Service investment and consumer returns policy in a vendor-managed inventory supply chain

Abstract

This paper develops a game model of a vendor-managed inventory supply chain consisting of one manufacturer and one retailer to study the manufacturer's consumer returns policy and the retailer's store assistance service decision, and explore the effects of both supply chain decentralization and the service subsidy rate on the consumer returns policy. We find that when the consumer return is not allowed, the retailer would like to sell the products to only the consumers with low mismatching loss if the market scale is sufficiently low. Allowing consumer return decreases the retail price if the basic returns rate is sufficiently high and decreases the unit wholesale price if the subsidy rate of service investment is sufficiently high. Moreover, allowing consumer return decreases the service level but increases the subsidy rate. The expected loss of mismatching can reverse the effects of both the subsidy rate and the service cost factor on the returns policy; the manufacturer allows consumer return if the basic mismatching rate is not too high. In addition, we find that the store's returns handling cost increases the effect of supply chain decentralization on returns policy while the loss of mismatching for the high-type consumer decreases it.