Supply chain shows that blockchain is not just hype. It has serious practical applications. This is demonstrated by the number of blockchain-driven supply chain projects being implemented by Walmart.
There is probably no business school in the world that does not use Walmart as a case study in how to run a supply chain. So, if they make a radical move to integrate a new technology such as blockchain then surely we should all pay attention.
Walmart’s approach is also a counter to the ongoing skepticism about blockchain and suggestions that it all just so much hype.
In a previous article, we talked about how blockchain and IoT together will revolutionize the supply chain. We are devoting the whole of this article to show how Walmart is turning that theory into reality.
For those who don’t know, Walmart is a giant in the retail space, operating 11,200 retail units under 55 company names in 27 countries and with eCommerce websites in 10 countries. It employs approximately 2.2 million associates around the world. It manages nearly $44 billion in inventory and has an annual turnover of about $500 billion.
Despite its size, Walmart is also feeling the pressure of changing technologies, and particularly the move to eCommerce, where its dominance in retail is being challenged by Amazon and others. (You can read more about this here.)
Walmart and technology
Walmart has many technology firsts for innovative and very efficient supply chain management.
· In the 1970’s it was the first retail store to use a computerized system to capture point-of-sale (POS) data for inventory management, to link to distribution centers and even to produce income statements.
· In the 1980’s it introduced barcodes to scan POS data. This was later replaced by RFID (radio-frequency identification), and Walmart encouraged all of its suppliers to do the same.
· It had the largest private satellite system in the US to facilitate voice, data and video communication between its stores and distribution centers and also with its suppliers.
· In 2016 it introduced an app that allows store managers to take more direct responsibility for stock in response to sales trends and customer queries.
· It has introduced mobile apps so that customers can shop, compare prices, pay and even transfer money to over 200 countries.
· It has the largest onsite green power generator in the US. This is part of its sustainability initiatives around the world.
Walmart and collaboration
An important aspect of Walmart’s success is its decision to collaborate with vendors.
· In the 1980’s it cut out middlemen and started dealing with manufacturers directly, getting bulk purchases at discounted rates.
· It then invited suppliers to manage their own stocks in the Walmart warehouses, cutting costs and ensuring that vendors took responsibility for stock levels. Walmart only monitored the transit of the goods from the warehouses to the stores.
· It introduced a Retail Link system to help suppliers more accurately determine what they should be supplying to Walmart.
· It introduced a system of “cross-docking” to cut storage costs. Instead of goods being offloaded at distribution sites, the goods are transferred directly from one truck to another. Suppliers can load their goods onto a Walmart trailer to be part of this process.
Sam Walton commented that “People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information.”
Walmart and blockchain
Given this history, it’s no surprise that Walmart is now taking the lead in applying blockchain to its list of technology firsts, and also taking the lead in teaching others how to collaborate across industries, competition and countries.
Food safety is an important issue for Walmart. It does not want to make its customers sick. It also wants to keep its own bottom-line healthy. The problem is that if there is some contamination in the food supply chain it is very difficult to track. Each company along the way keeps only its own records, many of them still paper-based.
In 2016, Walmart teamed with IBM and Tsinghua University in Beijing using blockchain to track the movement of pork in China. This followed several scandals in food products from China, including milk and baby food contaminated with melamine. It is difficult to get away with fraud and inaccuracies in the information shared on a blockchain. Details include farm origins, factory data, expiration dates, storage temperatures, and shipping.
The blockchain system is a vast improvement on previous attempts based on tracking just via barcodes and radio ID tags. According to Paul Chang, the global supply chain lead at IBM,
“The missing piece was a shared forum where companies could begin to see each other’s transactions and develop trust.”
The IBM Food Trust
Walmart is partnering with IBM and 9 other companies in an ambitious collaborative project to track global food supply — the “IBM Food Trust“. The collaboration started in 2016, trials began in August of 2017 and the product was released in June 2018.
A major reason for the project is to pinpoint sources of contamination. It is also to prevent fraud, for example, non-organic products being passed off as organic and certain types of meats being passed off as others. Ramesh Gopinath, VP of Blockchain Solutions at IBM says that food fraud costs the global food industry between $10 — $15 billion annually.
