Mean-variance analysis of a single supplier and retailer supply chain under a returns policy

Tsan Ming Choi, Duan Li, Houmin Yan

Research output: Journal article publicationJournal articleAcademic researchpeer-review

204 Citations (Scopus)


In the literature, most of the supply chain coordinating policies target at improving the supply chain's efficiency in terms of expected cost reduction or expected profit improvement. However, optimizing the expected performance alone cannot guarantee that the realized performance measure will fall within a small neighborhood of its expected value when the corresponding variance is high. Moreover, it ignores the risk aversion of supply chain members which may affect the achievability of channel coordination. As a result, we carry out in this paper a mean-variance (MV) analysis of supply chains under a returns policy. We first propose an MV formulation for a single supplier single retailer supply chain with a newsvendor type of product. The objective of each supply chain decision maker is to maximize the expected profit such that the standard deviation of profit is under the decision maker's control. We study both the cases with centralized and decentralized supply chains. We illustrate how a returns policy can be applied for managing the supply chains to address the issues such as channel coordination and risk control. Extensive numerical studies are conducted and managerial findings are proposed.
Original languageEnglish
Pages (from-to)356-376
Number of pages21
JournalEuropean Journal of Operational Research
Issue number1
Publication statusPublished - 1 Jan 2008


  • Mean-variance analysis
  • Returns policy
  • Supply chain management

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management


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