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Blockchain and the coming retail revolution

November 15, 2018
Blockchain and the coming retail revolution

The blockchain tsunami that hit nine years ago with the initial release of the bitcoin—ushering in the age of peer-to-peer cryptocurrency— is poised to have an equally transformative impact on the global management of the retail supply chain

BY RANDY SCOTLAND

ALREADY, major corporate players have conducted (or have planned) pilots to test the applicability of blockchain technology to the retail trade, with a rollout now rippling through the industry.

As a result, when full blockchain implementation comes—as proponents believe is inevitable—supply chain practices that have long been standard operating procedure are destined for redundancy.

“The blockchain revolution is a new paradigm,” proclaimed digital authority Don Tapscott earlier this year in a presentation he made to business leaders in Seoul.

And he should know.

Tapscott, along with son Alex, wrote the seminal bestseller, Blockchain Revolution: How the Technology behind Bitcoin is Changing Money, Business, and the World (Portfolio, 2016; revised 2018). On the heels of that publication, they co-founded the Blockchain Research Institute (BRI), described as “a global, independent think-tank organized to study the strategic implications of blockchain for business, government and society.”

Blockchain decoded

In his presentation in Seoul, Tapscott tackled the thorny definition of what exactly a blockchain is, and why it is fated to upend business practices as we’ve come to know them. In lay terms, he described how the bitcoin works.

“When I send you $1,000, it’s broadcast out to a global network of millions of computers all using the highest level of cryptology,” he explained. “And all around the world is a group of people called miners, and they have vast computing power, estimated to be 20 to 50 times bigger than all of Google’s servers in the world.

“These miners do a lot of work to find out the truth. Every 10 minutes, kind of like the heartbeat of a network, a block gets created that contains all the transactions from the last 10 minutes. And the miners use their computing power to validate the block. The first miner to achieve consensus is paid some of the cryptocurrency from that blockchain—in this case, bitcoin.

“And then—here’s the important part—that block is connected to the previous block and the previous block to create a chain of blocks.”

The true beauty of this process, he said, is the enormous security it provides.

“So, if I wanted to commit fraud, I’d have to hack that block, plus the previous block and the entire history of commerce on that blockchain. Not just on one computer, but across millions of computers all around the world simultaneously, while the most powerful computing resource in the world is watching me.

“Now I won’t say that’s unhackable, but it’s a lot more secure than the computer systems that we have today.”

Tapscott drove home his point with a familiar comparison: “To hack that blockchain would be like turning a Chicken McNugget back into a chicken.”

Moving on from his bitcoin example, he added that “there are different mechanisms for achieving consensus and the truth, and there are many different blockchains. Hyperledger is a tool for building permissioned blockchains where you know everyone who’s using the blockchain, driven by the Linux Foundation and by IBM.”

And it’s here that this innovation becomes really interesting for retailers.

Retail ramifications

As it turns out, blockchain’s essential attributes of secure encryption, split-second speed and system transparency hold direct application for the retail supply chain.

Dr. Reshma Kamath, a blockchain specialist and research contributor with the BRI, explained it this way. “In the context of retail supply chains, it provides end-to-end monitoring, right from the source to the end consumer,” she told Canadian Retailer.

“A blockchain is a snapshot of where your goods or service have been, and every point touched. All of that information is recorded and uploaded on the blockchain.

“It’s innovative because blockchain is de-siloing the pre-existing legacy systems, these databases that are often isolated and don’t work in tandem with other databases. They exist in their own little vacuum.”

She added: “Blockchain is connecting these databases, taking information from them and putting it on a ledger that is permanent, immutable and a single source of truth. It’s beneficial because it’s changing the way we transact with each other. There will be less erroneous transactions and exchanges, speedier transactions, [and it’s] more cost effective.”

Earlier this year, Kamath published a paper in The Journal of The British Blockchain Association (June 12, 2018) that outlined two ground-breaking pilots by Walmart using IBM’s blockchain solution based on Hyperledger Fabric. One pilot involved tracing the pork supply chain in China, and the other mangoes in the Americas.

Walmart pilots

The pilots were part of a major initiative by the retailer to research food safety in China under the aegis of the Walmart Food Safety Collaboration Center, announced in Beijing in October 2016.

In launching the program, Frank Yiannas, Walmart’s Vice President of Food Safety, underscored the crucial importance of teamwork to the initiative’s success.

“Collaboration is an essential element of the effort to raise food safety standards and increase public trust in China,” he said. “To improve national health, each participant in the ‘farm-to-fork’ supply chain, including farmers, distributors, suppliers and retailers, needs to take an active role.”

“IT’S A GLOBAL GOVERNANCE NETWORK, AND IT’S CHANGING RETAIL. IT’S CHANGING THE STANDARDS THAT WERE APPLIED. IT’S CHANGING THE QUALITY STANDARDS. IT’S REVOLUTIONARY.”

