Supply Chain Coordination Using Returns Policy with Sales Rebate and Penalty under Effort and Price Dependent Demand

A supply chain is two or more parties linked by a flow of goods, information, and funds. When one or more parties of the supply chain try to optimize their own profits, system performance may be hurt. In the standard newsvendor setting, both the returns policy and the sales rebate and penalty (SRP) are coordination contracts that provide incentives to all of the supply chain´s members so that the decentralized supply chain behaves nearly or exactly the same as the integrated one. When demand is influenced by the retail price and retailer sales effort, each of the returns policy and the SRP contract no longer coordinates on its own. To solve this problem, we employ a new model combined the returns policy with the SRP contract. By analyzing we find that a properly designed returns policy with SRP achieves coordination and a win-win outcome.