Impacts of lead time reduction on fabric sourcing in apparel production with yield and environmental considerations

In apparel supply chains, manufacturers usually request a short lead time for fabric supplies. However, a short supply lead time would create environmental problems such as insufficient time for proper control of chemicals and material processing operations, and lead to a lower production yield of good quality supplies. Motivated by this observed industrial practice in fabric sourcing and apparel production, we build a stylized analytical model to investigate how lead time reduction in fabric sourcing affects performances of the fabric supplier and apparel manufacturer as well as the environment. To be specific, we first derive the optimal ordering quantity for the apparel manufacturer and find that it is a production yield scaled newsvendor fractile quantity. We then explore the expected values of lead time reduction, and derive the respective analytical conditions for the apparel manufacturer, fabric supplier and whole supply chain to be benefited by lead time reduction. From the conditions, we reveal that the prior demand mean (which also implies the relative prior demand uncertainty) plays a critical role in determining whether lead time reduction is beneficial. We illustrate how a win–win situation in the supply chain can be achieved by a properly designed deposit payment scheme. For the environment, we show that when the fabric supplier’s profit is improved under lead time reduction, the environment must be hurt. We further investigate how an environment tax can be imposed on the fabric supplier so as to entice it to invest in green technologies.