Supply Chain Coordination Under Consideration Of Risk Aversion Customer Returns

Customer returns is a common business phenomenon in recent years, with the rapid development of e-commerce and online shopping, customer returns has become the most common type of enterprise reverse logistics. Return policy reduces the risk of the customer choice errors caused by mismatch,improve the confidence of the customers to buy, and stimulate customers’demand, but companies have to bear the costs generated by the loss of profits and processing returns. Thus, in the enterprise supply chain management, how to develop a reasonable return policy, so as to achieve optimal overall supply chain performance becomes a very important problem for enterprises.On the other hand, traditional supply chain management research lays its foundation on risk-neutral decision-maker, and its decision-making goal is to maximize the expected profits. However, decision-maker in reality not only concerns about the maximization of the expected profits, but also concerns about the possibility of realization of expected profits, as well as the various risks faced. Therefore, with customer returns and risk aversion decision-maker we study the effcet of customer returns and decision-maker’ risk aversion attitude on the performance of the supply chain, as well as the coordination of the supply chain.Firstly, we study the effects of customer returns on supply chain coordination mechanism. Under customer returns, we establish a model of centralized decision-making and decentralized decision-making under the wholesale price contract model and buy-back contract model, and compared them with these do not consider customer returns. Our study shows that:when considering customer returns, decision-maker’s optimal order quantity will be reduced, manufacturer’s wholesale price will be smaller when the order quantity is fixed.The wholesale price contract can not achieve the coordination of the supply chain. But under some certain conditions,the buy-back contract can coordinate the supply chain.On this basis, we explore the coordination of the supply chain based on random demand and risk aversion with customer returns. We use CVaR-a frequently-used risk measure in finance,to measure retailer’s utility, and establish the wholesale price contract model and the buy-back contract model. Our study shows that:risk-aversion retailer’s optimal order quantity is smaller than that when the retailer is risk-neutral, and it decreases with the increse of severity of risk aversion and customer return rate.Buy-back contract can coordinate the supply chain under certain conditions, it makes profits pareto improvement for the retailer and manufacturer.When the manufacturer does not know retailer’s risk aversion, his expected profit will be declined, reflecting the value of the information. Subsequently, to further explore the customer returns to consider the demand dependent on price and risk aversion supply chain coordination. Under the risk neutral centralized supply chain model,we discuss the existence and uniqueness of the decision-maker’s policy under the condition when the markets demand is identified and the markets demand relys on selling price. Under the centralized supply chain model based on the CVaR criteria, we explore the optimal pricing and production strategy of the decision-maker, study the marginal cost and risk aversion of the decision-maker on the impact of the decision variables. In addition, we establish a two level decentralized supply chain model composed by the risk-neutral manufacturer and risk aversion retailers in the wholesale price contracts and buy-back contract, and then we use numerical examples to test our models.