Research pick: Send it back - "Consumer returns processing in a multi-period setting"

At this time of year, shoppers are usually out in force or logging in to buy gifts. Within days, however, there will be the inevitable need to return those gifts that ever-so-ungrateful recipients reject. How a retailer handles returns and refunds will fundamentally affect its bottom line when it comes to profit. However, research published in the International Journal of Advanced Operations Management looks into the management of customers’ returned goods, how this affects the retail supply chain and ultimately profits, and how retailers might actually benefit from customers sending goods back.

Kamil Ciftci and Yertai Tanai of the Department of Information Systems and Decision Sciences, Craig School of Business, California State University, Fresno, California, and George R. Wilson of the Department of Industrial and Systems Engineering in the P.C. Rossin College of Engineering and Applied Science, at Lehigh University, Bethlehem, Pennsylvania, USA, have devised a framework that acts as a responsive reverse supply chain for retailers processing returned goods from customers.

The team explains that their proposal works under a competitive full-refund policy and allows the return of goods to be handled in such a way as to perhaps paradoxically maximise profits across the business. This is achieved as goods are returned and refunded at a lower price point and then re-sold at a greater margin. The researchers point out that delays in processing returns is detrimental to the retailer and so an expeditious means to process those returns is essential, hence their framework, if the company is to minimise losses and perhaps boost profits as wholesale prices shift upwards.

Of course, retailers are probably well aware of the effects of inflation on their profits and also the loss of value as new models to replace old products enter the market. However, if they purchase stock, sell it with their profit margin applied, the customer returns the product for a refund, and the retailer then resells at the price adjusted for subsequent inflation, then provided the new customer does not also return the goods, they will make more money. This would not apply if the new customer negotiates a discount or the goods are offered at a lower, sale price.

Ciftci, K., Tanai, Y. and Wilson, G.R. (2022) ‘Consumer returns processing in a multi-period setting’, Int. J. Advanced Operations Management, Vol. 14, No. 4, pp.430–455.