Using Blockchain to Improve Buffer-Stock-Sharing and Combat Cheating Behaviors Under Virtual Pooling

Abstract

Blockchain is a disruptive technology, which is crucial for business operations. In this article, we analytically explore how two manufacturers can achieve efficient buffer stock sharing using the blockchain technology (BCT). We first build an analytical basic model with a deterministic lead time for material replenishment and quantify the benefit of adopting a buffer stock sharing scheme. In the absence of BCT, we demonstrate the natural occurrence of a cheating problem. We analytically derive the overall value of blockchain technology (OVBCT) for the buffer stock sharing scheme and highlight the conditions under which it is increasing or decreasing in demand uncertainty. We also show how the buffer stock service level can be improved with the use of BCT. To show robustness of the analytical findings, several extended cases are explored. Novel buffer stock division rules are then generated under the proposed buffer stock sharing scheme, which makes the alliance profitable. In addition, an n-manufacturers alliance is further analytically explored. We find that the core findings from the basic model continue to hold in the extended models. Finally, we establish the conditions for achieving Pareto improvement with the use of BCT by considering the logistics services adopted.