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.

Deriving Guilty Pleasure from Doing Research on Fashion Supply Chain Management

Research is hard but research can also be a lot of fun!

When opportunities come your way, you should take advantage of them because they may not only open doors but also provide new directions for intellectual explorations and collaborations.

Last Friday, I wrote about the wonderful time we had with our inaugural "Meet the Executive" event, which featured our alum, Mr. Marc Schneider of PVH. We were honored and, frankly, thrilled, that Mr. Schneider, who is an executive in the fashion industry, and is based in NYC, was speaking to us during Fashion Week. His talk and visit were truly inspirational and with the extraordinary positive feedback that we have received, we will do another such event this semester. Interestingly, and this I did not expect, some of the most engaging conversations at the lunch that followed took place among the men (and women) discussing fashion at our University Club, which is in a building that dates to 1728!

I noted at the lunch that one of my doctoral students, Min Yu, who was also present, and I have been conducting research on fashion supply chain management for the past year and I am deriving guilty pleasure from working in this area. Also, I could not resist wearing a pink Longchamps silk scarf last Friday that was given to me as a gift for speaking at the Management Science Forum at Fudan University in Shanghai, back in 2006!

Not much research has been done in fashion supply chain management. Firstly, fashion is a creative industry and there are presently unique challenges with fast fashion making a big impact, plus issues regarding the increasing costs of raw materials, including cotton, leather, and polyester, and the big role of outsourcing in this industry. In addition, this industry is seeking to minimize waste and its pollution imprint (or at least some players are). At the same time, fashion is an industry in which brands matter and there is competition among brands.

Min and I became intrigued both by the time-sensitivity of various fashion products as well as by the sustainability issues. Our latest collaboration resulted in the paper, "Fashion Supply Chain Management Under Oligopolistic Competition and Brand Differentiation," which has now been accepted for publication in the International Journal of Production Economics, Special Issue on Green Manufacturing and Distribution in the Fashion and Apparel Industries.

Our paper that focuses on fast fashion, entitled: "Fashion Supply Chain Management Through Cost and Time Minimization from a Network Perspective," will be the lead chapter in the book, Fashion Supply Chain Management: Industry and Business Analysis, which is edited by Dr. T.-M. Choi, and is scheduled to be out in April 2011.

The seeds for this research must have been planted early, since even one of my former undergrads, Christina Calvaneso, who worked as a Center Associate of the Virtual Center for Supernetworks that I direct, and went on to work for GE and Deloitte, is now working for Rent the Runway in NYC in a senior finance capacity! Moreover, one of the undergrads at our lunch last Friday, who had interned at Goldman Sachs last summer, and is from Hong Kong, has accepted an offer from Deloitte and hopes to work in consulting for the fashion industry.

Sustainable Fashion Supply Chain Management Under Competition and Brand Differentiation

In an earlier blogpost, I wrote about our recent work in fashion supply chain management and in sustainable supply chain network design.

I am pleased to announce that one of my doctoral students, Min Yu, and I have completed a study of sustainable fashion supply chain management. In the study, which is documented in our research paper, we developed a modeling framework that captures competition in 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.

Each fashion firm seeks to maximize its profits and to minimize the emissions that it generates throughout its supply chain as it engages in its activities of manufacturing, storage, and distribution, with a weight associated with the latter criterion. The model allows for alternative modes of transportation from manufacturing sites to distribution centers and from distribution centers to the demand markets, since different modes of transportation are known to emit different amounts of emissions.

The competitive supply chain network model advances the state-of-the-art of fashion supply chain modeling in several ways:

1. it captures competition through brand differentiation, which is an important feature of the fashion industry;

2. it allows for each firm to individually weight its concern for the environment in its decision-making, and

3. through a general network framework, alternatives such as multiple modes of transportation can be investigated.

In our paper, we also presented a case study, in which, through a series of numerical examples, we demonstrated the effects of changes on the demand price functions; the total cost and total emission functions, as well as the weights associated with the environmental criterion on the equilibrium product demands, the product prices, profits, and utilities. We noted that the environmental weights could also be interpreted as taxes and, thus, in exploring different values an authority such as the government could assess a priori the effects on the firms' emissions and profits.

The case study also demonstrated that consumers can have a major impact, through their environmental consciousness, on the level of profits of firms in their favoring of firms that adopt environmental pollution-abatement technologies for their supply chain activities.