Shipment policy and its impact on coordination of a fashion supply chain under production uncertainty

Abstract

The fashion industry grapples with volatile demand, characterized by two short-selling sessions, creating an avenue for a fashion firm to receive items through single or dual shipment strategies. Single shipment brings economies of scale and reduces stockout risks. Conversely, dual shipment avoids excessive inventory buildup. To exacerbate the problem, a fashion supply chain faces uncertainties in production marked by launching-failure and order fulfillment risks and has to contend with product obsolescence. Additionally, these factors have distinct impacts on the supply chain members, which can cause inefficiencies across the entire chain. Our study aims to propose an appropriate contract for fashion chain members by considering the impact of shipment policies (single vs. dual). By comparing the benchmark cases, we first address the policy-level dilemma of a vertically integrated fashion firm. We offer a decision matrix for the optimal shipment policy. This matrix weighs production uncertainty, product obsolescence, and associated holding costs. Using the findings of the benchmark case, we investigate the effectiveness of traditional wholesale price and quantity discount contracts. We find these contracts fail to address issues pertaining to flexibility and equitable risk-sharing mechanisms. Finally, we propose a novel risk-sharing quantity discount contract to address these shortcomings. We extend our models by understanding the impact of different levels of launching-failure and order fulfillment risks on ordering decisions and analyze the impact of discounting structures and nonlinear design costs.