Inventory and financing decisions in cross-border e-commerce: The financing and information roles of a bonded warehouse

Cross-border retail firms are often exposed to a lack of working capital for their procurement, especially for sudden increases in demand on special holidays such as Black Friday. This paper studies a cross-border product stochastic inventory management problem where capital-constrained retailers can obtain additional working capital through bonded warehouse financing and entrusted loan financing. This study obtains an optimal inventory policy in which retailers may purchase cross-border products with financing to sell to markets with uncertain demand. The results show that entrusted loan financing helps capital-constrained retailers increase their inventory procurement. Specifically, when capital levels are low, capital-constrained retailers opt for a mixed financing option of bonded warehouse and entrusted loan. Furthermore, the increase in bonded warehouse financing limits could weaken the reliance of capital-constrained retailers on entrusted loan financing. Interestingly, bonded warehouse financing and entrusted loan financing enable the formation of a liability network among retailers. While there is no risk contagion in the liability network when they sell heterogeneous products, the risk of losses due to fire sales remains. This paper further characterizes the payment and clearing model and derives the optimal payment-clearing strategy with fire sales of stagnant products. The results suggest that managers can utilize our designed procurement system with bonded warehouse financing and entrusted loan financing to purchase products without worrying about insufficient financing.