Coordination of a fashion and textile supply chain with demand variations

Abstract

Owing to the changing fashion trends and a volatile market situation, demand in fashion and textile (FT) industry is unpredictable and could vary and change completely in a short time, which makes it more difficult to coordinate a FT supply chain. A change in product preference due to fashion trends is the main reason why the demand of FT industry shows more variations than other industries. In this paper, we use a well known contract, the all-unit quantity discount policy (AQDP), to coordinate a FT supply chain with certain demand, and we further consider it under the demand variations scenario to investigate whether it can still coordinate the supply chain. In detail, before the selling season, an AQDP is provided by the manufacturer to the retailer, and under which the FT supply chain coordination achieved with a certain demand. During the selling season, demand variation is realized after an abrupt changing of fashion trends, therefore, the manufacturer may need to revise the original AQDP to insure the supply chain is still coordinated. Utilizing the mechanism design theory, we prove that: (i) while the traditional AQDP can coordinate the supply chain when no demand variations, it cannot always coordinate the supply chain after the demand variations; (ii) when the AQDP fails, we can use the proposed capacitated linear pricing policy (CLPP) to achieve a new coordination; (iii) a more dominant decision maker, who can set a higher profit goal, is favorable to stabilization of the supply chain system under demand variations. Numerical examples are proposed also to show our results.

Keywords

Supply chain coordination / fashion and textile industry / market demand variation / game theory

References

[1] Banker R.D., Khosla I., Sinha K.K.. Quality and competition. Management Science, 1998, 44(9): 1179-1192.

[2] Benton W.C., Parker S.. A classification of literature on determining the lot size under quantity discounts. European Journal of Operational Research, 1996, 92(2): 219-238.

[3] Birtwistle G., Siddiqui N., Fiorito S.S.. Quick response: perceptions of UK fashion retailers. International Journal of Retail & Distribution Management, 2003, 31(2): 118-128.

[4] Bruce M., Daly L., Towers N.. Lean or agile: a solution for supply chain management in the textiles and clothing industry?. International Journal of Operations & Production Management, 2004, 24(2): 151-170.

[5] Cachon G.. Graves S., de Kok T.. Supply chain coordination with contracts. The Handbook of Operations Research and Management Science: Supply Chain Management, 2003, Amsterdam, The Netherlands: Kluwer

[6] Cachon G., Swinney R.. The value of fast fashion: quick response, enhanced design, and strategic consumer behavior. Management Science, 2011, 57(4): 778-795.

[7] Caro F., Gallien J.. Inventory management of a fast-fashion retail network. Operations Research, 2010, 58(2): 257-273.

[8] Castelli C.M., Brun A.. Alignment of retail channels in the fashion supply chain: an empirical study of Italian fashion retailers. International Journal of Retail & Distribution Management, 2010, 38(1): 24-44.

[9] Chen K., Xiao T.. Demand disruption and coordination of the supply chain with a dominant retailer. European Journal of Operational Research, 2009, 197(1): 225-234.

[10] Chiu C.H., Choi T.M., Tang C.S.. Price, rebate, and returns supply contracts for coordinating supply chains with price dependent demand. Production and Operations Management, 2011, 20(1): 81-91.

[11] Dickson R., Sawyer A.. Point-of-purchase behavior and price perceptions of supermarket shoppers, 1986, Cambridge, MA: MSI

[12] Doyle, M. (1984). New ways of measuring value. Progressive Grocer-Value, 15–19

[13] Flynn B.B., Sakakibara S., Schroeder R.G.. Relationship between JIT and TQM: practices and performance. The Academy of Management Journal, 1995, 38(5): 1325-1360.

[14] Foster S.T.. Towards an understanding of supply chain quality management. Journal of Operations Management, 2008, 26(4): 461-467.

[15] Homer P.M.. Perceived quality and image: when all is not “rosy”. Journal of Business Research, 2008, 61(7): 715-723.

[16] Huang C., Yu G., Wang S., Wang X.. Disruption management for supply chain coordination with exponential demand function. Acta Mathematica Scientia, 2006, 26(4): 655-669.

[17] Huang J., Leng M. & Liang L. (2011). Competition and coordination in a fashion supply chain with wholesale pricing schemes. Fashion Supply Chain Management

[18] Lal R., Staelin R.. An approach for developing an optimal discount pricing policy. Management Science, 1984, 30(12): 1524-1539.

[19] Li S., Lin B.. Accessing information sharing and information quality in supply chain management. Decision Support Systems, 2006, 42(3): 1641-1656.

[20] Lin C., Chow W.S., Madu C.N., Kuei C.H., Yu P.P.. A structural equation model of supply chain quality management and organizational performance. International Journal of Production Economics, 2005, 96(3): 355-365.

[21] Malone T.W., Crowston K.G.. The interdisciplinary study of coordination. ACM Computing Surveys, 1994, 26(1): 87-119.

[22] Qi X., Bard J., Yu G.. Supply chain coordination with demand disruptions. Omega, 2004, 32(4): 301-312.

[23] Robinson C.J., Malhotra M.K.. Defining the concept of supply chain quality management and its relevance to academic and industrial practice. International Journal of Production Economics, 2005, 96(3): 315-337.

[24] Shen, B., Choi, T.M., Wang, Y. & Lo, C.K.Y. (2012). The Coordination of Fashion Supply Chains with a Risk Averse Supplier under the Markdown Money Policy. IEEE Transactions on Systems, Man, and Cybernetics, Part A, (DOI: 10.1109/TSMCA.2012.2204739), in press

[25] Simatupang T.M., Sridharan R.. The collaborative supply chain: a scheme for information sharing and incentive alignment. International Journal of Logistics Management, 2002, 13(2): 15-30.

[26] Weng Z.K.. Channel coordination and quantity discounts. Management Science, 1995, 41(9): 1509-1522.

[27] Weng Z.K., Wong R.T.. General models for the manufacturer’s all-unit quantity discount policy. Naval Research Logistics, 1993, 40(7): 971-991.

[28] Xiao T., Jin J.. Coordination of a fashion apparel supply chain under lead-time-dependent demand uncertainty. Production Planning & Control: The Management of Operations, 2011, 22(3): 257-268.

[29] Xiao T., Qi X.. Price competition, cost and demand disruptions and coordination of a supply chain with one manufacturer and two competing retailers. Omega, 2008, 36(5): 741-753.

[30] Xiao T., Yu G., Sheng Z., Xia Y.. Coordination of a supply chain with one-manufacturer and two-retailers under demand promotion and disruption management decisions. Annals of Operations Research, 2005, 135(1): 87-109.

[31] Xie G., Yue W., Wang S., Lai K.K.. Quality investment and price decision in a risk-averse supply chain. European Journal of Operational Research, 2011, 214(2): 403-410.

[32] Xu M., Qi X., Yu G., Zhang H.. Coordinating dyadic supply chains when production costs are disrupted. IIE Transactions, 2006, 38(9): 765-775.