Impact of secondary market on consumer return policies and supply chain coordination

Natalie Huang, Jia Wen Gu, Wai Ki Ching, Tak Kuen Siu

Research output: Contribution to journalArticle

43 Citations (Scopus)

Abstract

In this paper, we develop a unified model to study the inventory management problem of a product and the coordination of the associated supply chain consisting of a single supplier and considerably many retailers in the presence of a secondary market. Specifically, consumer returns are allowed in the initial sales. Then, we introduce a secondary market to salvage the returns and the leftovers from the initial sales. In this secondary market, a discount price will be offered to the consumers but no returns are accepted. Moreover, between the primary and the secondary market, there is an internal market where retailers can trade among themselves so that they are able to adjust their inventory levels to prepare for the sales in the secondary market. We study the retailers' and the supply chain's inventory decision in this case and highlight the impact of the secondary market on the sales as well as on the supply chain coordination contracts. We conclude that the secondary market helps us to increase the total wholesale volume. Numerical examples show that the total sales profit is also increased. However, the secondary market aggravates the incentive conflict between the retailers and the supply chain on deciding the optimal inventory levels and hence requires the supplier to offer more generous buyback or sales rebate contracts for coordination of the supply chain. Finally, we extend our analysis to more general cases and also show that our results are robust to some of the modeling assumptions.

Original languageEnglish (US)
Pages (from-to)57-70
Number of pages14
JournalOmega (United Kingdom)
Volume45
DOIs
StatePublished - Jun 1 2014

Fingerprint

Secondary market
Supply chain coordination
Return policy
Supply chain
Retailers
Suppliers
Modeling
Internal market
Buyback
Rebates
Incentive conflict
Price discount
Profit
Inventory management

Keywords

  • Consumer returns
  • Secondary market
  • Supply chain
  • Supply contracts

Cite this

Impact of secondary market on consumer return policies and supply chain coordination. / Huang, Natalie; Gu, Jia Wen; Ching, Wai Ki; Siu, Tak Kuen.

In: Omega (United Kingdom), Vol. 45, 01.06.2014, p. 57-70.

Research output: Contribution to journalArticle

Huang, Natalie ; Gu, Jia Wen ; Ching, Wai Ki ; Siu, Tak Kuen. / Impact of secondary market on consumer return policies and supply chain coordination. In: Omega (United Kingdom). 2014 ; Vol. 45. pp. 57-70.
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