July  2016, 12(3): 991-1007. doi: 10.3934/jimo.2016.12.991

Store assistance and coordination of supply chains facing consumer's return

1. 

School of Management Science and Engineering, Nanjing University, Hankou Road 22, Nanjing, Jiangsu 210093

Received  August 2014 Revised  February 2015 Published  September 2015

In this paper, we develop two game theoretic models of a one-manufacturer and one-retailer supply chain to study the store assistance service decision and channel coordination mechanism, where the retailer allows consumers to return mismatching product and invests on store assistance service to reduce mismatching rate. Under manufacturer Stackelberg model, we find that the players' profits increase with mismatching rate and mismatching cost if market scale is sufficiently large. We design a quantity discount-subsidy contract to coordinate the pricing and service investment behavior of the retailer and find that the coordinated unit wholesale price increases with mismatching cost and mismatching rate if both subsidy fee and service cost are sufficiently high. By comparing with the retailer Stackelberg model, we find that (i) there exists a first-mover advantage; (ii) the unit wholesale price under retailer Stackelberg is lower than that under manufacturer Stackelberg while the retail price and service level under retailer Stackelberg is higher; and (iii) the retailer's channel leadership raises product quantity if the probability of high mismatching loss is sufficiently low. We design a two-part margin-subsidy rate mechanism to coordinate the retailer Stackelberg supply chain.
Citation: Jing Shi, Tiaojun Xiao. Store assistance and coordination of supply chains facing consumer's return. Journal of Industrial & Management Optimization, 2016, 12 (3) : 991-1007. doi: 10.3934/jimo.2016.12.991
References:
[1]

G. P. Cachon and M. A. Lariviere, Supply chain coordination with revenue-sharing contracts: Strengths and limitations,, Management Science, 51 (2005), 30. doi: 10.1287/mnsc.1040.0215.

[2]

J. Chen and P. C. Bell, Coordinating a decentralized supply chain with customer returns and price-dependent stochastic demand using a buyback policy,, European Journal of Operational Research, 212 (2011), 293. doi: 10.1016/j.ejor.2011.01.036.

[3]

R. R. Chen and L. W. Robinson, Optimal multiple-breakpoint quantity discount schedules for customers with heterogeneous demands: All-unit or incremental?,, IIE Transactions, 44 (2012), 199. doi: 10.1080/0740817X.2011.568038.

[4]

S. C. Choi, Price competition in a channel structure with a common retailer,, Marketing Science, 10 (1991), 271. doi: 10.1287/mksc.10.4.271.

[5]

A. J. Dukes, T. Geylani and K. Srinivasan, Strategic assortment reduction by a dominant retailer,, Marketing Science, 28 (2009), 309. doi: 10.1287/mksc.1080.0399.

[6]

G. Ertek and P. M. Griffin, Supplier-and buyer-driven channels in a two-stage supply chain,, IIE Transactions, 34 (2002), 691. doi: 10.1080/07408170208928905.

[7]

M. Ferguson, V. D. R. Guide and G. C. Souza, Supply chain coordination for false failure returns,, Manufacturing and Service Operations Management, 8 (2006), 376. doi: 10.1287/msom.1060.0112.

[8]

S. M. Gilbert and V. Cvsa, Strategic commitment to price to stimulate downstream innovation in a supply chain,, European Journal of Operational Research, 150 (2003), 617. doi: 10.1016/S0377-2217(02)00590-8.

[9]

V. D. R. Guide, G. C. Souza, L. N. Van Wassenhove and J. D. Blackburn, Time value of commercial product returns,, Management Science, 52 (2006), 1200. doi: 10.1287/mnsc.1060.0522.

[10]

X. Huang, S. M. Choi, W. K. Ching, T. K. Siu and M. Huang, On supply chain coordination for false failure returns: A quantity discount contract approach,, International Journal of Production Economics, 133 (2011), 634. doi: 10.1016/j.ijpe.2011.04.031.

[11]

T. V. Krishnan and H. Soni, Guaranteed profit margins: a demonstration of retailer power,, International Journal of Research in Marketing, 14 (1997), 35. doi: 10.1016/S0167-8116(96)00029-8.

[12]

A. H. L. Lau, H. S. Lau and J. C. Wang, How a dominant retailer might design a purchase contract for a newsvendor-type product with price-sensitive demand,, European Journal of Operational Research, 190 (2008), 443. doi: 10.1016/j.ejor.2007.06.042.

