The impact of customer returns on supply chain decisions under various channel interactions
- 825 Downloads
We examine a supply chain in which a manufacturer supplies a single product to a retailer who faces two forms of customer returns. We compare the impact of these two forms of customer returns on the decisions and profits of the manufacturer and the retailer under various types of channel interaction: Manufacturer Stackelberg (MS), Vertical Nash (VN), and Retailer Stackelberg (RS). We find that when the level of customer returns that are proportional to quantity sold is extremely high, the retailer prefers the MS rather than the RS channel interaction. We also examine the impact of the asymmetric customer returns information on the decisions of the manufacturer and the retailer and on profits under MS and VN channel interactions. We show that in the MS case, the retailer can decide whether or not to share customer returns information with its manufacturer without knowing the manufacturer’s estimates of customer returns and in the VN case, both the retailer and the manufacturer can decide whether or not to share/acquire the information based on observation of the other’s behavior. The issues of sharing this information are also discussed.
KeywordsManaging customer returns Channel interaction Information sharing
- Anderson, E. T., Hansen, K., Simister, D., & Wang, L. K. (2009b). How are demand and returns related? Theory and empirical evidence. Working paper, Kellogg School of Management, Northwestern University. Google Scholar
- Biederman, D. (2005). Many happy returns. Journal of Commerce, December, 1–3. Google Scholar
- Blanchard, D. (2005). Moving forward in reverse. Logistics Today, 46, 1. Google Scholar
- Blanchard, D. (2007). Supply chains also work reverse. Industry Week, May 1. Google Scholar
- Petersen, A., & Kumar, V. (2010). Can product returns make you money? MIT Sloan Management Review, 51, 85–89. Google Scholar
- Pralle, A., & Stalk, G. Jr. (2006). Returns: the ugly ducklings of retail. The Boston Consulting Group’s report. Google Scholar
- Rogers, D. S., & Tibben-Lembke, R. S. (1999). Going backwards: reverse logistics trends and practices. Pittsburgh: Reverse Logistics Executive Council. Google Scholar
- Roy, C. (2009). Debunking the myths of customer returns and the use of liquidation channels. Retail/Catalog Online Integration. http://www.retailonlineintegration.com/article/debunking-myths-customer-returns-use-liquidation-channels-409310/1.
- Sciarrotta, T. (2003). How PHILIPS reduced returns. Supply Chain Management Review, 7, 32–38. Google Scholar
- Strauss, M. (2006). Returns a $10-billion pain. Globe and Mail, November, B-7. Google Scholar
- Yuan, X. M., & Cheung, K. L. (1996). Modeling returns of merchandise in an inventory system. OR Spektrum, 20, 147–154. Google Scholar
- Loss Prevention Research Council (2008). Customer returns in the retail industry. Google Scholar