Determining the Optimal Donation Acceptance Policy for Nonprofit Stores

• Published date: 01 September 2015
• Author: Robert Shearer,Kelly Carpentier
• Date: 01 September 2015
• DOI: http://doi.org/10.1002/nml.21144

59

N M  L, vol. 26, no. 1, Fall 2015 © 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21144

Journal sponsored by the Jack, Joseph and Morton Mandel School of Applied Social Sciences, Case Western Reserve University.

Correspondence to: Robert Shearer, Business Administration Division, Pepperdine University, 24255 Pacifi c Coast

Highway, Malibu, California 90263. E-mail: robert.shearer@pepperdine.edu.

Determining the Optimal Donation

Acceptance Policy for Nonprofi t Stores

Robert Shearer, Kelly Carpentier

Pepperdine University

Many nonprofits derive a considerable amount of their financial support from the resale

of donated items. Given the razor-thin margins at which many of these organizations

operate, it is critical that they maximize the proceeds that come from the sale of these

items. To do so, nonprofits require policies that guide their donation acceptance decisions

so as to optimize revenue generation. This article presents research about how to determine

the optimal donation acceptance policy for Habitat for Humanity. Habitat affiliates sell

donated material at their ReStores, or discount home improvement centers, and the revenue

from the ReStores directly supports the building of new homes. Several constraints limit the

revenue that the ReStores derive from the donated items, including the supply rate of items

from donors, the demand rate of items from customers, and the space limitations of the

ReStores. We developed a two-step method to determine the optimal acceptance policy—the

daily amount of donations to accept to maximize revenue. This approach increases revenue

by up to 20 percent and additionally provides insights into pricing options, marketing

strategy, and optimal store size.

Keywords: inventory management, donations, optimization, simulation

NONPROFIT ORGANIZATIONS obtain the revenue needed to fund their operations from

a range of sources. These sources include government grants, private contributions, and

commercial activities (Kerlin and Pollak 2011). Sales of inventory, a subset of commercial

activities, are an important source of funding because many nonprofi ts derive much of their

revenue from the resale of donated items.  e Salvation Army collected $625 million in sales

at their Home Stores in 2012, accounting for 15 percent of their revenue that year (Salvation

Army 2013). Goodwill generated $3.5 billion in 2012 from sales in their stores, 82 percent

of which went directly into mission services (Goodwill International Industries 2013, 3).

Habitat for Humanity affi liates generated a profi t of $76 million in 2012 from more than

750 ReStores in the United States (Habitat for Humanity International 2013, 4). These

organizations and others require donation acceptance policies to help determine which items

to accept as donations for resale, if they are to effi ciently manage their resources in support

of their missions. Habitat for Humanity builds and repairs homes for low-income families.

Essential to these eff orts are their ReStores, discount home improvement centers, which can

generate more than half of an affi liate’s revenue.  e ReStores accept donations of new or