Coordinating a Supply Chain with Risk-Averse Agents under Demand and Consumer Returns Uncertainty

This paper examines the optimal order decision in a supply chain when it faces uncertain demand and uncertain consumer returns. We build consumer returns model with decision-makers’ risk preference under mean-variance objective framework and discuss supply chain coordination problem under wholesale-price-only policy and the manufacturer’s buyback policy, respectively. We find that, with wholesale price policy, the supply chain cannot be coordinated whether the supply chain agents are risk-neutral or risk-averse. However, with buyback policy, the supply chain can be coordinated and the profit of the supply chain can be arbitrarily allocated between the manufacturer and the retailer. Through numerical examples, we illustrate the impact of stochastic consumer returns and the supply chain agents’ risk attitude on the optimal order decision.