Economic Analysis of a Traceability System for a Two-Level Perishable Food Supply Chain

Abstract

Food waste stemmed from food contamination and ineffective quality control is a significant challenge to food management. Supply chain traceability has become an essential task of the food industry for guaranteeing food quality and safety and reducing food waste. Radio Frequency Identification (RFID) has emerged as a lead technology in the development of traceability systems, which enable automatically capturing of food information along the supply chain. However, the significant investment cost has been a major obstacle in the diffusion of traceability systems in the food industry. This study conducts a cost-benefit analysis of a RFID-enabled traceability system for a two-level perishable food supply chain, which consists of an upstream supplier and a downstream retailer. Consumer perceptions of food quality and safety are jointly considered when evaluating the value of a traceability system. The optimal decisions of the supply chain participants are derived in both centralized and decentralized systems, in terms of wholesale price, order quantity, price markdowns, and granularity level of the traceability system. The results show that a dynamic pricing policy supported by the traceability system could significantly reduce food waste and improve the retailer's performance. We further propose a two-part tariff contract to coordinate the supply chain and to distribute benefits and costs of the traceability system between supply chain participants. This study demonstrates that a well-developed traceability system could significantly improve the supply chain performance and become a profitable investment for the food industry.

Mean-Variance Analysis of Retailers Deploying RFID-Enabled Smart Shelves

“…The cost of RFID tags and the initial investment to build up the infrastructures are major obstacles in the diffusion of RFID-enabled smart shelves in supply chain management [31]. Recently, many researchers have pointed out that the gradual reduction of RFID costs made it possible for extensive RFID applications [32].…”

Barriers and Drivers for Applying Fish Traceability System in Emerging Market

“…There are scholars believe that benefit of traceability offers an opportunity for actors in the supply chain to stay competitive. Traceability has also influence to regulation and behavior that are reshaping the food production and consumption landscape 1 .…”

“…The cost becomes higher since the entities fail to communicate with their customers. Traceability systems play an important role as monitoring system and provide real time information and faster response for accidents 1 . Consumers are interested to pay a premium price if the food has proper tracking systems because of safety reason 3 .…”

Quality and Operations Management in Food Supply Chains: A Literature Review

“…It is shown that higher traceability level decreases the stakeholders' losses due to recall but increases operational cost. Zhu [112] demonstrated that significant investment cost acts as a major obstacle for the diffusion of traceability systems in the food industry. They studied the economic outcomes for the implementation of a RFIDenabled traceability system in a two-level perishable food supply chain.…”

“…In the quantitative operations management models, when considering food traceability and food recall, inventory planning strategies [106,107], transportation planning strategies [109], and marketing strategies [112,113] will be changed. However, there is limited research on this area and more works can be done.…”