ABSTRACT
In this chapter, we study the new product selection problem in two-echelon single manufacturer single retailer fashion retail supply chains. We consider the situation when the fashion retailer is planning to offer a new product from a set of available product options. Since demand relates to the future market situation, we assume that there exist two states of the world for each new product candidate: One denoting the case when the market demand is expectedly high and one representing the case when the market demand is expectedly low. The probabilities for the occurrence of high and low market demands can be estimated. The fashion retailer needs to decide which new product to launch with a consideration of its own expected profit. By examining this problem under two different scenarios, we analytically show that under both scenarios the fashion retailer should select the new product which has the highest expected mean demand. Interestingly, this specific optimal new product will also be the best one for the manufacturer and the whole fashion retail supply chain system. Numerical sensitivity analysis is presented and reveals that the whole fashion retail supply chain system will enjoy a higher expected profit if the retail selling price increases, the market clearance sale price increases, the wholesale price decreases, and the product’s manufacturing cost decreases.
