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

Purpose: 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. Design/methodology/approach: 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. Findings: 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. Research limitations/implications: 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. Originality/value: 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.