The Coordination of Fashion Supply Chains With a Risk-Averse Supplier Under the Markdown Money Policy

This paper investigates both the optimal decisions of therisk-averse supplier with respect to the MMP contract parameters and the optimal ordering decision of the risk-neutral retailer so that the whole supply chain can be coordinated (i.e., optimized).

Abstract

Motivated by the popular markdown money policy (MMP) in the textiles and clothing (TC) industry, in this paper, we explore how this policy performs in a two-stage TC/fashion supply chain with an upstream risk-averse manufacturer (supplier) and a downstream risk-neutral retailer. Specifically, we investigate both the optimal decisions of the risk-averse supplier with respect to the MMP contract parameters and the optimal ordering decision of the risk-neutral retailer so that the whole supply chain can be coordinated (i.e., optimized). We then conduct a numerical study with the real data from two companies to explore the performance of the optimal MMP proposed in our paper. Important insights and specific implications to the industry practitioners are discussed.