[13]

C. Lawton, The war on returns,, Wall Street Journal, (2008).

[14]

J. Liu, B. Mantin and H. Wang, Supply chain coordination with customer returns and refund-dependent demand,, International Journal of Production Economics, 148 (2014), 81. doi: 10.1016/j.ijpe.2013.11.009.

[15]

K. Matsui, Returns policy, new model introduction, and consumer welfare,, International Journal of Production Economics, 124 (2010), 299. doi: 10.1016/j.ijpe.2009.10.009.

[16]

S. K. Mukhopadhyay and R. Setaputra, A dynamic model for optimal design quality and return policies,, European Journal of Operational Research, 180 (2007), 1144. doi: 10.1016/j.ejor.2006.05.016.

[17]

S. Mukhopadhyay and R. Setoputro, Optimal return policy and modular design for build-to-order products,, Journal of Operations Management, 23 (2005), 496. doi: 10.1016/j.jom.2004.10.012.

[18]

E. Ofek, Z. Katona and M. Sarvary, "Bricks and clicks": The impact of product returns on the strategies of multichannel retailers,, Marketing Science, 30 (2010), 42. doi: 10.1287/mksc.1100.0588.

[19]

K. Pan, K. K. Lai, L. Liang and S. C. H. Leung, Two-period pricing and ordering policy for the dominant retailer in a two-echelon supply chain with demand uncertainty,, Omega, 37 (2009), 919. doi: 10.1016/j.omega.2008.08.002.

[20]

J. Raju and Z. J. Zhang, Channel coordination in the presence of a dominant retailer,, Marketing Science, 24 (2005), 254. doi: 10.1287/mksc.1040.0081.

[21]

R. Ruiz-Benitez and A. Muriel, Consumer returns in a decentralized supply chain,, International Journal of Production Economics, 147 (2014), 573. doi: 10.1016/j.ijpe.2013.05.010.

[22]

J. Shi and T. Xiao, Service investment and consumer returns policy in a vendor-managed inventory supply chain,, Journal of Industrial and Management Optimization, 11 (2015), 439. doi: 10.3934/jimo.2015.11.439.

[23]

R. Shi, J. Zhang and J. Ru, Impacts of power structure on supply chains with uncertain demand,, Production and Operations Management, 22 (2013), 1232. doi: 10.1111/poms.12002.

[24]

J. Shin, How does free riding on customer service affect competition?,, Marketing Science, 26 (2007), 488. doi: 10.1287/mksc.1060.0252.

[25]

J. D. Shulman, A. T. Coughlan and R. C. Savaskan, Managing consumer returns in a competitive environment,, Management Science, 57 (2011), 347. doi: 10.1287/mnsc.1100.1274.

[26]

J. Stock, T. Speh and H. Shear, Managing product returns for competitive advantage,, MIT Sloan Management Review, 48 (2006), 57.

[27]

X. Su, Consumer returns policies and supply chain performance,, Manufacturing and Service Operations Management, 11 (2008), 595. doi: 10.1287/msom.1080.0240.

[28]

A. A. Tsay and N. Agrawal, Channel dynamics under price and service competition,, Manufacturing and Service Operations Management, 2 (2000), 372. doi: 10.1287/msom.2.4.372.12342.

[29]

X. Wang and L. Liu, Coordination in a retailer-led supply chain through option contract,, International Journal of Production Economics, 110 (2007), 115. doi: 10.1016/j.ijpe.2007.02.022.

[30]

Z. K. Weng, Channel coordination and quantity discounts,, Management Science, 41 (1995), 1509. doi: 10.1287/mnsc.41.9.1509.

[31]

B. Wernerfelt, On the function of sales assistance,, Marketing Science, 13 (1994), 68. doi: 10.1287/mksc.13.1.68.

[32]

T. Xiao, J. Luo and J. Jin, Coordination of a supply chain with demand stimulation and random demand disruption,, International Journal of Information Systems and Supply Chain Management, 2 (2009), 1. doi: 10.4018/978-1-60960-135-5.ch001.

[33]

T. Xiao and J. Shi, Consumer returns reduction and information revelation mechanism for a supply chain,, Annals of Operations Research, (2014). doi: 10.1007/s10479-014-1592-8.

[34]

T. Xiao, J. Shi and G. Chen, Price and leadtime competition, and coordination for make-to-order supply chains,, Computers and Industrial Engineering, 68 (2014), 23. doi: 10.1016/j.cie.2013.11.015.

