Blockchain-Based Digital Payment Obligations for Trade Finance
By Jing Hou, Nanjing University, China, jinghou@smail.nju.edu.cn | Burak Kazaz, Syracuse University, USA, bkazaz@syr.edu | Fasheng Xu, Syracuse University, USA, fxu107@syr.edu
Abstract
To help deep-tier suppliers access cheaper financing, the downstream anchor manufacturer can issue digital payment obligations (DPOs) based on a blockchain platform. The DPO can be passed on to the upstream of the supply network as a payment instrument and then the deep-tier suppliers are able to adopt factoring at a more favorable financing rate due to the manufacturer’s creditworthiness programmed into the DPO. We investigate how DPO adoption impacts the operational decisions and profits of different participants in a three-tier supply network, and examine whether these participants voluntarily accept the DPO. We find that DPO adoption increases the efficiency of the supply network and benefits the downstream manufacturer and the suppliers on the reliable branch. However, the suppliers on the unreliable branch can be worse off. Despite the profit decrease, the suppliers on the unreliable branch accept the DPO voluntarily due to the threat posed by competitors.
Frontiers in Supply Chain Finance and Risk Management
This monograph contains eight thought-leading contributions on various topics related to supply chain finance and risk management: “Disruption Mitigation and Pricing Flexibility” by Oben Ceryan and Florian Lücker. “Optimal Newsvendor IRM with Downside Risk” by Paolo Guiotto and Andrea Roncoroni. “Competitive Forward and Spot Trading Under Yield Uncertainty” by Lusheng Shao, Derui Wang, and Xiaole Wu. “The Impact of Commodity Price Uncertainty on the Economic Value of Waste-to-Energy Conversion in Agricultural Processing” by Bin Li, Onur Boyabatlı, and Buket Avcı. “Corporate Renewable Procurement” by Selvaprabu Nadarajah. “Blockchain-Based Digital Payment Obligations for Trade Finance” by Jing Hou, Burak Kazaz, and Fasheng Xu. “Long-term Service Agreement in Power Systems” by Panos Kouvelis, Hirofumi Matsuo, Yixuan Xiao, and Quan Yuan. “The Bullwhip Effect in Servicized Manufacturers” by Jiang Shenyang, Jiang Zhibin, Niu Yimeng, and Wu Jing.
Companion
Foundations and Trends® in Technology, Information and Operations Management, Volume 16, Issue 3-4 Special Issue: Frontiers in Supply Chain Finance and Risk Management
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