Coordinating Working Capital Management Model in Collaborative Supply Chains

Abstract

The paper is devoted to development of working capital management (WCM) model providing optimal levels of working capital (WC) to all individual business partners through collaborative actions of capital reallocation along the supply chain (SC). As such, we suggest the tool of WC optimization through financial terms and cash flows verified on Russian collaborative SC data. Mathematical modeling is suggested as a method to upgrade existing collaborative cash conversion cycle (CCC) model by optimizing it in terms of minimization of total financial costs associated with working capital in a three-stage SC. Three sets of constraints – for each SC partner, for the whole SC and for SC structure consequently - are imposed. The application of the suggested optimization model to focal SC provided significant speed up of individual CCCs and investments in WC on the grounds of combination of extension of days of accounts payable, reduction of days of inventories and reduction of days of accounts receivable in different proportions for SC participants. The theoretical contribution resides in integration of collaboration and WC concepts adding a holistic perspective to extant WCM models, as well as in integration of financial and operational measures of SCM. The suggested model financially illustrates the motivation of SC partners to cooperate in order to simultaneously achieve target levels of WC investments and improve individual financial performance through collaborative operations.