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April  2015, 11(2): 439-459. doi: 10.3934/jimo.2015.11.439

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

1. 

School of Management Science and Engineering, Nanjing University, Hankou Road 22, Nanjing, Jiangsu 210093, China

Received  October 2013 Revised  April 2014 Published  September 2014

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.
Citation: Jing Shi, Tiaojun Xiao. Service investment and consumer returns policy in a vendor-managed inventory supply chain. Journal of Industrial and Management Optimization, 2015, 11 (2) : 439-459. doi: 10.3934/jimo.2015.11.439
References:
[1]

Y. Che, Customer return policies for experience goods, The Journal of Industrial Economics, 44 (1996), 17-24. doi: 10.2307/2950557.

[2]

W. Y. K.Chiang, D. Chhajed and J. D. Hess, Direct marketing, indirect profits: A strategic analysis of dual-channel supply chain design, Management Science, 49 (2003), 1-20. doi: 10.1287/mnsc.49.1.1.12749.

[3]

T. M. Choi, D. Li and H. M. Yan, Mean-variance analysis of a single supplier and retailer supply chain under a returns policy, European Journal of Operational Research, 184 (2008), 356-376. doi: 10.1016/j.ejor.2006.10.051.

[4]

S. Chopra and P. Meindl, Supply Chain Management: Strategy, Planning, and Operation, Prentice-Hall, Upper Saddle River, N.J, 2001.

[5]

J. Cronin and S. Taylor, Measuring service quality: A reexamination and extension, Journal of Marketing, 56 (1992), 55-68. doi: 10.2307/1252296.

[6]

S. Davis, E. Gerstner and M. Hagerty, Money back guarantees in retailing: Matching products to consumer tastes, Journal of Retailing, 71 (1995), 7-22. doi: 10.1016/0022-4359(95)90010-1.

[7]

S. K. De and S. S. Sana, Backlogging EOQ Model for Promotional Effort and Selling Price Sensitive Demand-An Intuitionistic Fuzzy Approach, Annals of Operations Research, 2013. doi: 10.1007/s10479-013-1476-3.

[8]

C. Ding, K. Wang and S. Lai, Channel coordination mechanism with retailers having fairness preference: An improved quantity discount mechanism, Journal of Industrial and Management Optimization, 9 (2013), 967-982. doi: 10.3934/jimo.2013.9.967.

[9]

M. Ferguson, Jr., V. D. R. Guide and G. C. Souza, Supply chain coordination for false failure returns, Manufacturing & Service Operations Management, 8 (2006), 376-393. doi: 10.1287/msom.1060.0112.

[10]

G. Fullerton, The service quality-loyalty relationship in retail services: Does commitment matter?, Journal of Retailing and Consumer Services, 12 (2005), 99-111. doi: 10.1016/j.jretconser.2004.04.001.

[11]

K. Govindan, Vendor-managed inventory: A review based on dimensions, International Journal of Production Research, 51 (2013), 3808-3835. doi: 10.1080/00207543.2012.751511.

[12]

J. L. Heskett, T. O. Jones, G. W. Loveman, W. E. Sasser and L. A. Schlesinger, Putting the service-profit chain to work, Harvard Business Review, 86 (2008), 118-129. doi: 10.1037/e459772008-014.

[13]

S. Huang, C. Yang and H. Liu, Pricing and production decisions in a dual-channel supply chain when production costs are disrupted, Economic Modeling, 30 (2013), 521-538. doi: 10.1016/j.econmod.2012.10.009.

[14]

J. Kauremaa, J. Småros and J. Holmström, Patterns of vendor-managed inventory: Findings from a multiple-case study, International Journal of Operations & Production Management, 29 (2009), 1109-1139. doi: 10.1108/01443570911000159.

[15]

M. E. Ketzenberg and R. A. Zuidwijk, Optimal pricing, ordering, and return policies for consumer goods, Production and Operations Management, 18 (2009), 344-360. doi: 10.1111/j.1937-5956.2009.01017.x.

