Title: Penalty and threshold optimisation of the retailer - vendor return contracts for contract re-negotiation in retail reverse supply chains

Authors: Mehmet Erdem Coskun; Elkafi Hassini

Addresses: DeGroote School of Business, McMaster University, 1280 Main Street W, Hamilton, ON L8S 4L8, Canada ' DeGroote School of Business, McMaster University, 1280 Main Street W, Hamilton, ON L8S 4L8, Canada

Abstract: In this paper, we consider a decentralised reverse supply chain constituting of multiple vendors and an independent retailer. The vendors offer the retailer return contracts with a multi-layered penalty structure deal. We focus on the strategic decision of developing optimal vendor re-negotiation contract parameters for the retailer. We model the problem as a mixed integer nonlinear program (MINLP) where the retailer decides on the vendor penalty fees and return thresholds simultaneously. We propose an efficient solution approach based on decomposing by decoupling the decision on penalty fees and return thresholds. The resulting problems are linear and we used them to provide rules for re-negotiation tactics for the retailer. We find that the retailer can save up to 7% from re-negotiation their contract terms. [Received: 16 June 2022; Accepted: 26 February 2023]

Keywords: retail; reverse supply chain; decentralised decision making; coordination; vendor contracts; buyback contracts; return contracts; contract terms; product returns; retail returns; returns management; multi-layered penalty structure; piece-wise linear; optimisation; rule-of-thumb.

DOI: 10.1504/EJIE.2024.138195

European Journal of Industrial Engineering, 2024 Vol.18 No.3, pp.303 - 333

Received: 16 Jun 2022
Accepted: 26 Feb 2023
Published online: 30 Apr 2024 *

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