Pierre-Yves Brunet
Risk, Financing and the Optimal Number of Suppliers
Inv. of Cash-Constrained firms and the Option to Acquire Future Financing
Lending terms, FInancial Decisions and Operational Policies
Lending terms, FInancial Decisions and Operational Policies
Research Papers
Title
Risk, Financing and The Optimal Number of Suppliers (under review by MSOM)
Authors
Abstract
We study how supply risk, fixed supplier costs, financial constraints, and the dual role played by the suppliers as the providers of parts and the financiers of the manufacturer affect the relationship among firms in a supply chain, supplier selection, and supply chain performance. Using a one-period model, we consider joint procurement and financing decisions of a firm with limited financial capital, facing either an uncertain demand or an uncertain supply. We find the optimal financing decisions and characterize the optimal operational decisions. Our analysis suggests that the alternative financing sources (internal financing and trade credit loans) are substitutable and that the firm uses more suppliers if internal financing is unavailable. Surprisingly, we also find that the wholesale price and the fixed cost of working with a supplier may affect the optimal number of suppliers in a non-monotone way. These results are explained by considering tradeoffs between the benefits of relaxing financing constraints and the costs of working with additional suppliers. By studying the balance between the expected profit and the value of the option to default, we explain the effects of supply uncertainty on the shareholders’ value and the optimal decisions. Finally, we address the question of whether the firms operating in the developing economies should contract with more suppliers than the firms operating in the developed economies. The answer is “no”, if the fixed cost of an extra supplier is high. However, our model predicts that financial constraints will force firms in the developing economies to the suboptimal level of production and cause higher stock-out rates, which is consistent with the results of the earlier empirical studies.
Title
Inventory of Cash-Constrained Firms and the Option to Acquire Future Financing (in progress)
Authors
Abstract
Trade credit financing allows cash-constrained firms to implement optimal operational decisions and to signal their credit quality to banks and other lenders. Using a stochastic, dynamic programming model we study joint procurement, inventory, and financing decisions of a firm and compute the signaling value of trade credit financing. In this paper, we highlight the effects of financing constraints on inventory decisions and the role of trade credit signaling
Title
Lending terms, FInancial Decisions and Operational Policies (in preparation)
Authors
Abstract
Banks and suppliers, in the presence of asymmetric information and bankruptcy costs, often find it very difficult to determine the optimal lending terms for a given manufacturer. Using a one-period game theory model with three players (bank, supplier, manufacturer) we characterize the optimal lending policies for the lenders along with the optimal financial and operational decisions of the manufacturer. The key components of the study are the joint financial and operational decisions made by a cash-constrained manufacturer facing uncertain demand, the dual role played by the suppliers, the lending policies determined by different types of lenders, the bankruptcy costs and the asymmetric information between multiple players
