Mitigating Consumer Returns through Omnichannel Retail Operations: An EOQ Model under Stochastic Demand

Abstract

In today’s online retail landscape, product returns have become a significant issue. Now, controlling inventory while accounting these returns is essential, as it helps a retailer to manage stocking decisions effectively. Keeping this in mind, this study develops an economic order quantity inventory system for an omnichannel retailer, who operates both an online channel as well as an offline (brick-and-mortar) store. In this omnichannel setup, the retailer implements a buy-online-return-in-store strategy to manage returns. The proposed inventory systems have been analysed in deterministic and stochastic environments. The findings of this study reveal that as the retailer shifts to the omnichannel mode, the order quantity is higher than the quantity in the only-online mode. However, when the return rate increases then the order quantities are reduced in both modes. Examining the omnichannel profitability in different scenarios, it is found that when the same price option is chosen, omnichannel remains profitable with a high return rate only. Conversely, for the case of higher price in offline channel, the omnichannel outperforms the only online mode on every possible return outcome. This study provides important insights into the allocation of market share between online and offline channels. A high offline market share with a high return rate always results in higher profit in an omnichannel mode. Additionally, it is observed that under high online demand, the offline store can effectively function as a return center.

Keywords

Omnichannel retailing / product return / buy-online-return-in-store / online and offline retailing / EOQ inventory / stochastic demand

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