Integrated inventory model of returns-quantity discounts contract

In the traditional inventory problem, to secure demand risk a retailer often requests the right to return unsold goods, although this is associated with higher wholesale prices. Various studies have attempted to illustrate the returns scenario. However, these studies have focused on optimization fro...

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Bibliographic Details
Published in:The Journal of the Operational Research Society 2004-03, Vol.55 (3), p.240-246
Main Authors: Shi, C-S, Su, C-T
Format: Article
Language:English
Subjects:
Applied sciences
channel cooperation
Discounts
Distribution channels
Exact sciences and technology
Insurance premiums
Inventories
Inventory
Inventory control
Inventory control, production control. Distribution
Manufacturers
Manufacturing output
Modeling
Operational research and scientific management
Operational research. Management science
Order quantity
Pareto efficiency
Pareto optimum
Prices
Product returns
Production costs
Profit taking
Profits
Purchasing
Quantity discounts
Retail stores
returns policy
Studies
Theoretical Papers
Volume discount
Wholesale prices
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Summary:In the traditional inventory problem, to secure demand risk a retailer often requests the right to return unsold goods, although this is associated with higher wholesale prices. Various studies have attempted to illustrate the returns scenario. However, these studies have focused on optimization from the retailer's perspective only, and have thus ignored the fact that the manufacturer might have no incentive to accept returns. This study takes account of the self-interest of both the retailer and the manufacturer, and demonstrates that a quantity discount scheme should provide the manufacturer with incentive to accept returns. A three-stage theoretical model is developed and presented to illustrate the returns-quantity discounts contract, and demonstrates that the contract is self-enforcing. Furthermore, it is demonstrated that Pareto efficiency can be attained in the model. The scenarios are illustrated through a numerical example.
ISSN:0160-5682
1476-9360
DOI:10.1057/palgrave.jors.2601676