Abstract
We explore in this paper the performance of sales rebate contracts in fashion supply chains. We conduct both analytical and numerical analyses via a mean-variance framework with reference to real empirical data. To be specific, we evaluate the expected profits and variance of profits (risk) of the fashion supply chains, fashion retailers, and manufacturers under (1) the currently implemented sales rebate practices, (2) the case without sales rebate, and (3) the theoretical coordination situation (if target sales rebate is adopted). In addition, we analyze how sales effort affects the performances of the supply chain and its agents. Our analysis indicates that the rebate contracts may hurt the retailer and the manufacturer of a fashion supply chain when it is inappropriately set. Moreover, a properly designed sales rebate contract not only can coordinate the supply chain (with retail sales effort) but can also improve expected profits and lower the levels of risk for both the manufacturer and the retailer.
Highlights
Varying consumer tastes, trends, technology and shorter product life cycle resulted in a turbulent market for fashion products Frings 1
We explore in this paper the performance of sales rebate contracts in fashion supply chains
Sales rebate contract is a kind of instrument to help to achieve supply chain coordination SCC
Summary
Trends, technology and shorter product life cycle resulted in a turbulent market for fashion products Frings 1. Notice that when sales rebate is exercised based on actual sales performance measured by retail scanner POS data with using online technology, it is called “scanback rebate” Arcelus and Srinivasan 16 and Kurata and Yue 19 In fashion companies, it is known as “push money” or “push price promotions” Aydin and Porteus 15. Sales rebate can help to achieve supply chain coordination and win-win situation in a decentralized supply chain system see Taylor 6 , Cachon , Krishnan et al , and Lu et al. In this paper, we explore the applications and performance of sales rebate contracts in fashion supply chains with reference to real company empirical data. A properly designed sales rebate contract can achieve SCC with sales effort but can improve expected profits and lower the levels of risk for both the manufacturer and the retailer.
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