Abstract: In this paper, a single-period supply chain composed by one supplier and one retailer as well as a group of consumers is investiguted. The retailer has two order opportunities with the second one after observing a market signal. Firstly,consumers’ buy and return policy is analyzed and then the optimal pricing and refund policies are determined. Next, the retailer’s optimal ordering decisions are derived to maximize the retailer’s total profit, and the optimal first-stage order quantities, optimal second-stage order quantity, as well as the critical market signal are given by introducing the service constraint. Impacts of the information update and the service constraint on retailer’s optimal order policies and on the expected profit are also discussed. The results show that, first, when the target service level is low, the retailer's optimal order quantities are the same with quantities without service level constraints. Second, when the observed signal is low at the time of second order, the retailer does not need a second order, no matter what the required signal is high or low. When the observed signal is high, the retailer need a second one, and the required service level will affect the optimal quantities of the second order. Finally, a differentiated buy-back contract is designed to coordinate the supply chain and the coordination conditions are given.

Key words: information update, service constraint, consumer’s strategic returns policies, supply chain coordination