Blockchain Technology: Walmart’s Holy Grail of Food Supply Chain Management?
Walmart bets big on blockchain to improve its food supply chain management.
As food supply chains become more fragmented and critical to retailers, Walmart, in collaboration with IBM, is testing the effectiveness of blockchain on enhancing the trackability and safety of its products. Even if first results are promising, the company still needs to prove at a larger scale the benefits of a technology initially developed to create Bitcoin, the first digital currency.
Walmart’s food supply chain is an evolving, complex and global system. The big American retailer currently sources food products from 29 countries in 4 continents [1], including dairy products from Bangladesh, flowers from Kenya and seafood from Chile. Walmart’s need to monitor and understand its food supply chain is larger than ever. In the recent years, federal regulations have become stricter [2] and customer demands for supply chain transparency are on the rise. The World Health Organization estimates that 1 in 10 people fall ill every year in the world and 420,000 die from eating contaminated food [3]. In a highly competitive sector such as consumer retail, food supply chain risk mitigation is key to avoiding safety issues that could result in irreparable damage to customers, and therefore to Walmart’s financial statements and brand reputation. Consequently, Walmart has launched the “supply chain transparency and quality program” as part of its “enhancing sustainability” initiative [4] with the objective of “promoting transparency, food safety and animal welfare in products for customers”.
Blockchain technology, if successfully applied, offers Walmart the opportunity to be more sustainable by improving product trackability and information sharing along its food supply chain. Potential information to be stored on the blocks includes data related to product origin, factory details, expiration dates, customer and border controls, shipping, etc. Another important benefit of blockchain is that fraud and errors become much less likely to occur because information stored in the blocks cannot be modified without associated modifications to all subsequent blocks, which would require the approval of the rest of the network.
Aware of the advantages that blockchain might bring to its objective of enhancing sustainability, Walmart has already run two tests in partnership with IBM [5]. The first test consisted of tracking Chinese pork and the second involved tracking Mexican mangoes. Results are encouraging. Frank Yiannas, Walmart’s Vice-president of food safety, told Fortune magazine [6] that when using the company’s traditional tracking system, it took his team almost seven days to find out the origin of a box of mangoes he had picked up from a shop, as compared to two seconds when the team used blockchain technology.
Given the success of these first trials, Walmart and IBM have encouraged other companies to join them in testing further the applicability of blockchain in food supply management. In August 22nd, 2017, IBM announced a major blockchain collaboration including Walmart and nine other food supply world leaders [7] to address food safety worldwide.
In the future, Walmart expects to adopt blockchain technology throughout its entire food supply chain. To do so, Walmart’s management should focus on two sets of objectives:
- In the short term, the company needs to demonstrate the applicability of blockchain in the consumer retail industry, and identify and asses all potential risks associated with this technology.
- In the medium term, Walmart should build internal capabilities to control the blockchain technology without depending on external companies such as IBM. The risk of being dependent on technology providers is too big for Walmart, especially considering that one of its main prospective competitors in the retail landscape is Amazon, a technological company. To develop internal capabilities means to build the necessary infrastructure and to attract and train tech-savvy human talent. Another key aspect Walmart should focus on in the medium term, and probably the most challenging, is to convince key supply chain stakeholders (i.e. farmers, distributors, importers, third-party logistics, restaurants, etc.) to adopt this technology. These stakeholders should be approached with a clear value proposition because their buy-in is critical to successfully deploying blockchain at a system-wide level.
To conclude, blockchain technology has the potential to completely disrupt Walmart’s food supply by increasing product trackability and information sharing safety. However, the company is still at very early stage of blockchain implementation and many challenges lie before a full roll out. How the management approaches the next two years will determine if blockchain will have the expected impact in Walmart’s supply chain transparency and quality. In this sense, two main questions arise in the medium term: 1) Is blockchain technology mature enough to be applied to a process as sensitive as the food supply chain? 2) How are all the stakeholders along Walmart’s supply chain going to react to the introduction of this new technology?
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References
[1] Corporate.walmart.com. (2017). Spotlight on sustainability in the food supply chain. [online] Available at: https://corporate.walmart.com/2016grr/enhancing-sustainability/spotlight-sustainable-food-chain [Accessed Nov. 2017].
[2] Fda.gov. (2017). FDA Food Safety Modernization Act (FSMA). [online] Available at: https://www.fda.gov/Food/GuidanceRegulation/FSMA/ [Accessed Nov. 2017].
[3] World Health Organization. (2017). WHO’s first ever global estimates of foodborne diseases find children under 5 account for almost one third of deaths. [online] Available at: http://www.who.int/mediacentre/news/releases/2015/foodborne-disease-estimates/en/ [Accessed Nov. 2017].
[4] Corporate.walmart.com. (2017). Enhancing sustainability. [online] Available at: https://corporate.walmart.com/2016grr/enhancing-sustainability [Accessed Nov. 2017].
[5] Lohr, N. (2017). Blockchain: A Better Way to Track Pork Chops, Bonds, Bad Peanut Butter?. [online] Nytimes.com. Available at: https://www.nytimes.com/2017/03/04/business/dealbook/blockchain-ibm-bitcoin.html [Accessed Nov. 2017].
[6] Fortune. (2017). Why Big Business Is Racing to Build Blockchains. [online] Available at: http://fortune.com/2017/08/22/bitcoin-ethereum-blockchain-cryptocurrency [Accessed Nov. 2017].
