Joint logistics and financial services by a 3PL firm

Integrated logistics and financial services have been practiced by third party logistics (3PL) firms for years; however, the literature has been silent on the value of 3PL firms as credit providers in budget-constrained supply chains. This paper investigates an extended supply chain model with a supplier, a budget-constrained retailer, a bank, and a 3PL firm, in which the retailer has insufficient initial budget and may borrow or obtain trade credit from either a bank (traditional role) or a 3PL firm (control role). Our analysis indicates that the control role model yields higher profits not only for the 3PL firm but also for the supplier, the retailer, and the entire supply chain. In comparison with a supplier credit model where the supplier provides the trade credit, the control role model yields a better performance for the supply chain as long as the 3PL firm’s marginal profit is greater than that of the supplier. We further demonstrate that, for all players, both the control role and supplier credit models can outperform the classic newsvendor model without budget constraint.

► We study the value of 3PL firms in budget-constrained supply chains.
► 3PL firms can help reduce asymmetric information disadvantages.
► Players’ profits are improved when 3PL financing the budget-constrained retailer.
► All players can be better off under 3PL financing than under bank financing.
► 3PL financing conditionally outperforms supplier financing.