The Impact of Order Quantity on the Returns Policy in Supply Chain Coordination

Abstract

Increasing orders is a major goal for manufacturers. For this, the coordination mechanism and returns policy are often viewed as useful tools. Accordingly, this paper analyzes the impact of order quantity on the returns policy in a supply chain. We investigate the effect of order decisions in the individual channel versus the coordinating channel. Moreover, we compare the difference between the returns policy and no-returns policy on the ordering decision. The results indicate that a retailer’s optimal order quantity in the coordinating channel is larger than that in the individual channel. Furthermore, when the returns policy is ignored, we find that the retailer’s optimal order quantity in the coordinating channel will be twice as large as that in the individual channel. In addition, the retailer does not always orders higher quantities when the manufacturer provides a returns policy. The higher quantities only exist in the two parties’ self-interested manner. However, in the joint model, the optimal order quantity of the retailer is the same before and after return. These results conclude that the returns policy is relevant and positive factor in the individual model, whereas it becomes irrelevant in the coordinated model.