Managing customer returns effectively in the supply chain

Most retailers provide lenient returns policies as post-sale service, to retain loyal customers and ensure good shopping experiences. Product returns, however, are very costly to the retail industry. According to a recent report by the National Retail Federation, the average retail customer returns rate is 10.6% (similar in Canada), or $428 billion in the US in 2020. The returns rate online is even higher, as technology enables and the pandemic encourages the expansion of online shopping. Product returns affect not only sellers (who handle returns directly), but also manufacturers (designing and producing products) in the supply chain. Managing customer returns effectively and in coordination from the perspective of the whole supply chain is thus a systemic and critical issue. Most studies on customer returns have focused on sellers’ price and order quantity decisions under a returns policy, and the effects of single returns management actions, and have failed to consider returns management from the supply chain perspective. No study has as yet evaluated how (by what actions and mechanisms) sellers and manufacturers can most effectively manage customer returns, and no study has yet considered effective customer returns management from a supply chain perspective. Over the past 6 years with my NSERC funded explorations, I have identified significant gaps in the literature, to be addressed in the proposed research. I propose to elucidate: 1) how sellers can effectively manage customer returns, including through customization of returns policies by segmentation of the customer base using data analytics and machine learning techniques, through customization of store/channel services, and by improving the efficacy of online product reviews to better inform customers pre-purchase and thus decrease the rate of returns; 2) how to design incentives and mechanisms for the manufacturer to manage returns by improving product quality/fitness, and incentives and mechanisms to coordinate and integrate returns management up and down the supply chain, with impact on supply chain sustainability; 3) how to design an optimal whole-supply-chain coordinated returns policy. This research will lead to significant academic and practical outcomes. First, it will enrich theories on effective customer returns management from the perspective of the supply chain. Second, it will provide new insights into effective customer returns management for both sellers and supply chains, informing operations strategies and enabling sound decisions, ultimately to serve customers better and improve operational efficiency. Finally, the proposed research will provide equitable, inclusive, and accessible opportunities for undergraduate and graduate students of diverse backgrounds. Success in this research program can help Canadian companies to be competitive and sustainable in the global economy.