IDEAS home Printed from https://ideas.repec.org/a/eee/jouret/v84y2008i3p325-333.html
   My bibliography  Save this article

Optimal Guaranteed Profit Margins for Both Vendors and Retailers in the Fashion Apparel Industry

Author

Listed:
  • Lee, Chang Hwan
  • Rhee, Byong-Duk

Abstract

Guaranteed profit margin (GPM) is one of the chargebacks that retailers frequently employ in the fashion industry. With this stipulation, the store demands a vendor's guarantee of its target mark-up rate, even in a markdown operation. This makes the retailer order too much and later liquidate a greater amount of leftovers. We propose a new GPM scheme for supply chain coordination. Specifically, if the retailer compensates the vendor for the same fraction of the joint costs as the guaranteed mark-up rate, the retailer's quantity choice results in profit maximization for the entire supply chain. Thus, the supply chain becomes fully coordinated and provides win–win outcomes for both retailer and vendor.

Suggested Citation

  • Lee, Chang Hwan & Rhee, Byong-Duk, 2008. "Optimal Guaranteed Profit Margins for Both Vendors and Retailers in the Fashion Apparel Industry," Journal of Retailing, Elsevier, vol. 84(3), pages 325-333.
    • Handle: RePEc:eee:jouret:v:84:y:2008:i:3:p:325-333
    DOI: 10.1016/j.jretai.2008.07.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022435908000523
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jretai.2008.07.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo, 2004. "Supply chain coordination by revenue sharing contracts," International Journal of Production Economics, Elsevier, vol. 89(2), pages 131-139, May.
    2. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    3. Murali Mantrala & Suman Basuroy & Shailendra Gajanan, 2005. "Do Style-Goods Retailers’ Demands for Guaranteed Profit Margins Unfairly Exploit Vendors?," Marketing Letters, Springer, vol. 16(1), pages 53-66, January.
    4. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    5. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matsui, Kenji, 2019. "A supply chain member should set its margin later if another member's cost is highly uncertain," European Journal of Operational Research, Elsevier, vol. 275(1), pages 127-138.
    2. Lee, Chang Hwan & Rhee, Byong-Duk, 2021. "Retailer-run resale market and supply chain coordination," International Journal of Production Economics, Elsevier, vol. 235(C).
    3. Dant, Rajiv P. & Brown, James R., 2008. "Bridging the B2C and B2B Research Divide: The Domain of Retailing Literature," Journal of Retailing, Elsevier, vol. 84(4), pages 371-397.
    4. Hong Zheng & Lin Tian & Guo Li, 2023. "A bane or a boon? Profit‐margin‐guarantee contract in a channel with downstream competition," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2087-2100, July.
    5. Banerjee, Mohua & Mishra, Manit, 2017. "Retail supply chain management practices in India: A business intelligence perspective," Journal of Retailing and Consumer Services, Elsevier, vol. 34(C), pages 248-259.
    6. Brown, James R. & Dant, Rajiv P., 2009. "The Theoretical Domains of Retailing Research: A Retrospective," Journal of Retailing, Elsevier, vol. 85(2), pages 113-128.
    7. Adhikari, Arnab & Bisi, Arnab, 2020. "Collaboration, bargaining, and fairness concern for a green apparel supply chain: An emerging economy perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 135(C).
    8. Kamaladevi B, 2009. "Customer Experience Management in Retailing," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 12(34), pages 31-60, (4).
    9. Bin Shen & Tsan-Ming Choi & Chris Kwan-Yu Lo, 2015. "Enhancing Economic Sustainability by Markdown Money Supply Contracts in the Fashion Industry: China vs U.S.A," Sustainability, MDPI, vol. 8(1), pages 1-14, December.
    10. Bin Shen & Qingying Li, 2015. "Impacts of Returning Unsold Products in Retail Outsourcing Fashion Supply Chain: A Sustainability Analysis," Sustainability, MDPI, vol. 7(2), pages 1-14, January.
    11. Adhikari, Arnab & Bisi, Arnab & Avittathur, Balram, 2020. "Coordination mechanism, risk sharing, and risk aversion in a five-level textile supply chain under demand and supply uncertainty," European Journal of Operational Research, Elsevier, vol. 282(1), pages 93-107.
    12. Matsui, Kenji, 2022. "Should a retailer bargain over a wholesale price with a manufacturer using a dual-channel supply chain?," European Journal of Operational Research, Elsevier, vol. 300(3), pages 1050-1066.
    13. Lee, Chang Hwan & Rhee, Byong-Duk & Cheng, T.C.E., 2013. "Quality uncertainty and quality-compensation contract for supply chain coordination," European Journal of Operational Research, Elsevier, vol. 228(3), pages 582-591.
