It used to be fairly simple. A farmer would grow produce and sell it either direct to consumers or to a grocery store — and be paid for it on delivery. When the product was on the store shelves, it became the responsibility of the store owner to maintain and carry the risk if it spoiled or became unsellable.
Today, there are many different ways for food items to come to the grocery store entailing many changes in the industry, including who controls inventory replenishment to retail stores to who owns the inventory on the store shelves.
Min Choi, an assistant professor of management at Cal State Fullerton, is working with faculty members from Arizona State University (ASU) in a two-year study of this latest trend in food delivery and distribution. The study seeks to determine whether particular forms of contracts increase supply-chain efficiency, as well as the potential for abuse of such a system.
“Currently, there is vendor-managed inventory, where the supplier manages the stock, even placing the product on store shelves,” explains Choi, who joined Cal State Fullerton in 2016 after earning her doctorate in supply chain management at ASU. “In such a system, the retailer continues to purchase the product and is responsible for it.
“Newer still is scan-based trading (SBT),” she adds, “where the vendor supplies the product and places it, but is only paid when consumers purchase the item.”
What it means is that any loss of product between delivery and checkout, including spoilage, expiration of the product or theft, is less of a problem for the retailer and more risk for the supplier, says the researcher.
“We’re looking at whether it creates greater efficiency or an abuse of market power, especially in light of the growing global interest in food waste,” says Choi.
To complete their study into SBT, Choi and the Arizona researchers are using empirical data from a bakery-products manufacturer and evaluating whether there is a statistical difference in shrinkage between SBT and vendor-managed inventory.
“We also are looking to see if there are any differences in bargaining power between SBT and traditional supply contracts by estimating a structural model of vertical supply chain relationship,” says Choi. The study aims to produce new insights into how SBT contracts work, or can work, to support the objectives of various stakeholders.