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Consumer returns in a decentralized supply chain

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  • Ruiz-Benitez, Rocio
  • Muriel, Ana

Abstract

Consumer returns tend to be ignored when managers make ordering and pricing decisions. How does accounting for this growing factor affect ordering quantities, profits and supply chain coordination? We model and analyze both a wholesale-price contract and a buy-back contract between a manufacturer and retailer facing stochastic demand and an exogenously given retail price. The results of extensive computational testing are counterintuitive: (1) higher profits and better coordination are achieved when buyer and vendor acting in a decentralized fashion do not consider any information about consumer returns; (2) retailer, manufacturer and supply chain profits increase as the retailer faces a larger share of the total logistics costs associated with consumer returns.

Suggested Citation

  • Ruiz-Benitez, Rocio & Muriel, Ana, 2014. "Consumer returns in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 573-592.
    • Handle: RePEc:eee:proeco:v:147:y:2014:i:pc:p:573-592
    DOI: 10.1016/j.ijpe.2013.05.010
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    7. Mehr Sadat Salami & Mohammadreza Eslamipirharati & Alireza Bakhshi & Amir Aghsami & Fariborz Jolai & Maziar Yazdani, 2022. "Does a Buyback Contract Coordinate a Reverse Supply Chain Facing Remanufacturing Capacity Disruption and Returned Product Quality Uncertainty?," Sustainability, MDPI, vol. 14(23), pages 1-20, November.
    8. Ohmura, Shota & Matsuo, Hirofumi, 2016. "The effect of risk aversion on distribution channel contracts: Implications for return policies," International Journal of Production Economics, Elsevier, vol. 176(C), pages 29-40.
    9. Zhang, Juzhi & Xu, Qingyun & He, Yi, 2018. "Omnichannel retail operations with consumer returns and order cancellation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 308-324.
    10. Alexander Hübner & Andreas Holzapfel & Heinrich Kuhn, 2016. "Distribution systems in omni-channel retailing," Business Research, Springer;German Academic Association for Business Research, vol. 9(2), pages 255-296, August.
    11. Maiti, T. & Giri, B.C., 2017. "Two-way product recovery in a closed-loop supply chain with variable markup under price and quality dependent demand," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 259-272.
    12. Fan, Zhi-Ping & Chen, Zhongwei, 2020. "When should the e-tailer offer complimentary return-freight insurance ?," International Journal of Production Economics, Elsevier, vol. 230(C).
    13. Araneda-Fuentes, Cristina & Lustosa, Leonardo Junqueira & Minner, Stefan, 2015. "A contract for coordinating capacity decisions in a business-to-business (B2B) supply chain," International Journal of Production Economics, Elsevier, vol. 165(C), pages 158-171.
    14. Li, Wei & Chen, Jing & Chen, Bintong, 2018. "Supply chain coordination with customer returns and retailer's store brand product," International Journal of Production Economics, Elsevier, vol. 203(C), pages 69-82.
    15. Chen Tian & Tiaojun Xiao, 2017. "Profit of a Supply Chain versus its Decentralization in the Presence of Strategic Customers," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 16(06), pages 1647-1670, November.
    16. Shi, Xiutian & Dong, Ciwei & Cheng, T.C.E., 2018. "Does the buy-online-and-pick-up-in-store strategy with pre-orders benefit a retailer with the consideration of returns?," International Journal of Production Economics, Elsevier, vol. 206(C), pages 134-145.
    17. De, Arijit & Ray, Ankita & Kundu, Tanmoy & Sheu, Jiuh-Biing, 2023. "Is it wise to compete or to collaborate? Remanufacturing business models under collective extended producer responsibility legislation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    18. Li, Bo & Jiang, Yushan, 2019. "Impacts of returns policy under supplier encroachment with risk-averse retailer," Journal of Retailing and Consumer Services, Elsevier, vol. 47(C), pages 104-115.
    19. Duong, Quang Huy & Zhou, Li & Meng, Meng & Nguyen, Truong Van & Ieromonachou, Petros & Nguyen, Duy Tiep, 2022. "Understanding product returns: A systematic literature review using machine learning and bibliometric analysis," International Journal of Production Economics, Elsevier, vol. 243(C).
    20. Borenich, Andrea & Dickbauer, Yanick & Reimann, Marc & Souza, Gilvan C., 2020. "Should a manufacturer sell refurbished returns on the secondary market to incentivize retailers to reduce consumer returns?," European Journal of Operational Research, Elsevier, vol. 282(2), pages 569-579.
    21. Hu, Shu & Dai, Ying & Ma, Zu-Jun & Ye, Yu-Sen, 2016. "Designing contracts for a reverse supply chain with strategic recycling behavior of consumers," International Journal of Production Economics, Elsevier, vol. 180(C), pages 16-24.
    22. Shujun Yang & Ivan Kai Wai Lai & Huajun Tang, 2022. "Pricing and Contract Coordination of BOPS Supply Chain Considering Product Return Risk," Sustainability, MDPI, vol. 14(9), pages 1-21, April.

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