Improving the Milk Supply Chain in Developing Countries: Analysis, Insights, and Recommendations
Liying Mu, Milind Dawande, Vijay Mookerjee
Production and Operations Management · 2014 · Volume 23 · Issue 7
Abstract
Quality issues in milk—arising primarily from deliberate adulteration by producers—have been reported in several developing countries. In the milk supply chain, astationbuys raw milk from a number ofproducers, mixes the milk and sells it to a firm (that then sells the processed milk to end consumers). We study a non-cooperative game between a station and a population of producers. Apart from penalties on proven low-quality producers, two types of incentives are analyzed:confessor rewardsfor low-quality producers who confess andquality rewardsfor producers of high-quality milk. Contrary to our expectations, whereas (small) confessor rewards can help increase both the quality of milk and the station's profit, quality rewards can be detrimental. We examine two structures based on the ordering of individual and mixed testing of milk:pre-mixed individual testing(first test a fraction of producers individually and then [possibly] perform a mixed test on the remaining producers) andpost-mixed individual testing(first test the mixed milk from all producers and then test a fraction of producers individually). Whereas pre-mixed individual testing can be socially harmful, a combination of post-mixed individual testing and other incentives achieves a desirable outcome: all producers supply high-quality milk with only one mixed test and no further testing by the station.
Keywords
milk supply chain, non-cooperative games, quality testing, free riding
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