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

  • Lee C
  • Rhee B
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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. © 2008 New York University.

Author-supplied keywords

  • Fashion apparel industry
  • Guaranteed profit margin
  • Supply chain coordination

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Authors

  • Chang Hwan Lee

  • Byong Duk Rhee

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