Financing decisions in a supply chain when considering product returns

Abstract

AbstractAs more and more products are sold, the management of product returns plays a significant role in firms' operational decisions. We consider a capital‐constrained newsvendor model to explore the impact of product returns on firms' operational and financial decisions, in which a capital‐constrained retailer can get financed from either banks or suppliers and refurbish returned products and resell them to customers. Our findings show that offering refurbishment for returned products can increase the retailer's order quantity and improve the capital‐constrained supply chain performance. Moreover, the supplier strategically designs the wholesale price to hinder the retailer refurbishing returned products although the retailer always chooses to provide refurbishment under trade credit. When only trade credit financing is available, there exists a Pareto improvement on both partners' profits under certain cases. In addition, we investigate the financing preferences of the supply chain and find that product returns have a significant influence on the unique financing equilibrium. Finally, we conduct numerical analyses to present the impacts of some key parameters on the performance of both supply chain members.