The purpose of this study is to analyze the effect of the use of return policy on the supplier`s decision on the capacity augmentation under the two-echelon supply chain considering the constraints of supply capacity. Specifically, this study, based o...
The purpose of this study is to analyze the effect of the use of return policy on the supplier`s decision on the capacity augmentation under the two-echelon supply chain considering the constraints of supply capacity. Specifically, this study, based on the system dynamics model, aims to compare the results of performances of the supply chain with a return policy with that of the supply chain without a return policy. We consider the total cost, the fill rate as supply chain performance and capacity gap and extra capacity as suitability of capacity augmentation. The simulation results show that the use of return policy significantly affect the supplier`s capacity augmentation. This result implicates that the return policy helps timely expansion of supplier`s capacity, so it can be used as a strategic tool for assisting the balance between supply and demand in the supply chain.