Mean-variance analysis of a single supplier and retailer supply chain under a returns policy

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)356-376
Journal / PublicationEuropean Journal of Operational Research
Issue number1
Online published2 Jan 2007
Publication statusPublished - 1 Jan 2008
Externally publishedYes


In the literature, most of the supply chain coordinating policies target at improving the supply chain's efficiency in terms of expected cost reduction or expected profit improvement. However, optimizing the expected performance alone cannot guarantee that the realized performance measure will fall within a small neighborhood of its expected value when the corresponding variance is high. Moreover, it ignores the risk aversion of supply chain members which may affect the achievability of channel coordination. As a result, we carry out in this paper a mean-variance (MV) analysis of supply chains under a returns policy. We first propose an MV formulation for a single supplier single retailer supply chain with a newsvendor type of product. The objective of each supply chain decision maker is to maximize the expected profit such that the standard deviation of profit is under the decision maker's control. We study both the cases with centralized and decentralized supply chains. We illustrate how a returns policy can be applied for managing the supply chains to address the issues such as channel coordination and risk control. Extensive numerical studies are conducted and managerial findings are proposed.

Research Area(s)

  • Mean-variance analysis, Returns policy, Supply chain management