2006 Volume 57 Issue 4 Pages 303-313
The widespread use of the online retail market in recent years has resulted in the share of online sales by e-tailers increasing in the areas of industrial/commercial business. When using online sales, some goods that are delivered look different from pictures/descriptions in the catalog. Therefore, online sales tend to have a much higher return rate than brick-and-mortar sales. In a very short selling period, the returned goods can be in "like new" condition, so returns may be reused to satisfy a new order as a secondary supply channel. But this is only possible if the goods are available before the end of the selling period. Vlachos & Dekker discussed return handling options under a high return rate and an approach to determine the optimal initial order quantity for a single period product when the e-tailer independently deals with return processing operations. In this case, however, the return procedures by the e-tailer may not be smooth because of poor handling of returns, and it may follow that the e-tailer's costs related to various return processing operations is extremely high. In order to smooth the return processing operations and reduce the cost related to the return processing that e-tailers incur, outsourcing service agencies that handle return processing operations are being increasingly used by e-tailers. In this paper, we discuss a return processing operation based on the e-tailer using an outsourcing service agency and develop analytical expressions of this case to determine the optimal order quantities. In order to assess the utility of outsourcing service agency that handles returns, we compare the optimal order quantities and the expected profit obtained from an e-tailer that uses an outsourcing service agency with those obtained from the e-tailer's own through results of numerical examples.
