Financing a sustainable supply chain
Xiaole Chen2, Vernon Hsu3, Guoming Lai4, Yang Li1
1Ivey Business School, Western University, Canada; 2School of Business, Sun Yat-sun University; 3CUHK Business School, The Chinese University of Hong Kong; 4McCombs School of Business, The University of Texas at Austin
We study the role of financing in establishing supply chain (SC) sustainability. We consider an SC where a buyer sources from a financially constrained supplier, who borrows from either a bank or the buyer. We show that both bank financing and buyer financing cannot simultaneously manage SC sustainability and profitability. We thus propose an alternative, in which the supplier borrows from a bank but the buyer offers a reward if the supplier passes the audit, and demonstrates its effectiveness.