The Optimal Ordering and Packaging Policies in E-Commerce Mode

Refunds can be a major issue that e-tailers desperately want to avoid in China. One of the main reasons for customer returns is damage to goods due to improper logistics and shipping; however, proper packaging material (or technique) can significantly reduce the refund rate attributed to commodity collision or crush. Therefore, this paper focused on the optimal ordering and packaging policies in which retailers invest additional costs to enhance packaging techniques or materials to reduce the rate of damage to goods in transit. The theoretical result shows that retailers investing in new packaging materials or technologies can impact the order quantity significantly larger than the order quantity when they do not invest in new packaging materials or technologies. An algorithm was developed to explore the optimal ordering and packaging policies. Numerical examples illustrate the proposed model and algorithm. A sensitivity analysis reveals the effects of four important parameters (i.e., demand rate, setup cost, refund rate, and holding cost) on the optimal strategy. Managerial insights are also discussed