Mean Variance Analysis of Fast Fashion Supply Chains With Returns Policy

Abstract

This paper is motivated by observed industrial practices. We conduct a mean variance (MV) analysis of a fast fashion supply chain with returns policy. Different from the conventional newsvendor type products, fast fashion brands plan to have stock-out because it is a feature of fast fashion and can bring some benefit. Based on the fast fashion features, we build an analytical MV optimization model for a two-echelon fast fashion supply chain to address the following research questions. 1) What are the differences and similarities in the structural properties between the supply chains that carry fast fashion products and conventional newsvendor type products? 2) How do we optimize a fast fashion supply chain with multiple retailers under the MV framework? 3) Can a simple returns policy optimize (and “coordinate”) such a multiretailer supply chain? 4) How do individual retailers' degrees of risk aversion affect the achievability of coordination? 5) Can the above simple contract help coordinate the supply chain under information asymmetry? We propose a novel approach called “negotiated space” in the analysis. We generate several important insights which include an interesting finding that a simple returns policy can be applied to coordinate the fast fashion supply chain even in the presence of multiple retailers.