[16]

C. H. Lee and B. D. Rhee, Channel coordination using product returns for a supply chain with stochastic salvage capacity, European Journal of Operational Research, 177 (2007), 214-238. doi: 10.1016/j.ejor.2005.10.044.

[17]

A. Mägi and C. R. Julander, Perceived service quality and customer satisfaction in a store performance framework: An empirical study of Swedish grocery retailers, Journal of Retailing and Consumer Services, 3 (1996), 33-41. doi: 10.1016/0969-6989(95)00040-2.

[18]

E. Ofek, Z. Katona and M. Sarvary, Bricks and clicks: The impact of product returns on the strategies of multi channel retailers, Marketing Science, 30 (2011), 42-60. doi: 10.1287/mksc.1100.0588.

[19]

A. Parasuraman, V. A. Zeithaml and L. L. Berry, SERVQUAL: A multiple-item scale for measuring consumer perceptions of service quality, Journal of Retailing, 64 (1988), 12-40.

[20]

R. Ramanathan, An empirical analysis on the influence of risk on relationships between handling of product returns and customer loyalty in E-commerce, International Journal of Production Economics, 130 (2011), 255-261. doi: 10.1016/j.ijpe.2011.01.005.

[21]

S. S. Sana, An EOQ model of homogenous products while demand is salesmen's initiatives and stock sensitive, Computers and Mathematics with Applications, 62 (2011), 577-587. doi: 10.1016/j.camwa.2011.05.032.

[22]

S. S. Sana, Optimal contract strategies for two stage supply chain, Economic Modeling, 30 (2013), 253-260. doi: 10.1016/j.econmod.2012.09.011.

[23]

J. B. Shah, ST, HP VMI program hitting its stride, Electronics Business News (EBN), 1309 (2002), 42-43.

[24]

J. D. Shulman, A. T. Coughlan and R. C. Savaskan, Managing consumer returns in a competitive environment, Management Science, 57 (2011), 347-362. doi: 10.1287/mnsc.1100.1274.

[25]

D. Simchi-Levi, P. Kaminsky and E. Simchi-Levi, Designing and Managing the Supply Chain, McGraw-Hill, New York, N.Y, 2003.

[26]

J. Stock, T. Spek and H. Shear, Managing product returns for competitive advantage, MIT Sloan Management Review, 48 (2006), 57-62.

[27]

X. Su, Consumer returns policies and supply chain performance, Manufacturing & Service Operations Management, 11 (2009), 595-612. doi: 10.1287/msom.1080.0240.

[28]

T. A. Taylor, Supply chain coordination under channel rebates with sales effort effects, Management Science, 48 (2002), 992-1007. doi: 10.1287/mnsc.48.8.992.168.

[29]

C. S. Tsou, H. H. Fang, H. C. Lo and C. H. Huangm, A study of cooperative advertising in a manufacturer-retailer supply chain, International Journal of Information and Management Sciences, 20 (2009), 15-26.

[30]

J. Tyan and H. M. Wee, Vendor managed inventory: A survey of the Taiwanese grocery industry, Journal of Purchasing and Supply Management, 9 (2003), 11-18. doi: 10.1016/S0969-7012(02)00032-1.

[31]

M. Waller, M. E. Johnson and T. Davis, Vendor-managed inventory in the retail supply chain, Journal of Business Logistics, 20 (1999), 183-203.

[32]

Y. Wang and Y. Gerchak, Supply chain coordination when demand is shelf-space dependent, Manufacturing & Service Operations Management, 3 (2001), 82-87. doi: 10.1287/msom.3.1.82.9998.

[33]

B. Wernerfelt, On the function of sales assistance, Marketing Science, 13 (1994), 68-82. doi: 10.1287/mksc.13.1.68.

[34]

T. J. Xiao, K. R. Shi and D. Q. Yang, Coordination of a supply chain with consumer return under demand uncertainty, International Journal of Production Economics, 124 (2010), 171-180. doi: 10.1016/j.ijpe.2009.10.021.

[35]

T. J. Xiao, G. Yu, Z. H. Sheng and Y. S. Xia, Coordination of a supply chain with one-manufacturer and two-retailers under demand promotion and disruption management decisions, Annals of Operations Research, 135 (2005), 87-109. doi: 10.1007/s10479-005-6236-6.

