Smart-Contract Enabled Blockchains for the Control of Supply Chain Order Variance


Conflicts between supply chain members emerge because individually strategic actions may not be jointly optimal. Efforts to forecast consumer demand represent a source of conflict. Coordination of forecasts require a powerful incentive alignment approach. This work proposes a smart-contract equipped consortium blockchain system that creates an incentive structure which makes coordination with respect to forecasts economically appealing to a retailer and supplier. Distortions of demand due to uncoordinated forecasting is captured by a bullwhip measure which factors both forecast error and variance. Cooperation under the system is shown to help minimize this bullwhip measure. New outcomes to supply chain participants that allow for a higher reward is provided by the system. Under a fixed payout structure, the system achieves credibility of continued cooperation thus promoting an optimal coordinated equilibrium between retailer and supplier. Blockchain technology represents a consensus formation mechanism which can intermediate the behavior of supply chain network.

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