    14. Grewal, Dhruv & Levy, Michael & Kumar, V., 2009. "Customer Experience Management in Retailing: An Organizing Framework," Journal of Retailing, Elsevier, vol. 85(1), pages 1-14.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. van der Rhee, Bo & Schmidt, Glen & A. van der Veen, Jack A. & Venugopal, V., 2014. "Revenue-sharing contracts across an extended supply chain," Business Horizons, Elsevier, vol. 57(4), pages 473-482.
    2. Devangan, Lokendra & Amit, R.K. & Mehta, Peeyush & Swami, Sanjeev & Shanker, Kripa, 2013. "Individually rational buyback contracts with inventory level dependent demand," International Journal of Production Economics, Elsevier, vol. 142(2), pages 381-387.
    3. Syed Asif Raza, 2022. "A bibliometric analysis of pricing models in supply chain," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(2), pages 228-251, April.
    4. Lee, Chang Hwan & Rhee, Byong-Duk, 2021. "Retailer-run resale market and supply chain coordination," International Journal of Production Economics, Elsevier, vol. 235(C).
    5. Chakraborty, Tulika & Chauhan, Satyaveer S. & Vidyarthi, Navneet, 2015. "Coordination and competition in a common retailer channel: Wholesale price versus revenue-sharing mechanisms," International Journal of Production Economics, Elsevier, vol. 166(C), pages 103-118.
    6. Chen, Xu & Wang, Xiaojun & Chan, Hing Kai, 2016. "Channel coordination through subsidy contract design in the mobile phone industry," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 97-104.
    7. Kunter, Marcus, 2012. "Coordination via cost and revenue sharing in manufacturer–retailer channels," European Journal of Operational Research, Elsevier, vol. 216(2), pages 477-486.
    8. Feng, Xuehao & Moon, Ilkyeong & Ryu, Kwangyeol, 2014. "Revenue-sharing contracts in an N-stage supply chain with reliability considerations," International Journal of Production Economics, Elsevier, vol. 147(PA), pages 20-29.
    9. Bellantuono, Nicola & Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo & Tang, Christopher S., 2009. "The implications of joint adoption of revenue sharing and advance booking discount programs," International Journal of Production Economics, Elsevier, vol. 121(2), pages 383-394, October.
    10. Yun Fong Lim & Yunzeng Wang & Yue Wu, 2015. "Consignment Contracts with Revenue Sharing for a Capacitated Retailer and Multiple Manufacturers," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 527-537, October.
    11. Cao, Erbao & Wan, Can & Lai, Mingyong, 2013. "Coordination of a supply chain with one manufacturer and multiple competing retailers under simultaneous demand and cost disruptions," International Journal of Production Economics, Elsevier, vol. 141(1), pages 425-433.
    12. Zhou, Yong-Wu, 2009. "Two-echelon supply chain coordination through the unified number of annual orders," International Journal of Production Economics, Elsevier, vol. 117(1), pages 162-173, January.
    13. Burer, Samuel & Jones, Philip C. & Lowe, Timothy J., 2008. "Coordinating the supply chain in the agricultural seed industry," European Journal of Operational Research, Elsevier, vol. 185(1), pages 354-377, February.
    14. Xingzheng Ai & Jing Chen & Jianhua Ma, 2012. "Contracting with demand uncertainty under supply chain competition," Annals of Operations Research, Springer, vol. 201(1), pages 17-38, December.
    15. Huang, Yeu-Shiang & Lin, Shin-Hua & Fang, Chih-Chiang, 2017. "Pricing and coordination with consideration of piracy for digital goods in supply chains," Journal of Business Research, Elsevier, vol. 77(C), pages 30-40.
    16. Andrew Henry & Christian Wernz, 2015. "A multiscale decision theory analysis for revenue sharing in three-stage supply chains," Annals of Operations Research, Springer, vol. 226(1), pages 277-300, March.
    17. Wong, Hartanto & Kim, Kilsun & Chhajed, Dilip, 2021. "Reducing channel inefficiency in product line design," International Journal of Production Economics, Elsevier, vol. 232(C).
    18. Roemer, Nils & Müller, Sven & Voigt, Guido, 2023. "A choice-based optimization approach for contracting in supply chains," European Journal of Operational Research, Elsevier, vol. 305(1), pages 271-286.
    19. Ghosh, Debabrata & Shah, Janat, 2012. "A comparative analysis of greening policies across supply chain structures," International Journal of Production Economics, Elsevier, vol. 135(2), pages 568-583.
    20. Linh, Cao To & Hong, Yushin, 2009. "Channel coordination through a revenue sharing contract in a two-period newsboy problem," European Journal of Operational Research, Elsevier, vol. 198(3), pages 822-829, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jouret:v:84:y:2008:i:3:p:325-333. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-retailing .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.