Production Sourcing Strategy for an Apparel Original Brand Manufacturer in the Presence of Technology Spillover

Abstract

Motivated by the practices of production sourcing in the apparel manufacturing industry, this article investigates an apparel manufacturing supply chain wherein an original brand manufacturer (OBM) may either outsource production to a competitive manufacturer (CM) or a non-CM (NCM) or set up factories to produce in-house, namely, Strategy C, Strategy NC, and Strategy N, respectively. If the OBM outsources production to the CM, technology spillover happens, and the CM is able to manufacture products with the same consumers’ preference level as the OBM does. We find that the OBM prefers Strategy N regardless of the manufacturing level and consumers’ product preference level when the investment cost is low. However, the OBM prefers Strategy C or NC when the investment cost is high. Specifically, when the manufacturing level is high, or the manufacturing level is medium, and the consumers’ product preference level is high, the OBM prefers Strategy NC; otherwise, the OBM prefers Strategy C. Furthermore, we demonstrate that employing the dual-sourcing strategy wherein the OBM outsources production to both CM and NCM simultaneously does not necessarily help OBM effectively mitigate the negative impact of technology spillover and delivery uncertainty, which depends on specific conditions.