Wednesday, December 21, 2011

Sustainable Fashion Supply Chain Management Using Game Theory

Does one ever get tired of doing research and publishing?

I know that I certainly haven't, and recently marked what seems like a milestone, at least to me -- and now have over 150 of my articles published in refereed journals.

I do research and write (as well as teach) because I love what I do and solving tough problems is not only challenging but also satisfying (once you figure out the solution).

I received the digital offprint of our latest paper, "Sustainable Fashion Supply Chain Management Under Oligopolistic Competition and Brand Differentiation," joint with Min Yu, which has now been published in a special collection in the International Journal of Production Economics on Green Manufacturing and Distribution in the Fashion and Apparel Industries. The guest editors are: Tsan-Ming Choi, Chris K.Y. Lo, Christina W.Y. Wong, Rachel W.Y. Yee.

Seeing an article that we worked hard on in print is always thrilling.

The fashion supply chain management paper is part of a body of work that we have completed on sustainability and network themes. The fashion and apparel industry is facing vast challenges in terms
of environmental issues and has some unique features, which made it very interesting from a mathematical modeling point of view.

According to the Natural Resources Defense Council (NRDC), textile manufacturing pollutes as much as 200 tons of water per ton of fabric. In China, a textile factory may also burn about 7 tons of carbon emitting coal per ton of fabric produced. Polyester is a man-made fiber whose demand from the fashion industry has doubled in the past 15 years and its manufacture requires petroleum and releases emissions into the air and the water. The production of cotton accounts for a quarter of all the pesticides used in the United States, which is the largest exporter of cotton in the world.

In the last three decades, there has been a migration of clothing manufacturers from developed to developing countries. Whereas in 1992 about 49% of all retail apparel sold in the United States was actually made here, by 1999 the proportion had fallen to just 12%. Between 1990 and 2000, the value of apparel imports to the
US increased from $25 billion to $64 billion.

However, lower production costs are not the only reason for the globalization of apparel manufacturing. Some firms may be taking advantage of a looser environmental regulatory system and/or lower environmental impact awareness in developing nations.

Given the global dimensions, it is crucial to quantify the emissions generated along the entire supply chains associated with the fashion and apparel industry, including the emissions generated in the transportation and distribution of the products across oceans and vast tracts of land.

Increasingly, the pressure to minimize the environmental pollution is coming not only from consumers but, more recently, even from fashion firms that wish to enhance or to maintain a positive brand identity. For example, H&M identified that 51% of its carbon imprint in 2009 was due to transportation. In order to reduce the associated emissions, the company began more direct shipments that avoided intermediate warehouses, decreased the volumes shipped by ocean and air by 40%, and increased the volume of products shipped by rail -- a quite impressive achievement.

In our sustainable fashion supply chain management paper, we used game theory to develop a new model of oligopolistic competition for fashion supply chains in the case of differentiated products with the inclusion of environmental concerns. The model assumes that each fashion firm’s product is distinct by brand and the firms compete until an equilibrium is achieved. Each fashion firm seeks to maximize its profits as well as to minimize its emissions throughout its supply chain with the latter criterion being weighted in an individual manner by each firm.

The competitive supply chain model is network-based and variational inequality theory is utilized for the formulation of the governing Nash equilibrium as well as for the solution of the case study examples. The model and computational scheme can be applied to explore the effects of changes in the demand functions; in the total cost and total emission functions, as well as in the weights associated with the environmental emissions.

Fashion and apparel can be beautiful and it is important that its production and transportation does not mire the beauty and sustainability of the environment.