Carbon footprint tax on fashion supply chain systems

Abstract

In this paper, the impacts brought by the carbon footprint tax on fashion supply chain systems are analytically examined. First, based on various industrial practices in fashion apparel, we construct the two-echelon manufacturer–retailer analytical fashion supply chain model. Second, by exploring the fashion supply chain with a highly fashionable product, we study how the carbon footprint tax can affect the retailer’s optimal choice of sourcing. We further investigate the significance of carbon footprint tax on fashion supply chain management under two commonly adopted contracts, namely the pure wholesale pricing (WP) contract and the markdown money (MM) contract. Our analytical findings illustrate that: (1) under the WP contract case: A properly set carbon footprint tax, which depends on the product’s manufacturing and shipping costs, and manufacturer’s profit margin, can successfully entice the retailer to source locally. (2) Under the MM contract case where the MM contract is set in a way that the supply chain is coordinated: (a) If the carbon footprint tax is equal to the difference between the product costs from the local and offshore sourcing, then the optimal MM rates and the optimal supply chain product quantities from the local and offshore sourcing modes are the same. (b) Similar to the WP contract case, we prove analytically that a properly determined carbon footprint tax can always entice the retailer to source locally. Further analysis with extended models under the consideration of having a stochastically larger demand with the local sourcing mode is conducted.