Supply chain coordination with buyback contract under uncertain demand and salvage value differentiation environments

Given a buyback contract, the supplier is responsible for dealing with the remaining items at the end of the season. However, the salvage value of the remaining items will affect the order quantity and profit of the retailer, and the parameters of the buyback contract for coordinating the supply chain will also be influenced. In order to explore these effects, a model with uncertain demand and perfect quality replenishment for the centralized supply chain is presented, and taken as a benchmark. Then we examine the optimal order quantity for the retailer in both centralized and decentralized supply chains, where demand is uncertain, replenishment has imperfect quality, and the remaining perfect and imperfect items have different salvage values, respectively. We investigate these problems using uncertainty theory, formulate relevant models, solve them, and then present the main results. For the sake of coordinating the supply chain, we find that the buyback contract can achieve supply chain coordination under appropriate conditions. Moreover, the optimal order quantity for the retailer is determined by the inverse distribution of the uncertain demand. The salvage values of both perfect-quality items and imperfect-quality items have positive impacts on the optimal order quantity. Further, the optimal parameters of the buyback contract are determined based on the bargaining power of the supplier during the contract signing process. It is beneficial for the supplier with strong bargaining power to offer a buyback price close to the wholesale price.