Penalty and threshold optimisation of the retailer - vendor return contracts for contract re-negotiation in retail reverse supply chains

In this paper, we consider a decentralised reverse supply chain constituting of multiple vendors and an independent retailer. The vendors offer the retailer return contracts with a multi-layered penalty structure deal. We focus on the strategic decision of developing optimal vendor re-negotiation contract parameters for the retailer. We model the problem as a mixed integer nonlinear program (MINLP) where the retailer decides on the vendor penalty fees and return thresholds simultaneously. We propose an efficient solution approach based on decomposing by decoupling the decision on penalty fees and return thresholds. The resulting problems are linear and we used them to provide rules for re-negotiation tactics for the retailer. We find that the retailer can save up to 7% from re-negotiation their contract terms. [Received: 16 June 2022; Accepted: 26 February 2023]