DR. RESHMA KAMATH
Blockchain Research Institute

The pilots produced some remarkable outcomes. The results in the mango case were especially eye-opening.

“With a farm-to-table approach, Walmart’s blockchain solution reduced time for tracking mango origins from seven days to 2.2 seconds and promoted greater transparency across Walmart’s food supply chain,” Kamath noted in her paper. “IBM called it ‘complete end-to-end traceability’.”

As for the pork pilot, “with blockchain, procurement managers can remotely trace all information, from expiration dates to warehouse temperatures. Information about farm origination, batch numbers, processing data, soil quality and fertilizers, and even storage temperatures and shipping details can be uploaded on an e-certificate and linked to the product package via a QR code.”

This depth of information, combined with the speed of reporting, creates a unique dynamic.

“Traceability improves food safety and public confidence,” Kamath wrote. “Should any tainted food reach a consumer, the system can better pinpoint which products should be discarded without jeopardizing an entire product line. This holistic traceability model has the potential to cut costs of product recalls, reduce process inefficiencies, and enable retailers to track individual pork products in seconds, not days.”

One up, one down

Such efficiency would be hard to come by using conventional record-keeping methods, which can result in information bottlenecks and significant time lags.

“The widely-accepted ‘one up, one down’ (OUOD) approach—whereby food supply chain participants know only the immediate supplier (one link up the chain) and the immediate customer (one link down the chain) for a product—is simply insufficient,” the paper observed.

“In suspected contaminations, investigators review paper documentation step by step. Erroneous or incomplete data can further delay their investigations. Multi-ingredient foods and bulk containers may include elements from a variety of sources and multiple countries and traceability gets even more complicated. As a precautionary step, entire shipments are thrown out under OUOD parameters.”

Kamath added: “With blockchain technology, such food shipments will be identified as being safe at a much earlier juncture, while saving millions in sales as well as valuable human lives.”

The heart of IBM’s blockchain is Hyperledger Fabric which supports modular architecture and plug-and-play components such as consensus and membership services.

“It allows both efficient data capture and data control,” Kamath wrote. “Most importantly, users have a shared view of the truth at any point in time as well as ownership and control over their own information.

“Records include audits, agricultural treatments, identification numbers, manufacturers, available device updates, known security issues, granted permissions, and safety-protocols, all logged in real-time and permanently stored as e-certificates.”

The implications for supply chain efficiencies are profound.

“Whether pork or mangoes, Walmart’s blockchain pilots have the capacity to document post- cumulative losses from potential supply chain inefficiencies,” the paper noted.

Blockchain technology has the potential to revolutionize the retail supply chain.

“Such digital tracking could enhance food safety mechanisms, provide quality assurances, and smooth supply chain disruptions from food wastage and spoilage. Each transaction will generate a proof of record, from the pre-seedling stage to the consumer’s table at home.

“Combined with analytics and existing industry standards, the supply ecosystem should benefit from such a comprehensive data snapshot.”

Kamath concluded: “Walmart will continue to experiment, scale, and learn from its blockchain pilots as it builds coalitions within the supply chain ecosystem where members are seeking to implement blockchain applications more broadly.

“Blockchain is bigger and broader than these pork and mango pilots. However, for Walmart, blockchain technology was deployed specifically to solve societal issues of broken food chains. Leveraging existing devices and sensors, Walmart’s blockchain pilots identify systemic vulnerabilities in the food supply chain and go beyond technology and business to regain people’s trust and confidence in food.”

Momentum gathers

The adoption of blockchain into the retail supply chain continues to gather momentum. Kamath noted in her paper that Walmart has expanded its collaboration to include Dole, Kroger, Nestlé, Unilever, Tyson Foods, McCormick and other top manufacturers.

“We need buy-in from [all] the eco-system participants to make this scalable,” Kamath told Canadian Retailer. “I don’t think the latter will be an issue because it’s almost like peer pressure.

“If your vendor is doing it, you better do it also. The deep pockets of the world are doing it. The Walmarts are doing it. And if you want to be part of Walmart’s supply chain you better do it also, because there’s no other option. They’ve instituted this blockchain mechanism and you have to upgrade your system to it.”

Kamath expects that blockchains will ultimately encompass the full gamut of store products—from mattresses to soccer balls—and, with the scan of a permissioned QR code, create a new level of transparency for retailers and their customers alike.

It will also go beyond product history to include manufacturing, labour and shipping conditions, Kamath said.

“Was it [made] in a sweatshop situation? Was there a ten-year-old working on it? And if it was an adult, was it in hygienic conditions? Were they paid wages that are comparable to the host country?”

All this will be permanently recorded and accessible instantly worldwide via blockchain.

“It’s a global governance network, and it’s changing retail,” Kamath said. “It’s changing the standards that were applied. It’s changing the quality standards. It’s revolutionary.”

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