Small Apparel Retailer's Procurement Outsourcing Under Weather-Related Demand Uncertainty

Abstract

The demand for apparel/fashion products is usually of heavy weather-related uncertainty, which can be solved by the publicly accessible weather information provided by the government. That is because weather information provides a more accurate demand signal, and the key weather indicators fashion brand, the latter determines the wholesale price but usually postpones the price decision to observe the weather information. Alternatively, the small retailer can outsource procurement to a powerful agent, who fixes the fashion brand's wholesale price. In this article, we investigate an apparel supply chain consisting of two competing small retailers (retailers 1 and 2), a powerful procurement agent, and a famous fashion brand. Given retailer 2's procurement outsourcing, retailer 1 decides whether to outsource procurement to the agent or directly procure products from the fashion brand. We identify cooperation and competition relationships in the retailers’ ordering decisions based on the weather information. The different intensities of the cooperation/competition relationships alter retailer 1's preferences of procurement outsourcing because of the mitigated/intensified quantity competition. Interestingly, we show that, when demand uncertainty is high, retailer 1's procurement outsourcing strategy will switch from Turnkey to Consignment and back to Turnkey, as its demand becomes more sensitive to the weather condition.