Optimizing Dual-Channel Retail Strategies: The Impact of Return Re-Salability on Inventory and Contractual Decisions

Author(s):

  • Mohannad Radhi1 (Department of Industrial Engineering, King Abdulaziz University, Saudi Arabia)

Abstract:
This research investigates a dual-channel retailer (DCR) operating both a physical store and an online store, where customers can return unwanted products for full refunds. By incorporating the re-salability of returned items into the analysis, this study expands the existing literature on dual-channel retailing. Focusing on the retailer’s strategy of delegating online store operations to a third-party logistics and service provider, we re-explore three contractual strategies: transaction-based fee, fixed-based fee, and gain-sharing. For each strategy, we determine the optimal inventory levels and, where applicable, the optimal fixed-fee. The primary purpose of this study is to compare decision-making outcomes with and without return re-salability, and to analyze how these decisions shift when re-salability is considered, using a combination of analytical and numerical methods. Through analytical analysis, it is found that when the retailer faces high logistical or purchasing costs, an online store may order more in a re-salable system than in a non-re-salable one. This underscores the importance of not assuming that order quantities are always lower in re-salable systems.

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