Increasing service through aggressive dealer inventory return policies

In this paper, manufacturer dealer return policies are examined for high volume part sales for long‐life cycle products. Exclusive suppliers often use simple returns policies for high‐value products to persuade their independent dealers to stock and price items aggressively. For low‐value products, a return policy problem occurs; dealer requests for low‐value returns are routinely rejected. Because a manufacturer may make over 500 return request decisions per day, a fast algorithm is required. Two fast algorithms that evaluate multiple factors are presented and tested for six months against dealer inventory requests at heavy equipment manufacturer, Caterpillar, Inc. The results show that the proposed algorithms may eliminate nearly 1,000 back‐orders per month. The results indicate that exclusive suppliers can modify their return policies to improve service to customers by analysing not only product value, but also inventory level and lead‐time.