Coordinate or collaborate? Reducing food waste in perishable-product supply chains

Reducing food waste in supply chains with multiple decision-makers is challenging. A common approach grocery retailers use to reduce waste is requiring manufacturers to only send products with a long remaining shelf life (“minimum life on receipt”-MLOR). However, its impact on manufacturers remains unclear.

To evaluate the effectiveness of MLOR agreements on food waste, we investigate two strategies: (1) collaborating on setting the MLOR level and (2) coordinating the SC via contract. Through collaboration, we analytically show that if the MLOR agreement doesn't demand solely fresh products, it raises manufacturer profits, enabling potential wholesale price reduction.
This might incentivize retailers to collaborate to reduce the MLOR level. We demonstrate that the coordinating strategy can reduce waste in the supply chain and is most beneficial when the wholesale price is high, and the issuing policy is First-In-First-Out (FIFO). We introduce possible coordination contracts and show that in coordinated supply chains, manufacturers always provide the highest MLOR level without requiring any restrictive MLOR agreements.

Governments mainly focus on reducing retail waste and promoting retailers to request higher MLOR. However, these efforts can backfire by creating more waste for manufacturers. Reducing the MLOR allows retailers to negotiate lower wholesale prices, increasing profitability while reducing waste. Although supply chain coordination is known for reducing inefficiency, it may not be the best strategy for reducing waste, especially when the issuing policy is more LIFO (Last-In-First-Out) than FIFO.
Specifically, while coordination might be a better strategy for online retailers, collaboration can be a better strategy for brick-and-mortar retailers.