The impact of information sharing on a returns policy with the addition of a direct channel

We consider a manufacture–retail supply chain consisting of a mix of a traditional retail channel and a direct channel. We analyze how the manufacturer designs its returns policy in the existence of the direct channel. Under the assumption of a unknown ratio of customer demand in the direct channel and the coexisting retail channel, we estimate optimal order quantities and buyback prices under two cases: information sharing and non‐information sharing between two players, and find that (1) if the manufacturer and the retailer do not share the forecast information about the ratio, the more optimistic the manufacture is about the demand via the direct channel, the more restricted the returns policy is; and (2) the returns policy remains the same regardless of the shift of customers between two channels if the manufacturer elects to share information with the retailer. Furthermore, we study the profits of both parties under different scenarios and analyze the effects of key parameters on their profits by simulation. Under certain conditions, we find that (1) the total profit on the whole supply chain is always higher in the information sharing case than in the non‐information sharing case; (2) both the manufacture and the retailer can benefit from sharing information with each other; and (3) according to sensitivity analysis, the value of information sharing varies with forecast accuracy.