[35]

T. Xiao, K. Shi and D. Yang, Coordination of a supply chain with consumer return under demand uncertainty,, International Journal of Production Economics, 124 (2010), 171. doi: 10.1016/j.ijpe.2009.10.021.

[36]

W. Xue, O. C. Demirag and B. Niu, Supply chain performance and consumer surplus under alternative structures of channel dominance,, European Journal of Operational Research, 239 (2014), 130. doi: 10.1016/j.ejor.2014.04.044.

[37]

S. H. Yoo, Product quality and return policy in a supply chain under risk aversion of a supplier,, International Journal of Production Economics, 154 (2014), 146. doi: 10.1016/j.ijpe.2014.04.012.

show all references

References:
[1]

G. P. Cachon and M. A. Lariviere, Supply chain coordination with revenue-sharing contracts: Strengths and limitations,, Management Science, 51 (2005), 30. doi: 10.1287/mnsc.1040.0215.

[2]

J. Chen and P. C. Bell, Coordinating a decentralized supply chain with customer returns and price-dependent stochastic demand using a buyback policy,, European Journal of Operational Research, 212 (2011), 293. doi: 10.1016/j.ejor.2011.01.036.

[3]

R. R. Chen and L. W. Robinson, Optimal multiple-breakpoint quantity discount schedules for customers with heterogeneous demands: All-unit or incremental?,, IIE Transactions, 44 (2012), 199. doi: 10.1080/0740817X.2011.568038.

[4]

S. C. Choi, Price competition in a channel structure with a common retailer,, Marketing Science, 10 (1991), 271. doi: 10.1287/mksc.10.4.271.

[5]

A. J. Dukes, T. Geylani and K. Srinivasan, Strategic assortment reduction by a dominant retailer,, Marketing Science, 28 (2009), 309. doi: 10.1287/mksc.1080.0399.

[6]

G. Ertek and P. M. Griffin, Supplier-and buyer-driven channels in a two-stage supply chain,, IIE Transactions, 34 (2002), 691. doi: 10.1080/07408170208928905.

[7]

M. Ferguson, V. D. R. Guide and G. C. Souza, Supply chain coordination for false failure returns,, Manufacturing and Service Operations Management, 8 (2006), 376. doi: 10.1287/msom.1060.0112.

[8]

S. M. Gilbert and V. Cvsa, Strategic commitment to price to stimulate downstream innovation in a supply chain,, European Journal of Operational Research, 150 (2003), 617. doi: 10.1016/S0377-2217(02)00590-8.

[9]

V. D. R. Guide, G. C. Souza, L. N. Van Wassenhove and J. D. Blackburn, Time value of commercial product returns,, Management Science, 52 (2006), 1200. doi: 10.1287/mnsc.1060.0522.

[10]

X. Huang, S. M. Choi, W. K. Ching, T. K. Siu and M. Huang, On supply chain coordination for false failure returns: A quantity discount contract approach,, International Journal of Production Economics, 133 (2011), 634. doi: 10.1016/j.ijpe.2011.04.031.

[11]

T. V. Krishnan and H. Soni, Guaranteed profit margins: a demonstration of retailer power,, International Journal of Research in Marketing, 14 (1997), 35. doi: 10.1016/S0167-8116(96)00029-8.

[12]

A. H. L. Lau, H. S. Lau and J. C. Wang, How a dominant retailer might design a purchase contract for a newsvendor-type product with price-sensitive demand,, European Journal of Operational Research, 190 (2008), 443. doi: 10.1016/j.ejor.2007.06.042.

[13]

C. Lawton, The war on returns,, Wall Street Journal, (2008).

[14]

J. Liu, B. Mantin and H. Wang, Supply chain coordination with customer returns and refund-dependent demand,, International Journal of Production Economics, 148 (2014), 81. doi: 10.1016/j.ijpe.2013.11.009.

[15]

K. Matsui, Returns policy, new model introduction, and consumer welfare,, International Journal of Production Economics, 124 (2010), 299. doi: 10.1016/j.ijpe.2009.10.009.

[16]

S. K. Mukhopadhyay and R. Setaputra, A dynamic model for optimal design quality and return policies,, European Journal of Operational Research, 180 (2007), 1144. doi: 10.1016/j.ejor.2006.05.016.

