Abstract
False failure returns are products that are returned by consumers to retailers with no functional or cosmetic defect. The cost of a false failure return includes the processing actions of testing, refurbishing (if necessary), repackaging, the loss in value during the time the product spends in the reverse supply chain (a time that can exceed several months for many firms), and the loss in revenue because the product is sold at a discounted price. This cost is significant and is incurred primarily by the manufacturer. Reducing false failure returns, however, requires effort primarily from the retailer, for example informing consumers about the exact product that best fits their needs. We address the problem of reducing false failure returns via supply chain coordination methods. Specifically, we propose a target rebate contract that pays the retailer a specific dollar amount per each unit of false failure returns below a target. This target rebate provides an incentive to the retailer to increase her effort, thus decreasing the number of false failures and (potentially) increasing net sales. We show that this contract is Pareto improving in the majority of cases. Our results also indicate that the profit improvement to both parties, and the supply chain, is substantial.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 376-393 |
| Number of pages | 18 |
| Journal | Manufacturing and Service Operations Management |
| Volume | 8 |
| Issue number | 4 |
| DOIs | |
| State | Published - Oct 9 2006 |
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All Science Journal Classification (ASJC) codes
- Strategy and Management
- Management Science and Operations Research
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Supply chain coordination for false failure returns. / Ferguson, Mark; Guide, Jr., V. Daniel R.; Souza, Gilvan C.
In: Manufacturing and Service Operations Management, Vol. 8, No. 4, 09.10.2006, p. 376-393.Research output: Contribution to journal › Review article
TY - JOUR
T1 - Supply chain coordination for false failure returns
AU - Ferguson, Mark
AU - Guide, Jr., V. Daniel R.
AU - Souza, Gilvan C.
PY - 2006/10/9
Y1 - 2006/10/9
N2 - False failure returns are products that are returned by consumers to retailers with no functional or cosmetic defect. The cost of a false failure return includes the processing actions of testing, refurbishing (if necessary), repackaging, the loss in value during the time the product spends in the reverse supply chain (a time that can exceed several months for many firms), and the loss in revenue because the product is sold at a discounted price. This cost is significant and is incurred primarily by the manufacturer. Reducing false failure returns, however, requires effort primarily from the retailer, for example informing consumers about the exact product that best fits their needs. We address the problem of reducing false failure returns via supply chain coordination methods. Specifically, we propose a target rebate contract that pays the retailer a specific dollar amount per each unit of false failure returns below a target. This target rebate provides an incentive to the retailer to increase her effort, thus decreasing the number of false failures and (potentially) increasing net sales. We show that this contract is Pareto improving in the majority of cases. Our results also indicate that the profit improvement to both parties, and the supply chain, is substantial.
AB - False failure returns are products that are returned by consumers to retailers with no functional or cosmetic defect. The cost of a false failure return includes the processing actions of testing, refurbishing (if necessary), repackaging, the loss in value during the time the product spends in the reverse supply chain (a time that can exceed several months for many firms), and the loss in revenue because the product is sold at a discounted price. This cost is significant and is incurred primarily by the manufacturer. Reducing false failure returns, however, requires effort primarily from the retailer, for example informing consumers about the exact product that best fits their needs. We address the problem of reducing false failure returns via supply chain coordination methods. Specifically, we propose a target rebate contract that pays the retailer a specific dollar amount per each unit of false failure returns below a target. This target rebate provides an incentive to the retailer to increase her effort, thus decreasing the number of false failures and (potentially) increasing net sales. We show that this contract is Pareto improving in the majority of cases. Our results also indicate that the profit improvement to both parties, and the supply chain, is substantial.
UR - http://www.scopus.com/inward/record.url?scp=33749358580&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33749358580&partnerID=8YFLogxK
U2 - 10.1287/msom.1060.0112
DO - 10.1287/msom.1060.0112
M3 - Review article
VL - 8
SP - 376
EP - 393
JO - Manufacturing and Service Operations Management
JF - Manufacturing and Service Operations Management
SN - 1523-4614
IS - 4
ER -