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Discrete Dynamics in Nature and Society
Volume 2012 (2012), Article ID 453193, 20 pages
http://dx.doi.org/10.1155/2012/453193
Research Article

How to Implement Return Policies in a Two-Echelon Supply Chain?

1School of Mathematical Sciences and LPMC, Nankai University, Tianjin 300071, China
2School of Management, Huazhong University of Science and Technology, Wuhan, Hubei 430074, China

Received 3 September 2012; Accepted 5 November 2012

Academic Editor: Xiang Li

Copyright © 2012 Wei Hu and Jianbin Li. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We integrate a retailer's return policy and a supplier's buyback policy within a modeling framework. In this setting, consumers decide whether to buy and then whether to return the product, the retailer sets the retail price, quantity, and refund price, and the supplier chooses the wholesale price and buyback price. Both the demand uncertainty and consumers' valuation uncertainty are considered; consumers realize their valuations only after purchase. We discuss four scenarios for each party in the supply chain that may offer or not offer return policy. We characterize each party's optimal decisions for all scenarios and we show that the supplier's best choice is to provide buyback policy and the retailer's optimal response is to set refund price to be the same as supplier's buyback price.