Walmart: From Supply Chain to Blockchain
A simple question about traceability led one of the world’s most renowned supply chain experts to pioneer a new model of information exchange with its suppliers.
If you wanted to find out where a package of sliced mangoes in a grocery store came from, how long would it take? Frank Yiannas, vice president of food safety at Walmart, asked this very question. Despite Walmart’s reputation for supply chain excellence, it took seven days for Yiannas to get an answer. [1] With incidents such as the E. coli outbreak at Chipotle or the salmonella outbreak in Maradol-brand papayas, companies cannot afford to wait a week to find out the root cause of an issue. [2][3] Reacting in hours versus days can save not only lives, but millions of dollars for the affected company. Unfortunately, the examples above are not isolated incidents – every year 600 million people fall ill due to eating contaminated food, and foodborne illnesses cost the US an estimated $55 – $93 billion in medical costs and lost productivity. [4]
Enter blockchain. Companies are realizing that blockchain can be applied much more broadly than just to cryptocurrencies. Blockchain functions through a distributed ledger where independently owned entities follow a cryptographic protocol to push updates to a shared ledger that are validated in real-time. [5] Since the common ledger functions as a single source of truth, it can serve as an audit trail across a product’s lifecycle and establish trust between parties in the chain. Further, the centralized ledger breaks down barriers in the traditional, siloed model of data exchange, enabling more dynamic chains that require lower inventory levels and have higher service levels. [6]
Walmart has partnered with IBM and Tsinghua University to run pilots using blockchain and IoT sensors that trace pork in China and Mexican mangoes shipped to the United States. [7] In the tests, shipments are tagged with numeric identifiers at the beginning of their journey, and signed and logged at each checkpoint. Across a shipment’s journey, this pilot allows Walmart to track farm origin, batch number, factory and processing data, expiration dates, storage temperatures, and shipping details. [8] By entering a shipment’s six-digit “lot” number in a web portal, an employee at Walmart can pull all this information within two seconds. [1] For Walmart’s supply chain, this technology provides not only traceability – where the product is from and what path it followed, but also transparency – how the food was produced. [8]
Given Walmart’s important position in the global food supply chain, I would recommend that management pursue blockchain implementation more aggressively. For example, Walmart may offer financial incentives for suppliers such as preferential payment terms to adopt these changes to their own production processes. Additionally, Walmart could complement this program with a marketing push where these “preferred suppliers” that enroll in the program are highlighted, both through in-store displays and paid advertising. Besides improving supplier relationships, this would attract additional consumers who find appeal in Walmart’s sustainability and transparency.
While early results from Walmart’s pilot are promising, questions about implementation and feasibility of a broader rollout remain:
- Given the inherent design of blockchain where a single centralized ledger is distributed across all players in a supply chain, how can Walmart ensure that privacy is maintained among competitors?
- What burden does a broader blockchain implementation place on stakeholders across the supply chain, and how can this barrier be overcome by end retailers such as Walmart?
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[1] Robert Hackett, “Why Big Business Is Racing to Build Blockchains”, Fortune, http://fortune.com/2017/08/22/bitcoin-ethereum-blockchain-cryptocurrency/, accessed November 2017.
[2] “FDA Investigates Multistate Outbreak of E. coli O26 Infections Linked to Chipotle Mexican Grill Restaurants”, U.S. Food and Drug Administration, https://www.fda.gov/food/recallsoutbreaksemergencies/outbreaks/ucm470410.htm, accessed November 2017.
[3] “Multistate Outbreak of Salmonella Infections Linked to Imported Maradol Papayas”, Centers for Disease Control and Prevention, https://www.cdc.gov/salmonella/kiambu-07-17/index.html, accessed November 2017.
[4] David Galvin, “IBM and Walmart: Blockchain for Food Safety”, https://www-01.ibm.com/events/wwe/grp/grp308.nsf/vLookupPDFs/6%20Using%20Blockchain%20for%20Food%20Safe%202/$file/6%20Using%20Blockchain%20for%20Food%20Safe%202.pdf, accessed November 2017.
