Supply chain coordination for false failure returns

Mark Ferguson, V. Daniel R. Guide, Jr., Gilvan C. Souza

Research output: Contribution to journalReview article

133 Citations (Scopus)

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 languageEnglish (US)
Pages (from-to)376-393
Number of pages18
JournalManufacturing and Service Operations Management
Volume8
Issue number4
DOIs
StatePublished - Oct 9 2006

Fingerprint

Supply chain coordination
Retailers
Costs
Rebates
Supply chain
Reverse supply chain
Pareto
Incentives
Revenue
Profit
Testing
Defects

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research

Cite this

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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 journalReview article

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