[17]

S. Mukhopadhyay and R. Setoputro, Optimal return policy and modular design for build-to-order products,, Journal of Operations Management, 23 (2005), 496. doi: 10.1016/j.jom.2004.10.012.

[18]

E. Ofek, Z. Katona and M. Sarvary, "Bricks and clicks": The impact of product returns on the strategies of multichannel retailers,, Marketing Science, 30 (2010), 42. doi: 10.1287/mksc.1100.0588.

[19]

K. Pan, K. K. Lai, L. Liang and S. C. H. Leung, Two-period pricing and ordering policy for the dominant retailer in a two-echelon supply chain with demand uncertainty,, Omega, 37 (2009), 919. doi: 10.1016/j.omega.2008.08.002.

[20]

J. Raju and Z. J. Zhang, Channel coordination in the presence of a dominant retailer,, Marketing Science, 24 (2005), 254. doi: 10.1287/mksc.1040.0081.

[21]

R. Ruiz-Benitez and A. Muriel, Consumer returns in a decentralized supply chain,, International Journal of Production Economics, 147 (2014), 573. doi: 10.1016/j.ijpe.2013.05.010.

[22]

J. Shi and T. Xiao, Service investment and consumer returns policy in a vendor-managed inventory supply chain,, Journal of Industrial and Management Optimization, 11 (2015), 439. doi: 10.3934/jimo.2015.11.439.

[23]

R. Shi, J. Zhang and J. Ru, Impacts of power structure on supply chains with uncertain demand,, Production and Operations Management, 22 (2013), 1232. doi: 10.1111/poms.12002.

[24]

J. Shin, How does free riding on customer service affect competition?,, Marketing Science, 26 (2007), 488. doi: 10.1287/mksc.1060.0252.

[25]

J. D. Shulman, A. T. Coughlan and R. C. Savaskan, Managing consumer returns in a competitive environment,, Management Science, 57 (2011), 347. doi: 10.1287/mnsc.1100.1274.

[26]

J. Stock, T. Speh and H. Shear, Managing product returns for competitive advantage,, MIT Sloan Management Review, 48 (2006), 57.

[27]

X. Su, Consumer returns policies and supply chain performance,, Manufacturing and Service Operations Management, 11 (2008), 595. doi: 10.1287/msom.1080.0240.

[28]

A. A. Tsay and N. Agrawal, Channel dynamics under price and service competition,, Manufacturing and Service Operations Management, 2 (2000), 372. doi: 10.1287/msom.2.4.372.12342.

[29]

X. Wang and L. Liu, Coordination in a retailer-led supply chain through option contract,, International Journal of Production Economics, 110 (2007), 115. doi: 10.1016/j.ijpe.2007.02.022.

[30]

Z. K. Weng, Channel coordination and quantity discounts,, Management Science, 41 (1995), 1509. doi: 10.1287/mnsc.41.9.1509.

[31]

B. Wernerfelt, On the function of sales assistance,, Marketing Science, 13 (1994), 68. doi: 10.1287/mksc.13.1.68.

[32]

T. Xiao, J. Luo and J. Jin, Coordination of a supply chain with demand stimulation and random demand disruption,, International Journal of Information Systems and Supply Chain Management, 2 (2009), 1. doi: 10.4018/978-1-60960-135-5.ch001.

[33]

T. Xiao and J. Shi, Consumer returns reduction and information revelation mechanism for a supply chain,, Annals of Operations Research, (2014). doi: 10.1007/s10479-014-1592-8.

[34]

T. Xiao, J. Shi and G. Chen, Price and leadtime competition, and coordination for make-to-order supply chains,, Computers and Industrial Engineering, 68 (2014), 23. doi: 10.1016/j.cie.2013.11.015.

[35]

T. Xiao, K. Shi and D. Yang, Coordination of a supply chain with consumer return under demand uncertainty,, International Journal of Production Economics, 124 (2010), 171. doi: 10.1016/j.ijpe.2009.10.021.

[36]

W. Xue, O. C. Demirag and B. Niu, Supply chain performance and consumer surplus under alternative structures of channel dominance,, European Journal of Operational Research, 239 (2014), 130. doi: 10.1016/j.ejor.2014.04.044.

[37]

S. H. Yoo, Product quality and return policy in a supply chain under risk aversion of a supplier,, International Journal of Production Economics, 154 (2014), 146. doi: 10.1016/j.ijpe.2014.04.012.

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