[5] Michael J. Casey and Pindar Wong, “Global Supply Chains Are About to Get Better, Thanks to Blockchain”, Harvard Business Review, https://hbr.org/2017/03/global-supply-chains-are-about-to-get-better-thanks-to-blockchain, accessed November 2017.
[6] Ranjit Norani, “How Blockchains Can Revolutionize the Supply Chain”, Information Management, https://www.information-management.com/opinion/how-blockchains-can-revolutionize-the-supply-chain, accessed November 2017.
[7] Olga Kharif, “Wal-Mart Tackles Food Safety with Trial of Blockchain”, Bloomberg, https://www.bloomberg.com/news/articles/2016-11-18/wal-mart-tackles-food-safety-with-test-of-blockchain-technology, accessed November 2017.
[8] Carlo Gutierrez, “Blockchain at Walmart: Tracking Food from Farm to Fork”, Altoros, https://www.altoros.com/blog/blockchain-at-walmart-tracking-food-from-farm-to-fork/, accessed November 2017.
[9] Walmart 2017 Global Responsibility Report.
What a fascinating read. Very well written and engaging. I agree that the single source of truth aspect behind the common ledger can improve production practices and guard against future food outbreaks. I sense this traceability and transparency can also serve as a powerful vehicle to improve overall lead time. Given that Walmart will gain a more granular understanding of time between each part of the food supply chain (e.g., farm to packing house to transportation), it can use this information to compare similar food production operations (e.g., mango farmer A vs. mango farmer B). The comparison will allow Walmart to understand which operations need improvement and why. By improving underperformers, I can see Walmart improving overall lead time, while uplifting quality standards (for the reasons you mentioned).
Now to your implementation point, which is an important one. Given the limited resources from individual farming operations, Walmart will need to heavily invest in setting up the infrastructure to make this technology come to fruition. I can see Walmart leverage their buying power and make this a mandatory process of doing business with them. As a way to maintain and strengthen relationships with their suppliers, I’d like to see Walmart use this technology as a collaboration tool. A tool that leaves farmers in a better position than status quo. A dialogue that’s focused on collective improvement, rather than a policing mechanism will, in my opinion, create faster adoption among key stakeholders in the supply chain. I’d love to hear what others think about the on-the-ground adoption of blockchain.
Thanks for this awesome post, Alec. I found your explanation of blockchain and how it can be used in the supply chain to be very helpful. It certainly seems like there’s a technological gap if Walmart can’t already today look up where a package of sliced mangoes came from. Then again, having to keep an excel sheet with millions of rows with each row corresponding to a barcode sounds unrealistic. It seems very intuitive to me that blockchain’s system of decentralized nodes (one at each step of the supply chain) adding to a shared ledger for each item could help Walmart keep track of where their stuff is coming from. One article I saw (https://www.accenture.com/us-en/insight-highlights-cgs-blockchain-cpg-and-retail-industries) also mentions the benefit of reducing counterfeit goods, which in Walmart’s case would be making sure (for example) that certain standards of plastics were used to build microwave safe dishes or that the eggs come from humanely treated chickens. In response to your question about privacy, I think it’s a good one – Walmart wouldn’t want its competitors to be able to see the exact supply chain used by Walmart for each of their SKUs. I wonder if using a closed ledger (where only approved entities are allowed access to the ledger) would be sufficient to solve this problem. Then, Target would have to share a distributor with Walmart and ask the distributor to send them all their data on Walmart. In that case, Walmart perhaps could have contracts specifically barring the distributor from sharing data derived from closed ledgers.
One question that worries me a bit about their endeavor, which you alluded to, is the need to get the whole chain bought in on using the same blockchain system to trace an item from farm to shelf. The costs of doing so much be sufficiently low enough that it’s worthwhile given all the other benefits (tracing, safety, efficiency, etc.).
What an interesting read! I especially appreciate this article because it also helps me to think further about the cases we learned in the supply chain module.
