Coordination of a fashion apparel supply chain under lead-time-dependent demand uncertainty

Abstract

This article develops a game theoretic model of a fashion apparel supply chain consisting of one manufacturer and one retailer to study supply chain coordination under lead-time-dependent demand uncertainty. We explicitly model the effect of the lead time on demand uncertainty and find that a markdown money mechanism can coordinate the supply chain with exogenous retail price. We also investigate the effects of the lead time on the markdown money coordination mechanism and channel profit. We find that, when the lead time increases, the manufacturer will charge the retailer a lower unit wholesale price to stimulate the order quantity and give a lower chargeback rate to restrict excess order if the basic demand uncertainty is sufficiently large; otherwise, the manufacturer may increase them. Although a shorter lead time may incur a higher cost for the manufacturer, the manufacturer would like to decrease the lead time to cut down the leftovers if the basic demand uncertainty is sufficiently high. The manufacturer may decrease the lead time even when the basic demand uncertainty is sufficiently low. We also give a revenue-sharing contract to coordinate the supply chain with endogenous retail price.