The Effectiveness of Returns Policy on the Performance of Newsvendor Supply Chain under Retailer Risk Constraints

Abstract

This paper analyzes the coordination of returns policy for single-period supply chain under supplier and retailer, the later has been constrained by downside risk. We model the decision problem with newsboy model and then analytically derive the optimal policies of the supply chain. Compared with the case of no risk constraints, the study has shown that the expected profits of both members of supply chain have been reduced under the control of the returns policy. Accordingly, the "least risk sharing" is optimal choice for both parties. We close with a discussion of contract implementation issues and future research.