Managing the Reverse Channel with RFID-Enabled Negative Demand Information

We analyze the inventory decisions of a manufacturer who has ample production capacity and also uses returned products to satisfy customer demand. All returned items go through an evaluation process, at the end of which the decision of disposal, direct reselling, or rework is made for each unit acco...

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Bibliographic Details
Published in:Production and operations management 2007-09, Vol.16 (5), p.625-645
Main Authors: Karaer, Özgen, Lee, Hau L.
Format: Article
Language:English
Subjects:
Analysis
Comparative analysis
Consumers
Decision making models
Evaluation
Inventory
Inventory management
Manufacturers
Manufacturing
Product returns
Production capacity
Radio frequency identification
Radio frequency identification (RFID)
reverse channels
RFID
Studies
Supply chains
value of information
visibility
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Summary:We analyze the inventory decisions of a manufacturer who has ample production capacity and also uses returned products to satisfy customer demand. All returned items go through an evaluation process, at the end of which the decision of disposal, direct reselling, or rework is made for each unit according to a predetermined procedure. We quantify the value of information/visibility on the reverse channel for the manufacturer by making comparisons among three approaches: No information‐naive; no visibility‐enlightened; and full visibility. We find the value of visibility increases with the comparative length of the reverse channel and volume, volatility, and usability of returns. Furthermore, the smarter the manufacturer, the less benefit visibility brings to the system. By this analysis, we quantify the visibility savings of radio frequency identification (RFID) in the reverse channel as a candidate enabler technology. We also provide numerical examples to show that practical approximations in inventory management may have acceptable penalties to the manufacturer with visibility.
ISSN:1059-1478
1937-5956
DOI:10.1111/j.1937-5956.2007.tb00285.x