Optimizing ordering, pricing and return strategies in an advanced sales inventory system with product screening

The surge in e-commerce has reshaped consumer shopping habits, necessitating advance order booking and adaptable return policies in the online retail business. This paper introduces an integrated inventory model that addresses inventory order quantity, return policy, and pricing decisions, with advance order booking and cancellations catering to the evolving e-commerce environment. Customers get the option to cancel their advance orders, as well as return the product within the designated return window, against the full refund policy. All returned products are screened, and defective products found are sold to third-party vendor at a discounted price. Order cancellations are assumed to decrease in waiting time, i.e., more cancellations are expected at the beginning of the advance booking period than towards the end. The study assumes that consumer demand varies with price, return window duration, and the proportion of defective products. A profit maximization model is developed to determine the optimal selling price, order cycle length and return window. A solution approach is suggested and illustrated through numerical analysis, providing practical insights for online retailers seeking to refine their inventory strategies.