Supply Chain Coordination Based on Differentiated Buyback Contract in the Presence of Customer Returns

This study addresses the increasing frequency of customer returns and its impact on decision-making and profitability in a supply chain with a single supplier and retailer. It proposes a unique buyback contract that includes different prices for unsold and returned products. The focus is on decentralized decision-making models. The results indicate that the retailer’s order quantity and profit are positively correlated with the buyback prices and negatively correlated with the return rate. The supplier’s profit decreases as the buyback price for unsold products increases, but increases with a higher penalty factor. The optimal buyback price for returned products is set at the salvage value of the product to maximize profitability.