Managing Physical Inventory and Return Policies for Omnichannel Retailing
Abstract
As the retail industry increasingly adopts an omnichannel strategy amidst the growth of e-commerce, this study explores the interplay between inventory and return policies in such a setting. Specifically, we focus on "return losses," defined as the losses incurred by retailers due to customer product returns. We target how these return losses impact retailers' profits and physical inventories. While previous research has mainly concentrated on cross-channel returns, little attention has been paid to how omnichannel return policies affect store inventory and profit. We posit that profit-maximizing retailers allow consumers to select their purchase channels based on utility but require returns to follow specific policies. In this paper, we model four return policies based on the channel of return: original purchasing channel return, offline return, online return, and cross-channel return. We use a newsvendor model to construct an optimal profit function that accounts for the additional profit from offline return, uncertainty demand, and inventory cost. Our analysis identifies the conditions under which certain return policies are beneficial or detrimental to omnichannel retailers. We discover that the retailer's product pricing, return losses, and consumer return hassle costs are the main factors influencing the best return policy and inventory policy decisions. Moreover, whether to increase or decrease store inventory and the relationship between physical inventory and return loss depend on the return policy, price, and return hassle cost. Numerical simulations support our findings, which offer practical guidance for omnichannel retailers aiming to optimize their inventory and return policies.
Recommended Citation
B. Ma et al., "Managing Physical Inventory and Return Policies for Omnichannel Retailing," Computers and Industrial Engineering, vol. 190, article no. 109986, Elsevier, Apr 2024.
The definitive version is available at https://doi.org/10.1016/j.cie.2024.109986
Department(s)
Electrical and Computer Engineering
Keywords and Phrases
Omnichannel retailer; Optimization; Physical inventory; Profit maximizing; Return loss; Return policies
International Standard Serial Number (ISSN)
0360-8352
Document Type
Article - Journal
Document Version
Citation
File Type
text
Language(s)
English
Rights
© 2025 Elsevier, All rights reserved.
Publication Date
01 Apr 2024
Comments
National Natural Science Foundation of China, Grant 72071111