A profit maximization for a reverse logistics dual-channel supply chain with a return policy

- Develops a two-level dual-channel supply chain with online customization and returns.
- Pricing, production/ordered quantity, and number of shipments are decision variable.
- The effect of different return policies on the optimal decisions is considered.
- The dual-channel strategy outperforms the single-channel strategy.
- Extensive analysis was performed with managerial insights and findings provided.

In the last few decades, the rapid development of e-commerce technologies has encouraged many manufacturers to adopt an online channel in addition to their existing traditional retail channel, which resulted in redesigning their supply chain channel structure. Additionally, an increasing number of manufacturers nowadays offer a return policy to attract more customers and to stay competitive. This paper studies a supply chain system, which is comprised of production, refurbishing, collection, and waste disposal processes. A return policy in which customers can return the purchased item for a refund is also considered. Two selling strategies, a single-channel strategy (i.e., a retail channel) and a dual-channel (i.e., a retail channel and an online channel) strategy are discussed from which mathematical models are developed. The purpose is to examine the effect of different return policies on the behavior of SC systems before and after adopting the dual-channel. In both strategies, the paper analyzes the change in the profit, the pricing and inventory decisions. Numerical examples and sensitivity analyses are provided with their results discussed. The findings of this paper demonstrate that in both strategies, the more generous the return policy is, the higher the demand, the selling prices and the overall profit. The findings also indicate that adopting a dual-channel strategy is more profitable to the supply chain.