382 / 2024-04-24 20:42:18

Optimal Blockchain Adoption in a Supply Chain with Considering Strategic Inventory

Blockchain technology; Strategic inventory; Adoption mode; Traceability level.

    Strategic inventory plays a pivotal role in price regulation during the game between upstream and downstream enterprises in the supply chain. The downstream retailer can exert pressure on the manufacturer by strategically holding inventory to reduce the wholesale price, thereby alleviating the double marginalization effect and creating potentially win-win outcomes for both supply chain players. Concurrently, due to frequent pandemics and product safety incidents in recent years, and as consumers' demands for quality and safety increase, blockchain technology has become an important tool for businesses to enhance consumer demand due to its traceability feature. In the trend of deep integration of blockchain technology with supply chains, blockchain not only meets this demand but also has substantial potential in addressing operational challenges related to inventory. Additionally, it has been theoretically confirmed that the traceability feature of blockchain promotes information sharing among supply chain members and consumers through inter-enterprise interactions, under certain conditions, achieving effects similar to those brought about by strategic inventory in mitigating double marginalization and enhancing demand. Therefore, clarifying the relationship between firms' strategic inventory strategies and blockchain technology adoption strategies will have significant theoretical and practical value. This paper explores the optimal blockchain technology adoption strategy in supply chains considering the context of retailers holding strategic inventory.

    We consider a two-tier supply chain system composed of a manufacturer and a retailer. The manufacturer is responsible for production and wholesale, while the retailer handles sales. We consider the behavior of the retailer holding strategic inventory and construct a two-period decision-making model. At the end of the first period, the retailer needs to decide on the quantity of strategic inventory to hold and the sales volume to meet part of the demand in the second period and to form a bargaining effect. Moreover, to improve the traceability level of products for consumers, the manufacturer or the retailer decides whether to adopt blockchain technology. Based on who invests in blockchain, three adoption models are considered: no adoption model (N), manufacturer adoption model (M), and retailer adoption model (R).

    Using dynamic game theory and strategic inventory theory, we build a two-period dynamic game model between a manufacturer and a retailer. We analyze the model using backward induction. Under the strategic inventory behavior of the retailer, considering both scenarios where the manufacturer adopts blockchain technology and where the retailer does, we evaluate the optimal blockchain technology adoption strategy for the supply chain, the wholesale price design by the manufacturer, and the retail price design by the retailer. On this basis, we use game equilibrium to assess the spillover effects of the blockchain technology adoption strategies of manufacturers and retailers. Finally, considering the changes in profits of supply chain members under different adoption models, we explore the optimal blockchain technology adoption strategy for the system and its impact on the strategic inventory effect.

     Several findings are obtained. Firstly, the optimal blockchain technology adoption strategy depends on the ratio of the consumer's sensitivity coefficient to the traceability level to the product sales volume sensitivity coefficient. When this ratio is low, the manufacturer will adopt blockchain given that the retailer holds strategic inventory; when the ratio is high, the retailer will adopt blockchain given her own strategic inventory. Profits for supply chain members increase under different adoption models. Secondly, when the retailer holds strategic inventory, considering the combined effect of bargaining power and “free-ride” effect, both manufacturer and retailer gain higher profits when the other party adopts blockchain technology. Lastly, when strategic inventory and blockchain technology adoption are optimized jointly, we find that they are always substitutive in increasing the retailer’s and manufacturer’s payoff under a large inventory cost and adoption cost. Interestingly, under different blockchain technology adoption strategies, the bargaining effect and the mitigation of double marginalization both manifest in diverse forms: an increase (decrease) in bargaining power occurs on the premise of an increase (decrease) in the wholesale price level; the mitigation of double marginalization maintained by strategic inventory occurs on the premise of an overall increase in the sales price level. In situations where prices rise, the improvement in traceability level increases consumer surplus without harming consumers.

    The managerial implications of this research are as follows: For manufacturers, retailers holding strategic inventory affects their wholesale price setting and adoption decisions. Manufacturers should make strategic adjustments, and the dynamic contracts they sign should maximize their own profits while bearing adoption costs and ensuring sufficient attractiveness to retailers. For retailers, when adopting blockchain technology, they should adjust their sales prices and blockchain technology investments appropriately according to market demand and the manufacturer's wholesale price strategy, considering their own dual cost pressures. Investment in blockchain technology can, under certain conditions, complement strategic inventory to enhance the retailer's bargaining power, thus strengthening their position in the game with manufacturers. For consumers, investment in blockchain technology by supply chain members always effectively increases market demand and simultaneously increases consumer surplus.