Impact of IoT and Revenue-Sharing on Single and Two-Stage Pricing Strategies for Food Supply Chains

Abstract

With approximately one-third of the global production of food going to waste, immense research efforts are being directed towards identifying the underlying causes and potential solutions of this issue. Since a substantial amount of food waste can be attributed to the quality deterioration of perishable products within the food supply chains (FSC), therefore, one of the primary causes of this issue can be concluded to be inefficient FSCs. To combat this issue, this research examines the potential benefits of using Internet of Things (IoT) technology in the food supply chain within the framework of a two-echelon food supply chain comprising of a supplier and a retailer, and develops mathematical models to study the impact of real-time quality monitoring through IoT on single and two-stage pricing strategies. To this end, a literature review that lays the groundwork for the single and two-stage pricing models, developed in this research, is conducted. The model for each pricing strategy is developed within the decentralized, centralized, and revenue-sharing supply chain structure. The optimal points, used to analyze the individual and collective decisions of the supplier and the retailer, are derived for each model. The results of the numerical analysis indicate that the decision to employ IoT technology depends on the investment cost incurred and its correlation with the critical thresholds for the retailer, supplier, and the overall supply chain. These thresholds are determined through a combination of parameters that include the unit product cost, potential market size, quality deterioration rate, price and quality sensitivity factors, and the initial, organoleptic and critical quality of the perishable food products. Finally, the lower and upper bounds for the retailer’s revenue-sharing factor are ascertained, through a combination of the aforementioned parameters and the wholesale price, for an effective coordination that benefits both the supplier and the retailer.