Punishing or subsidizing? Regulation analysis of sustainable fashion procurement strategies

Abstract

In the recent years, the fashion and apparel industry has seen intense competition and increasing production quantity, along with growing concern about the sustainability issues and the environmental impacts. Many companies in fashion supply chains have tried various approaches to be more “green”, and procurement is one of the most important functions which influences supply chain sustainability, because procurement does not only affect the supply chain output but also change the supply chain structure. In this paper, we consider a typical fashion supply chain comprising of an apparel manufacturer, a retailer and a logistic service provider (LSP), where we analyze two commonly used procurement strategies: control and agency. We examine the effects of two widely used government regulations: punishing and subsidizing, on the management of sustainable fashion procurement. We show that, there exist conflicts between supply chain profit goals and sustainability goals: The retailer will obtain more profits under control, but the price is that it determines a larger order size and the supply chain becomes less sustainable. To improve sustainability, a local government can either punish or subsidize the retailer. We show that, punishing can only reduce the order size, while subsidizing may induce the retailer to change its procurement strategy from control to agency, when the subsidy exceeds a threshold. We also find that the objectives of improving sustainability and maximizing social welfare may be conflicting, so it is an important task to find a balance between them for the government.