Inventory Service Target in Quick Response Fashion Retail Supply Chains

Abstract

Different fashion brands have different inventory service targets. To achieve the desirable inventory service level without the need of holding a lot of inventory, fashion companies commonly adopt the quick response practice. In this paper, we conduct an analytical study on the influence played by the inventory service target on quick response fashion retail supply chains. To be specific, we consider the case when the fashion retailer, who is the channel leader, aims to achieve an inventory service target in its inventory planning. We explore impacts of the inventory service-targeted quick response program, in terms of expected profit, and profit risk on the fashion retailer, the fashion manufacturer, and the fashion supply chain system. We also examine the quick response’s impact on social welfare. We show how three practical contracts, namely, the fixed-fee contract, the wholesale pricing contract, and the product variety contract, can be employed to achieve a win–win situation in the fashion retail supply chain system with the adoption of the inventory service-targeted quick response program. Closed-form managerial insights on how the inventory service target affects the expected benefit of quick response, the reduction of profit risk under quick response, the expected gain of social welfare, the achievability of the win–win situation, and the setting of contractual parameters, are derived.