Smart contract-enabled consortium blockchains for the control of supply chain information distortion

Abstract

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