer who introduces online channel and produces green products, which are beneficial to the economic and

environmental performance. Besides, green investment can facilitate a win-win scenario if the price elasticity

of the demand for the retail channel is smaller than a threshold. Furthermore, greeninvestment increases the

retailer’s acceptance of online channel. The results of our research can provide decision support for decision

makers under the advance payment financing.

Keywords:channel strategies; capital constraints; green supply chain; advance payment financing

1. Introduction

The effective supply chain is bound to reduce carbon emissions during manufacturing and sales.

With the implementation of laws and regulations and the enhancement of customers’ environmen-

tal awareness, a large number of manufacturers have adopted green technology to provide environ-

mentally friendly products. For example, Apple invested $1.657 billion in green technologies such

as renewable resources projects, which contributed to carbon emissions reduction by about 454,200

∗Corresponding author.

© 2020 The Authors.

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1348 C. Zhang et al. / Intl. Trans. in Op. Res. 28 (2021) 1347–1370

metric tons during 2016 and 2017. Pepsi Cola also saved $196 million by recycling bottles and us-

ing reusable plastic containers. Moreover, manufacturing green products can availably enhance the

profitability and environmental performance of enterprises, building a better brand image (Papa-

giannakis et al., 2014).

Additionally, considerable capital is needed to invest in green technology, and the financial dis-

tress of manufacturers can greatly affect the efficiency of green supply chains. Lack of funds may

result in the bankruptcy of some small- and medium-sized enterprises (SMEs), especially in the

environmental protection, construction and chemical industries. When enterprises are capital con-

strained, they tend to solve the capital problem in two ways: external financing (bank) and internal

financing (trade credit). At present, most studies on the comparison of external financing and inter-

nal financing show that internal financing is more effective (An and Yao, 2016; Kouvelis and Zhao,

2016; Wu et al., 2019a, 2019b). Therefore, when enterprises face financial constraints, especially

SMEs, trade credit is a more common form of financing. A survey by the International Monetary

Fund (2009) shows that 60% of international trade is paid in the form of trade credit.

More and more green manufacturers, such as Apple, Suning, HP, and Nike, are selling prod-

ucts through a dual-channel supply chain (Li et al., 2016). However, the dual-channel strategy

causes an intense competition between supply chain members. Manufacturers and retailers need

to make efforts to attract more customers to purchase from their own channels so as to seize mar-

ket share. Thus, adding a new channel may cause channel conflicts between manufacturers and

retailers. A company may balk at doing business with its competitors. The channel conflicts affect

the financially constrained manufacturer’s channel strategy and the retailer’s financing decision.

Thus, whether the retailer shows great willingness to provide the green manufacturer with advance

payment financing remains a problem worthy of thorough research under different channel struc-

tures. However, few studies have addressed this point. Thus, the main research questions are as

follows:

1. Which channel structure is optimal for the retailer and manufacturer when adopting advance

payment financing?

2. What is the effect of green investment on profits under different channel structures?

3. Is adding the online channel profitable for the supply chain members or not?

Therefore, this paper explores the optimal channel strategy under advance payment financing

considering the green investment. The innovation of this paper can be wrapped up in three facets.

First, the advance payment financing is introduced into the green supply chains under different

channel structures. Second, we investigate both pricing and greening decisions, and discuss the im-

pact of green investment on the supply chains’ profits under single-channel or dual-channel struc-

ture. Third, we find that green investment increases the retailer’s acceptance of the online channel

and makes it easier for the retailer to benefit from the online channel. The results can provide

decision support to the supply chain members under the advance payment financing.

2. Literature

Three categories of research relateclosely to our study: channel selection in supply chains, financing

in capital-constrained supply chains, and consumers’ environmental consciousness.

© 2020 The Authors.

International Transactionsin Operational Research © 2020 International Federation of OperationalResearch Societies