Financing options for logistics firms considering product quality loss

Abstract

Purpose

This paper aims to investigate the impact of quality loss in transit on e-commerce supply chain pricing, production and financing decisions.

Design/methodology/approach

The authors consider a Stackelberg game model with a supplier, logistics firm and e-commerce platform. The logistics firm is capital-constrained and obtains funding from the e-commerce platform by debt financing or equity financing. Through backward induction, this paper first solves the equilibrium results under the two financing schemes and then reveals the financing preferences of all parties.

Findings

The results demonstrate that equity financing reduces financing costs and promotes production significantly. However, it may also lead to overproduction, particularly in markets with poor profitability and high cost factors. When the percentage of product quality loss is large, equity financing is preferable. With the increasing of transportation level, the benefits of debt finance are steadily growing. In addition, equity financing is the Pareto dominant scheme for all firms under certain circumstances. The extensions consider hybrid financing and another quality loss type.

Practical implications

The paper derives the equilibrium solutions and financing preferences, then specifies the threshold for applying financing schemes. Provide guidance for logistics firms’ finance model innovation and core enterprise involvement in the logistics industry.

Originality/value

The paper investigates how logistics firms’ financing strategies are impacted by product quality loss.

Citation

Bi, G., Wu, Y. and Xu, H. (2024), "Financing options for logistics firms considering product quality loss", Journal of Modelling in Management, Vol. 19 No. 6, pp. 2158-2194. https://doi.org/10.1108/JM2-12-2023-0296