[36]

V. Zeithaml, L. Berry and A. Parasuraman, The behavioral consequences of service quality, Journal of Marketing, 60 (1996), 31-46. doi: 10.2307/1251929.

show all references

References:
[1]

Y. Che, Customer return policies for experience goods, The Journal of Industrial Economics, 44 (1996), 17-24. doi: 10.2307/2950557.

[2]

W. Y. K.Chiang, D. Chhajed and J. D. Hess, Direct marketing, indirect profits: A strategic analysis of dual-channel supply chain design, Management Science, 49 (2003), 1-20. doi: 10.1287/mnsc.49.1.1.12749.

[3]

T. M. Choi, D. Li and H. M. Yan, Mean-variance analysis of a single supplier and retailer supply chain under a returns policy, European Journal of Operational Research, 184 (2008), 356-376. doi: 10.1016/j.ejor.2006.10.051.

[4]

S. Chopra and P. Meindl, Supply Chain Management: Strategy, Planning, and Operation, Prentice-Hall, Upper Saddle River, N.J, 2001.

[5]

J. Cronin and S. Taylor, Measuring service quality: A reexamination and extension, Journal of Marketing, 56 (1992), 55-68. doi: 10.2307/1252296.

[6]

S. Davis, E. Gerstner and M. Hagerty, Money back guarantees in retailing: Matching products to consumer tastes, Journal of Retailing, 71 (1995), 7-22. doi: 10.1016/0022-4359(95)90010-1.

[7]

S. K. De and S. S. Sana, Backlogging EOQ Model for Promotional Effort and Selling Price Sensitive Demand-An Intuitionistic Fuzzy Approach, Annals of Operations Research, 2013. doi: 10.1007/s10479-013-1476-3.

[8]

C. Ding, K. Wang and S. Lai, Channel coordination mechanism with retailers having fairness preference: An improved quantity discount mechanism, Journal of Industrial and Management Optimization, 9 (2013), 967-982. doi: 10.3934/jimo.2013.9.967.

[9]

M. Ferguson, Jr., V. D. R. Guide and G. C. Souza, Supply chain coordination for false failure returns, Manufacturing & Service Operations Management, 8 (2006), 376-393. doi: 10.1287/msom.1060.0112.

[10]

G. Fullerton, The service quality-loyalty relationship in retail services: Does commitment matter?, Journal of Retailing and Consumer Services, 12 (2005), 99-111. doi: 10.1016/j.jretconser.2004.04.001.

[11]

K. Govindan, Vendor-managed inventory: A review based on dimensions, International Journal of Production Research, 51 (2013), 3808-3835. doi: 10.1080/00207543.2012.751511.

[12]

J. L. Heskett, T. O. Jones, G. W. Loveman, W. E. Sasser and L. A. Schlesinger, Putting the service-profit chain to work, Harvard Business Review, 86 (2008), 118-129. doi: 10.1037/e459772008-014.

[13]

S. Huang, C. Yang and H. Liu, Pricing and production decisions in a dual-channel supply chain when production costs are disrupted, Economic Modeling, 30 (2013), 521-538. doi: 10.1016/j.econmod.2012.10.009.

[14]

J. Kauremaa, J. Småros and J. Holmström, Patterns of vendor-managed inventory: Findings from a multiple-case study, International Journal of Operations & Production Management, 29 (2009), 1109-1139. doi: 10.1108/01443570911000159.

[15]

M. E. Ketzenberg and R. A. Zuidwijk, Optimal pricing, ordering, and return policies for consumer goods, Production and Operations Management, 18 (2009), 344-360. doi: 10.1111/j.1937-5956.2009.01017.x.

[16]

C. H. Lee and B. D. Rhee, Channel coordination using product returns for a supply chain with stochastic salvage capacity, European Journal of Operational Research, 177 (2007), 214-238. doi: 10.1016/j.ejor.2005.10.044.

[17]

A. Mägi and C. R. Julander, Perceived service quality and customer satisfaction in a store performance framework: An empirical study of Swedish grocery retailers, Journal of Retailing and Consumer Services, 3 (1996), 33-41. doi: 10.1016/0969-6989(95)00040-2.

