Reverse logistic behaviour of supply chain, Microeconomics

Purpose: this case is intended to model supply chain, especially the reverse logistic behaviour.


In Cal Poly Pomona, TOM301 (Operations Management) is a core course at College of Business Administration. All students pursuing business major need to take this class. Technology and Operations Management Department offers 12~ 16 sessions per quarter with session size around 37 students. For TOM301, there is a publisher (Cengage, South-Western) who supplies new textbooks (OM3 by Collier and Evans) to the retail store (BRONCO Bookstore). BRONCO sells these new textbooks to the students. At the same time, students have lots of options. They can choose to buy either new books or used books from BRONCO, or from other sources (for example, electronic version books, online bookstore like, local bookstore around the campus, craigslist, fellow students, friends, or not buying books at all). At the end of the quarter, BRONCO buy back the textbooks from the student and sell the used books at a lower price during future quarters. BRONCO can also purchase used books from textbook wholesalers.

Questions for the publisher (the upstream supplier):

1. Since publisher only sells new textbooks to BRONCO, how does the publisher promote the textbook and sell more new textbooks through the supply chain? Here are a few options considered by Cengage.

- From the perspective of new production development, increase the frequency of introducing new editions. Normally, the authors will update the book and add new content once every two years, i.e., new edition every two years. Now, the publisher is considering providing certain incentives to the authors so that there will be a new edition every year.

- Another idea from the perspective of product design is to promote customized version of this textbook. The publisher is trying to convince the instructors to use customized textbooks at a reduced price (80% of the original price).

- From the perspective of supply chain management, provide BRONCO bookstore incentives to purchase more new textbooks each time. This can be done with different contracts. Currently, the publisher is offering to buy back unsold new textbooks from BRONCO with 10% restocking fee. The publisher is considering reducing it to 5%.

Questions for BRONCO bookstore (the downstream retailer):

1. Stocking decisions -BRONCO needs to decide how many new textbooks to stock one month before the new quarter. Normally, the publisher has enough supply.

- BRONCO needs to decide how many used books to purchase from the wholesalers. However, the amount of used books BRONCO can receive from these wholesalers is highly uncertain depending on the market for this used book. Also, BRONCO also purchases used books from students, and the buyback quantity (for used book from students) is uncertain depending on external factors like price, personal behavior, and characteristics of the courses.

- BRONCO needs to decide what to do with the leftover new textbooks, sending them back to publisher at the costs of restocking fee or leave it in stock for next quarter - tradeoffs among carrying cost, salvage cost, ordering cost and purchasing cost.

- BRONCO needs to decide what to do with under-stock situation, the manager can choose either decline the customers or get expedite shipment from publisher at a higher cost. What should the policy be?

2. Pricing decision - Selling price of the new textbooks, the purchasing cost from the publisher is around $45. BRONCO currently sells the new textbook at $65 each. The manager is considering lowering the selling price by $5 to promote higher demand. Should he do it? - Selling price of the used textbooks. Now, used textbooks are marked at $45. Should the manager consider changing the price? If so, lower it or raise it? To what extend?

- Buyback price of the used books. Currently, at the end of the quarter, BRONCO buys back the used textbook at the price of $15~20 depending on the condition of the book. Since the used book is a little more profitable, should be manager raise the buyback price of used books?

Question for the customers - students

- How will the decisions of publisher and BRONCO affect me? Will I experience better service (higher fill rate)? Question for the supply chain manager if there is one

- Does the supply chain perform better under different scenarios? As a supply chain manager, what can I do to further improve?

Posted Date: 2/25/2013 3:13:37 AM | Location : United States

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