This study considers a supply chain consisting of a manufacturer, a retailer, customers and a returnable and modular product with uncertain demand, in which customers return the unsatisfactory products to the retailer, and the retailer returns the unsold products to the manufacturer. We investigate the effects of the manufacturers refund for the retailers unsold products and the product modularity under the decentralised and the centralised strategies. We confirm that the order quantity and customers return probability both affect the optimal modularity level of the product, and that the optimal modularity level is related to the refund policy. Also, a strategic alliance between the supply chain members is more advantageous to product innovation based on modularity for a returnable chain. Finally, managerial insights and remarks are offered.
All Science Journal Classification (ASJC) codes