Coordinate or Collaborate? Food Waste Reduction in Perishable Product Supply Chains

Reducing food waste is challenging, especially when supply chains (SCs) have multiple decision-makers. One well-known approach that grocery retailers use to deal with waste is requiring manufacturers to only send products with a long remaining shelf life (“minimum life on receipt”-MLOR). However, it is not clear how this approach affects manufacturers. To evaluate the effectiveness of the MLOR agreement and address this food waste problem in perishable SCs, we study and compare two strategies: (1) collaborating on setting the MLOR level and (2) coordinating the SC via contract mechanisms.

First, in the collaboration strategy, we analytically show that when the MLOR agreement does not require only the most freshly produced products, the manufacturer’s profit goes up and creates an opportunity to decrease the wholesale price. This can be used to incentivize the retailer to collaborate on the MLOR level. Second, we demonstrate that the coordinating strategy can reduce waste in the SC, but the magnitude of its impact depends on the issuing policy and the wholesale price. We illustrate that the SC can benefit the most from coordination when the wholesale price is high and the issuing policy is FIFO.

Governments have mainly focused on reducing retail waste, which has prompted retailers to commonly request a high MLOR. However, we affirm that these efforts can backfire by creating more waste in the whole SC. Reducing the MLOR level allows retailers to negotiate a lower wholesale price, which leads to a Pareto improvement in profitability while significantly reducing waste. Lastly, although SC coordination is known for reducing inefficiency, it may not be the best strategy for reducing waste, especially when the issuing policy is more LIFO than FIFO. Specifically, we show that coordination might be a better strategy for online retailers, but collaboration can be a better strategy for brick-and-mortar grocery retailers.

This seminar will take place in T09-67. To join online, find the details below:
https://eur-nl.zoom.us/j/96867022918

Meeting ID: 968 6702 2918