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Design outsourcing in the fashion supply chain: OEM versus ODM

Author

Listed:
  • Bin Shen

    (Donghua University, Shanghai, China)

  • Qingying Li

    (Donghua University, Shanghai, China)

  • Ciwei Dong

    (Zhongnan University of Economics and Law, Wuhan, China)

  • Vincent Quan

    (Fashion Institute of Technology, SUNY, New York, USA)

Abstract

Design innovation is the engine of fashion. Many fashion firms outsource design innovation to their suppliers. Design outsourcing is on the rise in the fashion supply chain, but research in this area lags behind industry practice. In this paper, we examine how design outsourcing affects the supply chain, and we compare supply chain performance under an Original Equipment Manufacturer (OEM) strategy versus an Original Design Manufacturer (ODM) strategy. We evaluate a market size outsourcing model where design enhancement influences market size, and a success probability outsourcing model where design enhancement influences the success probability of innovation. We find that when the supplier trades with the retailer via a wholesale price contract under the ODM strategy, the supplier has no incentive to invest in innovation. In the market size outsourcing model, the design innovation in the centralized supply chain is higher than that under the OEM strategy. However, in the success probability outsourcing model, the success probability of innovation under the OEM strategy is higher than that in the centralized supply chain. Furthermore, we find that a profit sharing contract can achieve supply chain coordination under both OEM and ODM strategies; whereas, revenue sharing and buyback contracts cannot.

Suggested Citation

  • Bin Shen & Qingying Li & Ciwei Dong & Vincent Quan, 2016. "Design outsourcing in the fashion supply chain: OEM versus ODM," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 259-268, February.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:259-268
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    Citations

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    Cited by:

    1. Qi Chen & Qi Xu, 2022. "Joint optimal pricing and advertising policies in a fashion supply chain under the ODM strategy considering fashion level and goodwill," Journal of Combinatorial Optimization, Springer, vol. 43(5), pages 1075-1105, July.
    2. Seung Ho Yoo & Dawoon Jung & Kun Soo Park, 2022. "Product design outsourcing in a supply chain: impact of the design and conformance quality trade-off," Operational Research, Springer, vol. 22(4), pages 4029-4055, September.
    3. Shen, Bin & Xu, Xiaoyan & Chan, Hau Ling & Choi, Tsan-Ming, 2021. "Collaborative innovation in supply chain systems: Value creation and leadership structure," International Journal of Production Economics, Elsevier, vol. 235(C).
    4. Du, Xianjin & Zhan, Huimin & Zhu, Xiaoxuan & He, Xiuli, 2021. "The upstream innovation with an overconfident manufacturer in a supply chain," Omega, Elsevier, vol. 105(C).
    5. Shen, Bin & Xu, Xiaoyan & Guo, Shu, 2019. "The impacts of logistics services on short life cycle products in a global supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 131(C), pages 153-167.
    6. Niu, Baozhuang & Chen, Lei & Liu, Yaoqi & Jin, Yong, 2019. "Joint price and quality decisions considering Chinese customers' variety seeking behavior," International Journal of Production Economics, Elsevier, vol. 213(C), pages 97-107.
    7. Ciwei Dong & Qingying Li & Bin Shen & Xun Tong, 2019. "Sustainability in Supply Chains with Behavioral Concerns," Sustainability, MDPI, vol. 11(15), pages 1-7, July.
    8. Luo Wang & Bin Shen, 2017. "A Product Line Analysis for Eco-Designed Fashion Products: Evidence from an Outdoor Sportswear Brand," Sustainability, MDPI, vol. 9(7), pages 1-12, July.
    9. Qi Chen & Qi Xu, 0. "Joint optimal pricing and advertising policies in a fashion supply chain under the ODM strategy considering fashion level and goodwill," Journal of Combinatorial Optimization, Springer, vol. 0, pages 1-31.
    10. Wen, Xin & Choi, Tsan-Ming & Chung, Sai-Ho, 2019. "Fashion retail supply chain management: A review of operational models," International Journal of Production Economics, Elsevier, vol. 207(C), pages 34-55.
    11. Niu, Baozhuang & Mu, Zihao, 2020. "Sustainable efforts, procurement outsourcing, and channel co-opetition in emerging markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 138(C).
    12. Dan Yang & Sen Liu & Zhe Zhang & Fu Huang & Jingyang Wang, 2022. "Strategic interaction of original equipment manufacturers between outsourcing and purchasing in a quality-differentiated market," PLOS ONE, Public Library of Science, vol. 17(1), pages 1-22, January.
    13. Niu, Baozhuang & Xu, Jingwen & Lee, Carman K.M. & Chen, Lei, 2019. "Order timing and tax planning when selling to a rival in a low-tax emerging market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 123(C), pages 165-179.
    14. Wang, Kung-Jeng & Lee, Kun-Shan & Liao, Jia-Hong, 2019. "Technology cooperation modeling of multiple profit-centered business units: A system dynamics framework," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 162(C), pages 195-220.

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