Incentivizing sustainability: Price optimization for a closed-loop apparel supply chain

Although sustainability in supply chains has been garnering increased attention, there is much room for prescriptive research devoted to operationalizing sustainability in apparel supply chains (ASCs). Being one of the largest polluters, apparel industry landfills immense amounts of garments most of which could be reconditioned, reused, or recycled into useful raw materials. Especially, fast fashion (low-cost clothing designs based on current, high-cost luxury fashion trends) necessitates fast-response supply chains, encouraging disposability, and thereby exacerbating an unsustainable consumption. The importance of sustainability in ASCs are emphasized via trends in 3R (Reduce, Reuse and Recycle), recycling facts in North America, and apparel companies that actively engaged in sustainability initiatives. To that end, we study a closed-loop apparel supply chain (CLASC) model that include the process of recycling end-of-life garments. When the implications of fast fashion on profitability, environmental and social costs, recycling costs, and incentives offered to consumers are factored in, we study the optimal pricing decision for the CLASC and provide a closed-form solution. Model analytics, managerial insights along with numerical illustrations are offered.