Abstract：Based on the newsvendor model, this study investigates the financing and operation strategy of a supplier, and the sufficient conditions which benefit the supplier with reserve capital under two channel structure: the single channel structure (supplier borrows from either bank or retailer) and the dual-channel structure (supplier borrows from both bank and retailer), as well as the financing strategy of its retailer. By solving the model, it is found that when the retailer has priority creditor’s rights, the optimal financing strategy of the supplier is as follows: 1) Do not loan when there is sufficient self-owned capital; 2) When it has less capital, borrow from the lender whose interest rates is lower, rather than from both bank and retailer. However, when the bank has priority creditor’s rights, the supplier should borrow from both bank and retailer under a special situation. As for the retailer, it tends to provide low-interest or even interest-free loans to induce suppliers with more self-owned funds to overproduce (beyond the optimal production when the supplier has sufficient self-owned funds), obtaining more sales commissions and increasing expected profits.