[18]

E. Ofek, Z. Katona and M. Sarvary, Bricks and clicks: The impact of product returns on the strategies of multi channel retailers, Marketing Science, 30 (2011), 42-60. doi: 10.1287/mksc.1100.0588.

[19]

A. Parasuraman, V. A. Zeithaml and L. L. Berry, SERVQUAL: A multiple-item scale for measuring consumer perceptions of service quality, Journal of Retailing, 64 (1988), 12-40.

[20]

R. Ramanathan, An empirical analysis on the influence of risk on relationships between handling of product returns and customer loyalty in E-commerce, International Journal of Production Economics, 130 (2011), 255-261. doi: 10.1016/j.ijpe.2011.01.005.

[21]

S. S. Sana, An EOQ model of homogenous products while demand is salesmen's initiatives and stock sensitive, Computers and Mathematics with Applications, 62 (2011), 577-587. doi: 10.1016/j.camwa.2011.05.032.

[22]

S. S. Sana, Optimal contract strategies for two stage supply chain, Economic Modeling, 30 (2013), 253-260. doi: 10.1016/j.econmod.2012.09.011.

[23]

J. B. Shah, ST, HP VMI program hitting its stride, Electronics Business News (EBN), 1309 (2002), 42-43.

[24]

J. D. Shulman, A. T. Coughlan and R. C. Savaskan, Managing consumer returns in a competitive environment, Management Science, 57 (2011), 347-362. doi: 10.1287/mnsc.1100.1274.

[25]

D. Simchi-Levi, P. Kaminsky and E. Simchi-Levi, Designing and Managing the Supply Chain, McGraw-Hill, New York, N.Y, 2003.

[26]

J. Stock, T. Spek and H. Shear, Managing product returns for competitive advantage, MIT Sloan Management Review, 48 (2006), 57-62.

[27]

X. Su, Consumer returns policies and supply chain performance, Manufacturing & Service Operations Management, 11 (2009), 595-612. doi: 10.1287/msom.1080.0240.

[28]

T. A. Taylor, Supply chain coordination under channel rebates with sales effort effects, Management Science, 48 (2002), 992-1007. doi: 10.1287/mnsc.48.8.992.168.

[29]

C. S. Tsou, H. H. Fang, H. C. Lo and C. H. Huangm, A study of cooperative advertising in a manufacturer-retailer supply chain, International Journal of Information and Management Sciences, 20 (2009), 15-26.

[30]

J. Tyan and H. M. Wee, Vendor managed inventory: A survey of the Taiwanese grocery industry, Journal of Purchasing and Supply Management, 9 (2003), 11-18. doi: 10.1016/S0969-7012(02)00032-1.

[31]

M. Waller, M. E. Johnson and T. Davis, Vendor-managed inventory in the retail supply chain, Journal of Business Logistics, 20 (1999), 183-203.

[32]

Y. Wang and Y. Gerchak, Supply chain coordination when demand is shelf-space dependent, Manufacturing & Service Operations Management, 3 (2001), 82-87. doi: 10.1287/msom.3.1.82.9998.

[33]

B. Wernerfelt, On the function of sales assistance, Marketing Science, 13 (1994), 68-82. doi: 10.1287/mksc.13.1.68.

[34]

T. J. Xiao, K. R. Shi and D. Q. Yang, Coordination of a supply chain with consumer return under demand uncertainty, International Journal of Production Economics, 124 (2010), 171-180. doi: 10.1016/j.ijpe.2009.10.021.

[35]

T. J. Xiao, G. Yu, Z. H. Sheng and Y. S. Xia, Coordination of a supply chain with one-manufacturer and two-retailers under demand promotion and disruption management decisions, Annals of Operations Research, 135 (2005), 87-109. doi: 10.1007/s10479-005-6236-6.

[36]

V. Zeithaml, L. Berry and A. Parasuraman, The behavioral consequences of service quality, Journal of Marketing, 60 (1996), 31-46. doi: 10.2307/1251929.

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