The Blockchain Newsvendor: Value of Freshness Transparency and Smart Contracts

Nuri Bora Keskin · Chenghuai Li · Jing-Sheng Jeannette Song

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Supply Chain and Inventory Management Sustainable Supply Chain Management Food Supply Chain Traceability

Abstract

Motivated by blockchain applications in the fresh produce industry, we consider a newsvendor problem in which a retailer faces stochastic and freshness-dependent consumer demand. The retailer can adopt blockchain technology to have more transparent information on the freshness of supply. We quantify the value of blockchain-enabled freshness transparency by deriving closed-form expressions for the retailer’s expected profit growth and food waste reduction brought by blockchain adoption. Using publicly available data, we provide a numerical example illustrating that for Walmart’s strawberry business in the United States (which is about only 4% of Walmart’s fresh produce sales), blockchain can increase annual profit by [Formula: see text] million while eliminating 23 million pounds of food waste annually through operational improvements. Despite this substantial value for the retailer, blockchain adoption can decrease the expected profit of the retailer’s supplier. We design a family of threshold-type smart contracts contingent on a blockchain-based freshness consensus and examine when such contracts offer a win-win proposition to the retailer and the supplier. Moreover, when the retailer offers freshness-based price discounts, we find that less fresh supply leads to less food waste. In contrast, when the supplier adjusts the wholesale price based on freshness, less fresh supply causes more food waste. We also generalize our findings to the cases of (i) dual sourcing, (ii) noisy measurements in the Internet of Things sensors feeding data into blockchain, and (iii) the retailer’s culling processes. This paper was accepted by David Simchi-Levi, operations management. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.02949 .

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References

1999Pricing and the Newsvendor Problem: A Review with Extensions 2001Selling to the Newsvendor: An Analysis of Price-Only Contracts 2020On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption 2010The newsvendor problem: Review and directions for future research 2023Supply Chain Transparency and Blockchain Design 2006Information Sharing to Improve Retail Product Freshness of Perishables 2023Value and Design of Traceability-Driven Blockchains 2022Blockchain-Enabled Deep-Tier Supply Chain Finance

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2022Socially relevant and inclusive operations management 2024Blockchain adoption for product freshness traceability under platform competition 2024The adoption of blockchain and financing constraints: Evidence from China 2025Blockchain adoption in cross-border cold supply chains: Cost, Efficiency and Trust 2025Too Good To Go: Combating Food Waste with Surprise Clearance 2025A system dynamics approach for leveraging blockchain technology to enhance demand forecasting in supply chain management

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