The project is a cloud-based solution based on the IBM blockchain. Information is shared across the IBM blockchain and the Linux Foundation Hyperledger Fabric. It should be more accurately referred to as a distributed ledger technology (DLT) project as this is a private, permissioned blockchain, not open to the public.
The companies involved are usually in competition with each other. Here, though, they are working together to ensure the trust of consumers. They include Walmart (taking the lead), Nestlé SA, Dole Food Co., Driscoll’s Inc., Golden State Foods, Kroger Co., McCormick and Co., McLane Co., Tyson Foods Inc. and Unilever NV. In June 2018, Forbes reported that S-Group, a Finnish retail co-operative, had joined the Food Trust ecosystem. Its primary goal is to track fish fillets sold in its stores back to the lake where they were caught.
The same Forbes report notes that the system stores the data of about a million items. During the test phase, there were over 350,000 food transactions on the blockchain, representing vegetables, meat, spices, fruit and fish. It captures real-time data at every point on every single food product.
Frank Yiannas, Vice-President of Food Safety for Walmart has referred to this project as “the equivalent of FedEx tracking for food”. IBM reported that blockchain technology can reduce the average product recall by up to 80%.
To prove the superiority of the system, Yiannas conducted a traceability experiment with sliced mangoes. It took his team nearly 7 days to track the mangoes back to a farm in Mexico. It took the blockchain system 2.2 seconds.
In April 2018, Walmart announced that it was ready to use blockchain for its live food business. This was not in time to help it track the source of a lettuce e-coli contamination that had just led it to destroying all lettuce across its operation. But next time, it will have to destroy product only from identified sources. In September it announced that it would require suppliers of leafy greens to implement its blockchain-driven system by September 2019, with suppliers of fresh fruit and vegetables to follow within a year.
In a move to support its move to eCommerce, Walmart has patented a “Smart Package” system. One of the challenges with online shopping is that perishable goods require temperature control and the packaging must be really secure. The Smart Package system will include blockchain-linked devices to track the contents of packages, including environmental conditions and location. Blockchain will record “key addresses along the chain”, from seller to courier to the buyer.
In January 2018, Walmart applied for a patent for a blockchain-based delivery system using drones and robots to deliver packages all across the supply chain.
Key to the success of such a system is that the identities of these devices must be authenticated. This has been a primary target for hackers. Secure authentication will be possible because of signal and identification updates on the blockchain.
In August 2018, Walmart filed for another blockchain-based patent, this time to manage smart appliances, including desktop or laptop computers, wearable devices, media players and others. The purpose is to allow these devices to use a private key to authorize transactions.
In an example of a kiosk receiving packages from drones, the owner can use a device to accept or decline a package or order an item. The long-term plan is to enable smart home environments.
This is a good example of where blockchain and IoT are being combined to rewrite the way a supply chain works.
Walmart has noted the increasing competition from “non-traditional shopping mechanisms” and the need for brick and mortar businesses to stay ahead with technology to improve customer experience. One of these is that customers sometimes want to resell purchased products. Walmart has filed a patent for a blockchain-based marketplace, that would record purchases, and allow customers to resell the items using the immutable record of the original purchase. The interface can be point-of-sale, browser or a mobile device.
Supply chain — a clear use-case for blockchain
It is clear that Walmart is serious about incorporating blockchain into its famed supply chain. Business schools will be including this technology advance in their case studies in the future.
And Walmart is not alone.
According to CBInsights, in April 2018 Alibaba started its own blockchain-based “Food Trust Framework”. It is working with PwC to launch the platform, together with New Zealand Post and Australia Post for their supply chains, and with Fonterra, a New Zealand dairy giant and Blackmores the vitamin supplier, to use their products in the trial. These companies will be able to sell “blockchain-verified” products on T-Mall in China. It is said that Alibaba is investing $14 billion into developing this technology. If successful, the framework could form the basis of a giant supply chain model across all of Alibaba’s e-commerce markets.
Some other projects, which we also noted in a previous article, include Pfizer for pharmaceuticals, ABI-InBev for beer brewing, Samsung for electronics and Berkshire Hathaway for jewelry.
It seems that supply chain will not be far behind fintech is proving to the sceptics that blockchain is not all hype. It is a very powerful technology with very practical applications.