Coordination of a fast fashion supply chain with profit-loss sharing contract

In a fashion market, the changing fashion trends and volatile consumer demand require the supply chain to have more quickness in production and more accuracy in forecasting of the market demand. In this paper we propose a profit-loss sharing contract (PLSC) on a fast fashion supply chain under which the manufacturer shares the retailer’s profit with one percentage, and the retailer’s loss with another percentage, in the presence of forecasting bias (FB) by the retailer. As a benchmark, we first consider a model in which no FB exists and the traditional revenue sharing contract (RSC) is utilized to coordinate the supply chain. For this case with the assumption of no FB, we calculate optimal solutions for retail price, quality investment, and production. Then FB is considered in resolving the above optimization problems and the PLSC is introduced to coordinate the supply chain. After that, we compare the PLSC with the RSC, focusing particularly on their differences. We find that the PLSC is more general in achieving coordination and more flexible than the RSC for the manufacturer in decision making, although the two types of contracts are equal under certain conditions. Finally, numerical examples are offered to illustrate our results.