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Coordination of a supply chain with consumer return under demand uncertainty

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  • Xiao, Tiaojun
  • Shi, Kuiran
  • Yang, Danqin

Abstract

This paper investigates coordination of a supply chain consisting of one manufacturer and one retailer facing consumer return. We integrate consumer returns policy and manufacturer buyback policy within a modeling framework and explicitly model the positive effect of refund amount on demand and its negative effect on the probability that consumers keep the products. We design a buyback/markdown money contract to coordinate the supply chain under partial refund policy and find that the refund amount plays an important role in the decisions and profitability of the players. In the coordinated setting with given buyback price, the refund amount first increases the players' expected profits/quantity, and then decreases them. When the risk (variance) of the consumer's valuation increases, the manufacturer may raise the unit wholesale price to achieve a higher unit profit. The supply chain is better off using full refund policy if the risk is very small; otherwise, the supply chain prefers no returns policy. The results of this paper are robust to distribution form.

Suggested Citation

  • Xiao, Tiaojun & Shi, Kuiran & Yang, Danqin, 2010. "Coordination of a supply chain with consumer return under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 124(1), pages 171-180, March.
  • Handle: RePEc:eee:proeco:v:124:y:2010:i:1:p:171-180
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yoo, Seung Ho, 2014. "Product quality and return policy in a supply chain under risk aversion of a supplier," International Journal of Production Economics, Elsevier, vol. 154(C), pages 146-155.
    2. 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.
    3. Li, Xin & Lian, Zhaotong & Choong, Kwee Keong & Liu, Xiaoming, 2016. "A quantity-flexibility contract with coordination," International Journal of Production Economics, Elsevier, vol. 179(C), pages 273-284.
    4. Liu, Weihua & Liu, Xiaoyan & Li, Xiang, 2015. "The two-stage batch ordering strategy of logistics service capacity with demand update," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 83(C), pages 65-89.
    5. Liu, Jian & Mantin, Benny & Wang, Haiyan, 2014. "Supply chain coordination with customer returns and refund-dependent demand," International Journal of Production Economics, Elsevier, vol. 148(C), pages 81-89.
    6. He, Yong & Zhang, Peng & Yao, Yuliang, 2014. "Unidirectional transshipment policies in a dual-channel supply chain," Economic Modelling, Elsevier, vol. 40(C), pages 259-268.
    7. Xu, Guangye & Dan, Bin & Zhang, Xumei & Liu, Can, 2014. "Coordinating a dual-channel supply chain with risk-averse under a two-way revenue sharing contract," International Journal of Production Economics, Elsevier, vol. 147(PA), pages 171-179.
    8. Chen, Kebing & Xiao, Tiaojun, 2011. "Ordering policy and coordination of a supply chain with two-period demand uncertainty," European Journal of Operational Research, Elsevier, vol. 215(2), pages 347-357, December.
    9. Govindan, Kannan & Soleimani, Hamed & Kannan, Devika, 2015. "Reverse logistics and closed-loop supply chain: A comprehensive review to explore the future," European Journal of Operational Research, Elsevier, vol. 240(3), pages 603-626.
    10. Shen, Yuelin & Willems, Sean P., 2012. "Coordinating a channel with asymmetric cost information and the manufacturer's optimality," International Journal of Production Economics, Elsevier, vol. 135(1), pages 125-135.
    11. Bin Shen & Qingying Li, 2015. "Impacts of Returning Unsold Products in Retail Outsourcing Fashion Supply Chain: A Sustainability Analysis," Sustainability, MDPI, Open Access Journal, vol. 7(2), pages 1-14, January.
    12. Wu, Jun & Wang, Shouyang & Chao, Xiuli & Ng, C.T. & Cheng, T.C.E., 2010. "Impact of risk aversion on optimal decisions in supply contracts," International Journal of Production Economics, Elsevier, vol. 128(2), pages 569-576, December.
    13. Hu, Fei & Lim, Cheng-Chew & Lu, Zudi, 2013. "Coordination of supply chains with a flexible ordering policy under yield and demand uncertainty," International Journal of Production Economics, Elsevier, vol. 146(2), pages 686-693.
    14. Dass, Mayukh & Fox, Gavin L., 2011. "A holistic network model for supply chain analysis," International Journal of Production Economics, Elsevier, vol. 131(2), pages 587-594, June.
    15. Saha, S. & Goyal, S.K., 2015. "Supply chain coordination contracts with inventory level and retail price dependent demand," International Journal of Production Economics, Elsevier, vol. 161(C), pages 140-152.
    16. Saha, Subrata, 2013. "Supply chain coordination through rebate induced contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 50(C), pages 120-137.
    17. Huang, Ximin & Choi, Sin-Man & Ching, Wai-Ki & Siu, Tak-Kuen & Huang, Min, 2011. "On supply chain coordination for false failure returns: A quantity discount contract approach," International Journal of Production Economics, Elsevier, vol. 133(2), pages 634-644, October.
    18. repec:eee:proeco:v:193:y:2017:i:c:p:663-676 is not listed on IDEAS
    19. Arcelus, F.J. & Gor, Ravi & Srinivasan, G., 2012. "Price, rebate and order quantity decisions in a newsvendor framework with rebate-dependent recapture of lost sales," International Journal of Production Economics, Elsevier, vol. 140(1), pages 473-482.
    20. Xu, Lei & Li, Yongjian & Govindan, Kannan & Xu, Xiaolin, 2015. "Consumer returns policies with endogenous deadline and supply chain coordination," European Journal of Operational Research, Elsevier, vol. 242(1), pages 88-99.
    21. Chen, Jing & Grewal, Ravneet, 2013. "Competing in a supply chain via full-refund and no-refund customer returns policies," International Journal of Production Economics, Elsevier, vol. 146(1), pages 246-258.
    22. repec:spr:annopr:v:240:y:2016:i:2:d:10.1007_s10479-014-1592-8 is not listed on IDEAS
    23. Chen, Jing & Bell, Peter C., 2012. "Implementing market segmentation using full-refund and no-refund customer returns policies in a dual-channel supply chain structure," International Journal of Production Economics, Elsevier, vol. 136(1), pages 56-66.
    24. Yu, Yugang & Liu, Jie & Han, Xiaoya & Chen, Can, 2017. "Optimal decisions for sellers considering valuation bias and strategic consumer reactions," European Journal of Operational Research, Elsevier, vol. 259(2), pages 599-613.
    25. 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.

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