Leveraging Blockchain and Consignment Contracts to Optimize Food Supply Chains Under Uncertainty

Abstract

The occurrence of the fourth industrial revolution (Industry 4.0) has led many industries to the path of adopting new technologies. Such technologies include blockchain, artificial intelligence (AI), and the Internet of Things (IoT). Blockchain creates the opportunity to access data and information in a decentralized manner, resulting in increased customer satisfaction. This study develops a smart newsvendor model of the food industry with consignment contracts and blockchain technology. Under a consignment policy, the central division (manufacturer) can utilize the retailer’s warehouse for storage. The producer may also have the opportunity to share the holding cost with retailers without losing the ownership of products. The main contribution of this study is to analyze the profitability of the retailing and supply chain when the blockchain technology is implemented by the food industry. Moreover, a thorough investigation of profit and loss is conducted under a consignment contract when uncertain demand is encountered. This study mainly concerns perishable food items, and increasing volatility in market demand. Two cases of probabilistic uncertainty are considered, including uniform and normal distribution. The key investigations of this study are presented in terms of (a) the effect of adopting blockchain on market demand for the food industry, (b) analysis of company profitability for perishable food items and demand uncertainty, and (c) the effect of the consignment contract under blockchain technology in the food industry. Finally, this research develops an optimization tool to numerically analyze the effect of several factors of the blockchain technology on demand. Moreover, the optimal values of the design variables and the resulting maximum profitability provide valuable insights that support industry in formulating effective policies and making informed strategic decisions.