Optimal pricing in the presence of IoT investment and quality-dependent demand

With the increasing availability and use of the internet of things (IoT) sensors and platforms in food supply chains, there is an interest in studying their efficiency and impact on supply chain operations. To illustrate how classical operations management models could be affected by the introduction of IoT, we present an inventory model with deteriorating quality that can be monitored by IoT-enabled technologies with applications in the food supply chain. We develop a novel demand function that incorporates quality and its deterioration through three supply chain parties: producer, distributor and retailer. We use the model to analyse the impact of IoT on the retailer and distributor performance in a Stackelberg game context. The model can be used to justify IoT investment and to decide where to deploy IoT technologies in the supply chain. We find that the introduction of IoT technologies allows supply chain partners to make rational decisions that are quality-informed, reduce waste and improve revenues. As for where it is best to invest in IoT, we find that if only one party is to invest in IoT, it should be the retailer.