Coordination of a supply chain with consumer return under vendor-managed consignment inventory and stochastic demand

Abstract

In this paper, the problem of the coordination policy is investigated for vendor-managed consignment inventory supply chain subject to consumer return. Here, the market demand is assumed to be affected by promotional effort and consumer return policy. The optimal consignment inventory and the optimal promotional effort level are proposed under the decentralized and centralized decisions. Based on the optimal decision conditions, the markdown allowance-promotional cost-sharing contract is investigated to coordinate the supply chain. Subsequently, the comparison between the two extreme policies shows that full-refund policy dominates the no-return policy when the returning cost and the positive effect of return policy are satisfied certain conditions. Finally, a numerical example is provided to illustrate the impacts of consumer return policy on the coordination contract and optimal profit as well as the effectiveness of the proposed supply chain decision.