Impact of Traceability Technology Adoption in Food Supply Chain Networks

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Author Information : Lingxiu Dong, John M. Olin School of Business, Washington University on St. Louis
Puping (Phil) Jiang, John M. Olin School of Business, Washington University on St. Louis
Fasheng Xu, Whitman School of Management, Syracuse University

Year of Publication : Management Science (2022)

Summary of Findings : Recent technology advancement such as blockchain technology has propelled innovative retailers (e.g., Walmart) to promote food traceability system adoption in their supply chains, but we find such traceability technology adoption may result in some of the supply chain members (even the retailer) being worse off and the system being exposed to higher contamination risk.

Research Questions : How can traceability technology (e.g., blockchain) adoption affect incentives of supply chain members, and whether and how its anticipated benefits can be realized?

What we know : Improving traceability in food supply chains has been a big part of ongoing effort to reduce contamination risks (e.g., E. coli outbreaks) and food waste. Recent technology advancement such as blockchain technology has propelled innovative retailers to promote food traceability system adoption in their supply chains.

Novel Findings : We find that traceability brings direct-revenue benefit to every supply chain member by saving uncontaminated food from disposal (pure traceability effect), but also leaves each tier of the supply chain vulnerable to its immediate downstream buyer’s exploitation through strategically lowering the purchasing price (strategic-pricing effect). The interplay of the two effects may result in some of the supply chain members (even the retailer) being worse off with traceability adoption, and the system being exposed to higher contamination risk; the latter is due to the weakened upstream supplier’s incentive to exert contamination risk-reduction effort. Moreover, we find that the supply chain network structure also influences the benefit distribution of traceability adoption: The retailer always benefits from traceability adoption in network structures where the tier-1 supplier’s strategic-pricing power is eliminated or weakened; all supply chain members benefit from traceability adoption in a network with a large number of tier-2 suppliers. Finally, we show that alternative risk-mitigation schemes such as tier-2 coordination can diminish the value of traceability adoption, and partial traceability enabled by tier-1 product inspection can be more beneficial to the retailer than full traceability.

Implications for Practice : The managerial implication is that a well-designed participation policy should be enforced along with traceability adoption to discourage strategic pricing and ensure equitable benefit distribution among supply chain members. One such policy is to ask supply chain members to commit to not changing contractual terms upon traceability adoption.

Full Citations : Dong, L., Jiang, P. and Xu, F., 2022. Impact of Traceability Technology Adoption in Food Supply Chain Networks, Management Science (Forthcoming).

Abstract : Improving traceability in food supply chains has been a big part of ongoing effort to reduce contamination risks and food waste. Recent technology advancement such as blockchain technology has propelled innovative retailers to promote food traceability system adoption in their supply chains. We develop a three-tier supply chain model with multiple upstream (tier-2) suppliers to investigate: how traceability technology adoption affects incentives of supply chain members, and whether and how its anticipated benefits can be realized. We find that full traceability brings direct revenue benefit to every supply chain member by saving uncontaminated food from disposal (pure traceability effect), but also leaves each tier of the supply chain vulnerable to its immediate downstream buyer’s exploitation through strategically lowering the purchasing price (strategic pricing effect). The interplay of the two effects may result in some of the supply chain members (even the retailer) being worse off with traceability adoption, and the system being exposed to higher contamination risk; the latter is due to the weakened upstream supplier’s incentive to exert contamination risk-reduction effort. Moreover, we find that the supply chain network structure also influences the benefit distribution of traceability adoption: The retailer always benefits from traceability adoption in network structures where the tier-1 supplier’s strategic pricing power is eliminated or weakened; all supply chain members benefit from traceability adoption in a network with a large number of tier-2 suppliers. Finally, we show that alter-native risk-mitigation schemes such as tier-2 coordination can diminish the value of traceability adoption, and partial traceability enabled by tier-1 product inspection can be more beneficial to the retailer than full traceability.

Fasheng XU
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