Supply Chain Coordination under Return Policy with Asymmetric Information about Cost of Reverse Logistics Operations

In this paper, we study return policy and supply chain coordination in a channel of one supplier and one retailer. The paper assumes that unsold merchandise should been refunded to the supplier by the retailer. The retailer knows the cost of reverse logistics operations but the supplier has to estimate it. The contract menu under asymmetric reverse logistics cost information between supply chain members was designed and discussed. The goal of the supplier’s contract is to coordinate the channel and then get more profit. The problem is analyzed as a Stackelberg game in which the supplier declares a contract menu with return price and wholesale price to the retailer and requires the retailer report the cost of reverse logistics. Then the retailer reports the cost and gets the corresponding contract. The optimal solutions of the contract menu are derived, and numerical examples are presented to illustrate the properties of the contract menu.