| Abstract: | We develop a newsvendor model to study the retailer's order quantity, the manufacturer's returns handling strategy, and channel coordination. The manufacturer chooses one of two returns handling strategies: manufacturer handling or retailer handling under the coordinated and decentralized scenarios, respectively. Under the coordinated scenario, we find that when consumer's returns handling cost under manufacturer handling or the manufacturer's returns handling cost is small, consumer returns should be handled by the manufacturer. Under the decentralized scenario, when the retailer's returns handling cost or the consumer's returns handling cost under retailer handling is low, the manufacturer will choose manufacturer handling; both the manufacturer and the retailer may be better off using manufacturer handling (a win–win situation). The impact of the returns handling strategy on the retailer's ordering quantity largely depends on its effect on the consumer's returns handling cost. Finally, we also design buyback contracts to coordinate the supply chain and find that both wholesale price and buyback price under manufacturer handling are higher than those under retailer handling. |