I agree with Alec’s concerns in the end but would like to add on his second point: I believe Walmart also needs to consider the pushback and financial burden to get the suppliers on board for the blockchain system to work. Recall the Barilla SpA case, where the manufacturer hopes to push for a JITD program but faced tremendous resistance in implementing from upstream players in the supply chain (namely the distributors). It is hard to demonstrate the value of the blockchain to the suppliers in Walmart’s case- why should they want to be more easily traced and hence accused or punished if something goes wrong? Who is going to absorb their cost of digitalization in order to make the system work?
I also think geopolitical risk could be another concern for the blockchain. China government has been doing a lot of damage control on the food-safety scandals within the nation, and it was one of the reasons the government was willing to push for the blockchain initiative in China and for Alibaba in Australia (South China Morning Post http://www.scmp.com/tech/enterprises/article/2107847/coalition-drive-global-food-safety-efforts-blockchain-platform), but when it is China’s turn to provide traceability of questionable food items exported overseas, the willingness to cooperate could differ. It makes sense that Walmart pushes for this initiative since 50% of its items sold are food related, but things could complicate when you try to strike a deal with the China government.
Great article! I really enjoyed reading about the application of blockchain beyond cryptocurrency and fintech. In evaluating the use of blockchain in Walmart’s supply chain beyond pilot studies, I worry about the implementation. Not only will Walmart need to ensure it’s suppliers have the IT infrastructure to support a blockchain solution, I wonder if Walmart has the ability to tap into the talent required to implement the project. “Hot” areas in tech, such as AI and blockchain, are facing massive talent shortages. In evaluating the opportunity at Walmart versus traditional tech players, it seems unlikely that Walmart will be able to attract the talent necessary to execute, monitor and maintain such a system. With the help of IBM and Tsinghua University, it may be feasible in the short term. But as a long term strategic move, it seems like Walmart will need to have internal capabilities sooner, rather than later.
Very thought provoking article – well done! I agree that Blockchain is an important tool to ensuring the data is distributed and unmolested, and perfectly suitable to a supply chain tracking.
One item of concern in cryptographic blockchain is that even though data is physically held and confirmed by many parties, the encryption key used to access the data still lies with a single party – this consolidates risk in the firm handling the encryption. Even though the data itself is safe, access to it can be gained by targeting a single party (https://hbr.org/2017/03/how-safe-are-blockchains-it-depends). The value of distributed data to eliminate tampering when access is still consolidated into keys or encryptions owned by a single or few entities. A hacker only needs to target one location to gain access to all of the data. How can we address this added concentrated risk?
Very interesting read on an additional application of blockchain.
Regarding risk of information leaks, I agree that this is a very material, and probably unavoidable, risk. For an open ledger approach, competitors could easily access the complete dataset from friendly shared suppliers. Even with a closed ledger approach, as Jim Holden mentioned, access can be achieved by unwanted third parties.
In terms of burden, I believe Walmart can leverage its powerful position in the chain to establish this new technology. However, It should consider the cost impact, which could be high, especially for smaller scale suppliers. Therefore, I would suggest a gradual approach, starting by implementing the technology for those suppliers which:
1. Can adopt the technology more easily (e.g. large scale, sophisticated suppliers), and
2. Will have a stronger impact from improved traceability (e.g. perishable goods)
Great Article!
I do believe that blockchain can have a great use case beyond fintech and supply chain seems to be one such area. However, I do question the need for a blockchain solution for Walmart. Blockchain at its essence is a distributed ledger, where no central party should have the power to change data or have sole access to it. In this particular situation, very few people appear to control the chain, which could still open up for manipulation and it seems that a pure IOT solution integrated with a central tracking software would serve the exact same purpose. This is one of the drawbacks of a private blockchain solution. However, there is some merit in arguing that a consortium implementing a private blockchain solution can work where no member of the consortium is incentivised to ‘game’ the system which can be a soluton to ensure greater privacy.