Return window decision for modular mass customization products in a two-echelon returnable supply chain

This paper considers a two-echelon returnable supply chain in which a manufacturer sells modular mass customization (MC) products via a retailer to rapidly satisfy the individual needs of consumers. The retailer offers consumers full refund when the unsuitable MC products are returned within a certain return window, and meanwhile the manufacturer provides the retailer with two return polices: no return and full return with partial or full refund. We explore how the manufacturer’s modular design and return policy affect the retailer’s optimal return window. With a wholesale price contract, we also compare the return window and consumer welfare between different supply chain systems. To the best of our knowledge, this is the first paper to study the return window for customized products. Findings show that as the modularity level increases, the return window tends towards the upper bound, which implies that modular design enables MC firms to lengthen return window. Compared to the centralized system, the decentralized system can offer a longer return window, but it fails in generating greater consumer welfare due to high retail price and low modularity level. This suggests that the resale channel may be better for the speculative consumers who just want to experience the customized products, whereas the direct sales channel may be better for the personalized consumers who seek better customized services. We also extend the model to the retailer’s partial refund policy to check the robustness, and apply a two-part tariff contract to coordinate the decentralized system. Numerical experiments verify the theoretical results.