Optimal Pricing and Ordering Strategies with a Flexible Return Strategy under Uncertainty

To coordinate the supply chain risk caused by demand uncertainty, this paper proposed a flexible return strategy under demand uncertainty, in which the retailer can choose return quantity independently by put option after the selling season, while the return quantity is usually determined by the supplier in the classical return strategy. In our novel return strategy, the exercise price is not fixed, and we developed the base model of this strategy, named the selective buyback contracts model. We have solved the optimal pricing and ordering strategies of supply chain members. Numerical studies demonstrated that the contracts can coordinate a supply chain with one retailer and one supplier, and the supplier can adjust the profit distribution of the supply chain by adjusting the option exercise price. Compared with other return strategies, the selective buyback contracts give the retailer more power of choice, and the supplier receives risk compensation from the put options.

Automated summary

This paper proposed a flexible return strategy under demand uncertainty, in which the retailer has the power to choose return quantity independently through selective buyback contracts, adjusting profit distribution within the supply chain. The numerical studies showed that this strategy can effectively coordinate a supply chain with one retailer and one supplier, giving the retailer more decision-making power and providing risk compensation to the supplier through put options.