Determining the optimal collection period for returned products in a stochastic environment

Abstract

As the customer centricity has become a norm for today's business practices, a growing number of firms adopted liberal product return policies. Such policies, however, can backfire due to their costly operations and unpredictability associated with product returns. To minimise the adverse impact of product returns on the firm's bottom line and enhance customer satisfaction with hassle-free handling of product returns processes, we develop and propose a mathematical model that determines the optimal collection period at an initial collection point (ICP) before transshipping the returned products to a centralised return centre (CRC) while taking into account the uncertain rate of returns for these products. To reflect the complexity and uncertainty of the product return processes, we formulate a general model for daily returns following a discrete probability distribution and analyse the case for Poisson distribution.