Financing the retailer in the pharmaceutical supply chain: Charge interest or not?

Abstract

This study considers a pharmaceutical supply chain system consisting of a manufacturer, an underfunded retailer, a logistics provider, and a bank. First, in accordance with bank financing (hereafter “BF”), logistics provider financing (hereafter “LF”), and manufacturer financing (hereafter “MF”), we respectively obtain and compare the optimal decisions and profits of the manufacturer, retailer, and logistics provider. This study provides two key conclusions that differ from the existing relevant studies. The logistics provider or manufacturer takes a certain negative interest rate when providing the underfunded retailer with a financing service, which can raise revenues of all enterprises (manufacturer, retailer and logistics provider). To put it differently, for a retailer with relatively high capital, the negative interest financing from the logistics provider or manufacturer is a new incentive mechanism that results in a Pareto improvement of supply chain. Under certain conditions, adopting the MF mode will generate more revenue for the logistics provider, and adopting the LF mode will create greater profit for the manufacturer.