Authors: Tsan-Ming Choi
Addresses: Business Division, Institute of Textiles and Clothing, Room ST740, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
Abstract: This paper studies a single-manufacturer single-retailer multi-period fashion supply chain which sells a category of short-life highly fashionable products. The retailer is risk averse and the supply chain is led by the upstream manufacturer. This paper studies two commonly seen contracts in the fashion industry, namely the pure wholesale pricing contract (PWPC) and the markdown money contract (MDMC). The efficient region for the risk averse retailer's optimal ordering quantity for each contract is found and this region will: 1) become smaller if the wholesale price increases (under both PWPC and MDMC); 2) get larger when the markdown money increases (under MDMC). We introduce the concept of 'risk averse quantity reduction level' (RAQRL). Our analytical findings further indicate that: 1) under scenario one in which the manufacturer's goal is to maximise the supply chain's expected profit, the appropriately set MDMC can coordinate the supply chain whereas PWPC cannot; 2) under scenario two in which the manufacturer's goal is to maximise the supply chain's expected profit while ensuring the variance of profit is within a limit, both PWPC and MDMC can coordinate the supply chain.
Keywords: game theory; supply chain coordination; mean variance models; fashion products; multi-period fashion supply chains; risk averse retailers; supply chain management; SCM; short-life products; pure wholesale pricing contract; PWPC; markdown money contract; MDMC; optimal ordering quantity; modelling; fashion industry.
International Journal of Inventory Research, 2013 Vol.2 No.1/2, pp.63 - 81
Available online: 17 Dec 2013 *Full-text access for editors Access for subscribers Purchase this article Comment on this article