Textile and apparel supply chain coordination under ESG related cost-sharing contract based on stochastic demand

Abstract

In recent years, heightened attention has been given to the challenges of sustainable development precipitated by environmental pollution in the Textile and Apparel (TA) industry. The burgeoning demand for fast fashion, often reliant on cheap and environmentally unsustainable textiles, exacerbates this environmental degradation. To facilitate a harmonized and sustainable progression of the entire TA industry, this study employs the Stackelberg game model to investigate the prerequisites for establishing Environmental, Social, and Governance (ESG) related cost-sharing contracts and their consequential effects on supply chain coordination. Specifically, the paper compares four distinct supply chain models under two conditions: whether market demand is stochastic or deterministic. Through this comparative analysis, the study finds that the ESG related cost-sharing contracts bring more profit to the textile and apparel supply chain (TASC) in deterministic and stochastic demand, which effectively mitigates the risks associated with unpredictable demand. Numerical results indicate that the ESG cost-sharing contract significantly improves TASC's ESG performance with customers' sustainable awareness increasing. Furthermore, such contracts are instrumental in enhancing the aggregate ESG environmental performance of the Textile and Apparel Supply Chain (TASC), elevating profits for both manufacturers and retailers and alleviating the impact of fluctuating demand on supply chain participants.