Can collaborative buffering strategies reduce distribution costs while improving product returns?: A case of an Asian e-retailer

In order to achieve competitive advantage over the physical marketplace, the e-retailers are insisted on endowing with lenient return policies. The piece-wise returns-and-reordering process incurs excessive buffering and unwanted logistics costs which raises overall fulfillment charges. The objective of this study is to re-design e-retail distribution policy by providing temporal storage at logistics service provides' (LSP) location. The impact of recurrent returns on pricing and profit margins are also investigated over time continuum.

A framework is developed to reduce the non-value added (NVA) storage and distribution efforts by providing collaborative buffering between LSP and e-retailer. The knapsack based buffering approach is tested and compared with traditional e-retail distribution practices. The revenue sharing concept is mathematically modelled and implemented in GAMS, which finally validated through multiple return scenarios.

The proposed model outperforms the existing one under all scenarios with different configuration settings of re-ordering, profit margins, and buffer time windows. The distribution cost is found, linearly related to the necessary product buffering space. The findings help to re-design sustainable return policies for individual products so that maximum customer value can be yield with minimum costs.

This study helps to determine the NVA efforts incurred while storing and delivering multi-time returned products to ensure desired service levels. The revenue sharing model provides pricing strategies for e-retail practitioners deciding which product should store in what quantity for how much time at the shipping agency location so that it fulfils the re-ordering at least waiting and sufficient buffering.

The proposed model extends the role of LPSs as temporary buffer providers to reduce returns-and-reordering fulfilment efforts in the e-retail network. This Collaborative framework offers an opportunity to amend the distribution contracts and policies time by time that enhances e-retailer's performance and customer satisfaction.