Modeling for deployment of digital technologies in the cold chain

Abstract

In this paper, we have evaluated the scope of deploying digital technologies like IoT to improve the performance of the cold supply chain. A scenario has been considered where the retailer source fresh produce from the supplier and has outsourced its logistics operations to a third party logistics provider (3PL). 3PL’s service level affects the sellable quality and quantity of the produce; however, to improve its service level, the 3PL has to incur additional cost on freshness keeping effort. The retailer can decide the quantity to be sourced from the supplier and whether to employ digital technologies like IoT or not. Moreover, both 3PL and retailer being independent entities, it has been assumed that the retailer has no direct control over freshness keeping effort provided by 3PL. We have examined the case in a newsvendor problem setting, where the freshness of the product influences its randomly distributed demand. In this paper, it has been proved that incorporating IoT can immediately improve the cold chain profits. Our analysis asserts the channel power that large retailers like Walmart enjoy, and outlines the scope for coordination and cooperation in the presence of IoT.