Optimal Return Policy for e-Business

In a direct supply chain, the seller directly sells to the final customers eliminating the need of intermediaries. Customers like the convenience, but sacrifice the benefit of physical inspection of the product increasing the probability of dissatisfaction and the likelihood of return. Many Internet sellers have problems offering a clear return policy and ease of return. Basically, they design their supply chain more for the fulfillment rather that the reverse logistics. Much can be gained by the seller by way of increased sales, if they could offer an easy return policy. The trade-off here is in the increase in the cost. The profit function increases with the generosity of the return policy because the sales increases, but decreases as the cost increases. A model for obtaining the optimum return policy in conjunction with the optimum pricing policy giving the optimal strategy would be very useful. A profit-maximization model to obtain optimal return policy including price as a decision variable is presented in this paper. Managerial guidelines for making optimal decisions to influence market parameters are also developed