Decision and Coordination in the Dual-Channel Supply Chain Considering the Risk-Averse and Customer Returns

Abstract

The biggest disadvantage of online shopping is that it is impossible to accurately assess the suitability of goods prior to purchase. Customers usually check “fit” at home, and thus one third of internet sales are returned. We study the pricing and ordering of a dual-channel supply chain which composed of risk-neutral manufacturers and risk-averse retailers serving customers who differ in how they purchase products in store or online. Customers may return misfit products either to stores for a full refund or online as per the retailer’s return policy. At the beginning of the sale season, channels order from manufacturers and set prices to be identical across channels. According to the criterion of conditional value at risk (CVaR), we express the problem as a Stackelberg game model and obtain the equilibrium solution under the conditions of decentralization and centralization. Further, we explore the impact of the retailer’s risk indicator and consumer returns rate on the optimal retail price, the ordering quantities, the profits of dual channels, and the overall profits of the supply chain. We find that dual-channel supply should reduce the risk aversion level of retailers and consumer return rate. Finally, the improved risk-sharing contract is proposed to coordinate the dual-channel supply chain in the presence of customer returns and risk-averse, and it is proved that the contract can achieve Pareto improvement of supply chain members.