[7] Fortune. (2017). Walmart and 9 Food Giants Team Up on Blockchain Plans. [online] Available at: http://fortune.com/2017/08/22/walmart-blockchain-ibm-food-nestle-unilever-tyson-dole/ [Accessed Nov. 2017].
I agree that blockchain presents an interesting opportunity for Walmart to be a leader in the sustainability and food safety space and potentially gain a competitive advantage when it comes to understanding their supply chain and creating efficiencies within it. This is especially true as Walmart seeks to eliminate a billion tons of emissions from along its supply chain by 2030 (see: https://d3.harvard.edu/platform-rctom/submission/save-emissions-live-better-walmarts-gigaton-gauntlet/?section=7749&sort=rand). I disagree that Walmart necessarily needs to build this technology entirely in-house. Doing so could distract from Walmart’s core competency of retail and supply chain management and might make the project so costly, especially as they would have to build a tech talent pipeline in Bentonville, that it is viewed as impractical by senior executives. At this stage, partnership, therefore, seems like the right choice to me.
The point you raise about how stakeholders will react along Walmarts supply chain reminds me of the challenges faced by Barilla in introducing just-in-time. Walmart has a scale that has gotten them buy in from at least some suppliers who have participated in pilots. I wonder whether the rest of their supply chain will be compelled by the results? Or will they like Barilla’s distributors fear losing even more control to Walmart if they give up instant data about their processes?
This is a trial that is going on across many industries at the moment. From verifying the authenticity of diamonds (DeBeers reacting to the rapid growth of lab-grown diamonds), to the tracking of vaccines, there are many different solutions being developed. As Wal-Mart develops its own solution in conjunction with IBM, how will its suppliers work with other competing solutions? There is risk in the possibility that Wal-Mart, or some other entity, develops a proprietary blockchain and uses its size and early entry to force suppliers to adopt its system, enabling it to engage in rent-seeking behavior. Separately, how will suppliers react to competing blockchain solutions? Will suppliers one day be abstracted from individual blockchains by an intermediary, perhaps some sort of software that interconnects them all?
A completely separate issue is what type of blockchain solution is implemented. Will it rely on proof of stake? Proof of work? Blockchains require some sort of proof, and it is possible that what may be a reasonable solution in a trial may not scale well in terms of resource requirements. The most prominent blockchain currency today, Bitcoin, already consumes more electricity than the majority of countries in the world, and that is with a marketcap under $200B.
Reading your note makes me hopeful about the adoption of blockchain technology across industries. Although I agree that this is a great opportunity for Walmart, I see a greater opportunity for the food industry as a whole in the form of standard setting, trackability, and potential quality control and contract enforcement (through the use of smart contracts). With that said, it is possible that Walmart can create its own distributed ledger, but its adoption might not be wide-spread due to technological limitations and distrust from players along the value chain. In order for blockchain to succeed and produce the largest amount of efficiencies, the food industry (and not only Walmart), will have to work together or with a trusted partner (e.g., IBM, Hyperledger, etc.) to establish a network that can set standards and use cases for the ledger.
What a fascinating read! Your paper makes me excited about the future possibilities for blockchain and other digital innovations on the supply chain. The potential upside is enormous: increased transparency for the end consumer about where their ingredients are sourced from, faster and more cost efficient responses to contaminated food epidemics, and increased pressure on suppliers to maintain standards of quality and safety. The difficult thing, as you pointed out, is the implementation. I actually agree with your suggestion that Walmart build out technical capabilities for blockchain tracking in house – this will help them maintain control and visibility over operations and help monitor and spread best practices among suppliers. At the same time, however, I can see value in Walmart and other major retailers outsourcing blockchain capabilities to a third party. This option would allow Walmart to remained focused on its core competency of retail operations and avoid the potential trouble of attracting top tech talent to Arkansas. Outsourcing to a third party would also allow better data collection, since data would be collected across suppliers from all participating retails, and faster response across retailers if contamination is discovered in a shared supplier.
Interesting read on the impact of implementing the blockchain at a massive retailer like Wal-Mart. I think the second question you ask is the most challenging. Because of the massive number of components in the company’s supply chain, it would seem to be very difficult to get everyone on board. Wal-Mart’s key advantage here is its size, by virtue of which it can effectively force everyone to get on board. Even with this however, there’s going to be a significant adjustment period which will require a robust training pipeline for Wal-Mart’s suppliers and internal management. If blockchain is a new and intimidating technology for a student like me, it’s reasonable to think it will be the same for the thousands of employees at Wal-Mart. How the company addresses this challenge is key, and the answer to your first question may well be conditional on the second.
Impressive how many uses of the blockchain have come up in the last year. I guess the true question is where blockchain can NOT be applied?
It is still not 100% clear to me how could the block chain have such a tremendous effect as in the example of mangoes mentioned above unless the previous process was really precarious. However, I guess that serves as supportive evidence that the requirement of the approval of the network to make every single change in the chain results in a process that needs to be followed and offers a benefit that goes beyond protection against fraud. For that reason, I do think that blockchain is already mature enough to be applied to food security, simply because it is already a better process. To the second question, I am sure that in the short term the application of blockchain to food security will be delayed by those stakeholders that are still resistant to change, but once some critical stakeholders adhere to the new technology it will be just a matter of the whole supply chain be controlled via the blockchain.