TY - JOUR
T1 - On supply chain coordination for false failure returns
T2 - a quantity discount contract approach
AU - Huang, Ximin
AU - Choi, Sin Man
AU - Ching, Wai Ki
AU - Siu, Tak Kuen
AU - Huang, Min
PY - 2011/10/10
Y1 - 2011/10/10
N2 - A large proportion of consumer returns fall into the category of false failure returns, which refer to returns without functional defects. In this paper, we consider profits resulting from exerting costly effort to reduce false failure returns in a reverse supply chain. The supply chain as a whole has a strong incentive to reduce such returns for cost saving. However, retailers typically enjoy a full credit provided by suppliers for returns, so they may not have sufficient incentives to exert enough effort for supply chain profit maximization. In some scenarios retailers may even have the motivation to encourage such returns. We suggest using a coordination contract to resolve this profit conflict. We introduce a quantity discount contract which specifies a payment to the retailer with an amount exponentially decreasing in the number of returns. We present explicit forms of such contracts given different assumptions about the distribution of the number of returns. We also prove that the contract is Pareto improving. Besides, it is shown that when the contract is applied in a closed-loop supply chain, it can deter retailer's potential incentive to encourage returns. Moreover, some modifications of the contract can lead to easy allocation of supply chain profit.
AB - A large proportion of consumer returns fall into the category of false failure returns, which refer to returns without functional defects. In this paper, we consider profits resulting from exerting costly effort to reduce false failure returns in a reverse supply chain. The supply chain as a whole has a strong incentive to reduce such returns for cost saving. However, retailers typically enjoy a full credit provided by suppliers for returns, so they may not have sufficient incentives to exert enough effort for supply chain profit maximization. In some scenarios retailers may even have the motivation to encourage such returns. We suggest using a coordination contract to resolve this profit conflict. We introduce a quantity discount contract which specifies a payment to the retailer with an amount exponentially decreasing in the number of returns. We present explicit forms of such contracts given different assumptions about the distribution of the number of returns. We also prove that the contract is Pareto improving. Besides, it is shown that when the contract is applied in a closed-loop supply chain, it can deter retailer's potential incentive to encourage returns. Moreover, some modifications of the contract can lead to easy allocation of supply chain profit.
UR - http://www.scopus.com/inward/record.url?scp=80051544818&partnerID=8YFLogxK
U2 - 10.1016/j.ijpe.2011.04.031
DO - 10.1016/j.ijpe.2011.04.031
M3 - Article
AN - SCOPUS:80051544818
SN - 0925-5273
VL - 133
SP - 634
EP - 644
JO - International Journal of Production Economics
JF - International Journal of Production Economics
IS - 2
ER -