Are new technologies like blockchain good ways to trace food through its supply chain during outbreaks of food contamination? New research is poking holes in that idea.
Food contamination outbreaks occur regularly in the US food system and can be costly. In 2006, for example, 276 consumer illnesses and three deaths were attributed to a E.coli outbreak in California, in which spinach disappeared from supermarket shelves across the country for two weeks and farmers in the state suffered losses of $74 million.
To protect themselves and their customers, retailers such as Walmart have promoted blockchain as a new method to trace perishable foods such as leafy greens as they travel through the supply chain.
But what is the impact of such a traceability technology, in particular on the strategic behavior of actors in the supply chain, and does it keep its promises to increase safety and reduce waste? The answer, Fasheng Xu, a professor of supply chain, operations, and technology at Syracuse University and his colleagues found in their theoretical model, is complex and depends on the configuration of the supply chain. .
Blockchain’s greatest advantage in this context is immediately apparent: its ability to capture, maintain and grant access to data throughout the supply chain makes it possible to quickly and efficiently determine the provenance of spinach or other contaminated products, allowing the continued sale of spinach or other unaffected products. some products. (Researchers call this the “pure traceability effect”.)
Considering the different stakeholders within the supply chain (retailers, suppliers and farmers) complicates the picture. “They are interested and play with each other to try to maximize their profit,” Xu explains. “Their strategic actions may backfire and lead not to a win-win-win but a triple loss.” (This is called the “strategic pricing effect.”)
For example, Walmart can strategically reduce the wholesale price of spinach, causing distributors to offer a lower purchase price to farmers. “The direct result is that farmers will put less effort into improving supply chain security, so contamination risks will become higher after adopting this technology,” Xu said. The system and its individual supply chain members, including the retailer, eventually get worse.
However, having more farmers in the system ultimately allows the benefits of pure traceability to outweigh the strategic pricing effect. “When we have so many farmers, it becomes more useful to quickly identify which farm the contamination is coming from, because otherwise we have to destroy all the farmers’ produce,” Xu says.
In practice, the researchers recommend that managers lock in the pricing system when traceability technology is implemented to discourage supply chain members from using strategic pricing and to ensure that the benefits of the new system are evenly distributed. “Walmart can engage with upstream suppliers saying that after adopting this technology, it won’t change the wholesale price,” Xu said.
In fact, perfect traceability may not even be the best solution. “There are many ways to offer alternative risk mitigation measures, such as mid-supply chain safety inspections,” Xu says. However, the model of the study only applies to this specific case of perishable products, he is careful to point out. “If you look at other types of supply chains, like vehicle parts, that’s a different story.”
The study’s co-authors are from the John M. Olin School of Business at Washington University in St. Louis. A paper on the results is to be published in the journal management science.
Source: Syracuse University