Blockchain: Taking the pain out of supply chains
Financial disputes are never pleasant, let alone when time is precious and there are sales to be made. Highly complex ecosystems, retail businesses today are supported by a myriad of suppliers, services and entities outside the central company. The larger the network, the more chance of financial mishap and lack of direct accountability.
With advancements in technology emerging almost daily, it is hard for businesses to keep up. Startups have a degree of agility when it comes to taking on new technology – they have fewer invoices and documents to lose – but the larger the retailer, the longer it takes to upgrade.
But now, every digit, transaction, deal and detail a retailer needs can be recorded and accessed in one permanent, secure and transparent location. This is made possible by blockchain, a technology that has rapidly grown to prominence lately as the platform driving Bitcoin currency. It is a potential game changer in that it enables organisations in all industries to work more effectively.
The big question is: can all the intermediary platforms be removed to enable this?
Basically, blockchain is a permanent, digitised chain of transactions held in a digital ledger. As it is grouped in blocks, it cannot be changed once data has been entered. Think of it as a constantly updated Google document linked to many users, and both impenetrable and untraceable.
With the potential to vastly reduce the cost and complexity of completing transactions, blockchain can make it easier to set up more efficient business networks where virtually anything of value can be tracked and traded without the need of a central point of control. Each participant has an exact copy of the data, and updates to the blockchain are shared throughout the network, based on each participant’s level of permission. This way, all participants in an interaction have a shared view of the truth governed by a consistent and agreed consensus process.
Lower cost and risk
While blockchain is known for being the technology underpinning digital currency Bitcoin, it has much to offer retail. IBM is developing private-permissioned blockchain software and says its end-to-end-platform will enable businesses to re-frame how they address supply and distribution challenges, and increase working efficiencies. There is also the potential to uncover new revenue streams.
“Blockchain can enable retailers and their business ecosystems to work together, resulting in faster transactions with lower cost and risk,” says IBM distribution and retail industry lead Amanda Garland.
“The technology establishes accountability and transparency while streamlining business processes across the retailer ecosystem, including outlets, suppliers, financial institutions and customers.”
With permissioned blockchain networks, information can be shared between retailers, suppliers, wholesalers and customers on the network. This eliminates the cost and complexity of traditional intermediaries or point-to-point links to interconnect participants.
“When the ecosystems of trading partners directly share information in this way, much of the complexity and process friction is reduced,” says Garland.
“By design, no one party can make changes in the blockchain without consensus from others on the network. This makes the system useful for ensuring the immutability of contracts and other information that has been shared on the network.”
At its core, blockchain is a different way to share data within and across organisations. For it to work in a supply chain setting, all participants need to understand the data in the blockchain, says Richard Jones, head of marketing and training at global standards firm GS1.
“A blockchain is a continuously growing set of shared records, or blocks, that are linked to each other and secured using cryptography,” Jones explains.
“The most well-known use of blockchain is as ledgers underpinning Bitcoin. But now industry is investigating how the technology can be used to support a range of other business processes, such as records management, provenance and traceability.”
And while most of the dialogue around blockchain has focused on the technology itself, Jones says one aspect that has not been fully considered is the data or the information in the blockchain.
“GS1 is working with key industry bodies and major providers including IBM and Microsoft to ensure that emerging blockchain technology incorporates the existing data standards used by millions of businesses around the world. This will ensure their migration to blockchain can be seamless and simple.”
IBM says blockchain can enable retailers to simplify how they work within their industry’s ecosystem while enabling trust, accountability and transparency. Blockchain benefits for retail are wide-ranging, with potential uses including financial dispute resolution and debt recovery, supply chains, ethical sourcing, provenance, food safety, and complex contract management.
Garland says the more complex a retailer’s ecosystem, the more involved their financial transactions. As a result, financial disputes can often arise and unravel the system.
“Working out why parties disagree on a certain transaction can tie up significant resource and capital in the case of a dispute. Every extra day spent trying to resolve issues puts a business at greater risk of financial loss, encountering non-compliance penalties and litigation,” she says.
“When blockchain is applied to ledgers, the technology can eliminate a huge proportion of disputes through increased transparency, saving time and costs.”
There are already prominent examples of blockchain being used within retail, such as Walmart improving its tracking, transporting and sales of food to Chinese consumers. It teamed up with IBM and Tsinghua University last October to devise a blockchain system to improve food traceability, enabling transparency and efficiency in supply chain records.
Walmart is also part of a group of global food supply chain companies involved in a blockchain collaboration with IBM intended to strengthen consumer confidence. The consortium also includes Dole, Driscoll’s, Golden State Foods, Kroger, McCormick and Company, McLane Company, Nestle, Tyson Foods and Unilever.
In Australia, in contract management, ANZ, IBM, Scentre (which owns Australian Westfield shopping centres) and Westpac have completed a blockchain trial for bank guarantees. It used distributed-ledger technology (DLT) to eliminate the need for bank guarantee documents, resulting in a single source of information with reduced potential for fraud and increased efficiency. Jones says the main areas identified for blockchain within retail are in product traceability and provenance.
“Traceability means retailers can swiftly and efficiently recall or withdraw stock items should it be necessary. This can include contacting customers who have already bought the items so they can be advised not to use them.
“Provenance means brands can inform customers of the source of the food they are considering buying. It can also be applied to luxury goods to provide provenance and confidence that the goods are original and not counterfeit.”
Startup Everledger uses IBM blockchain technology to power its global certification service. It tracks valuable items such as diamonds, fine art and luxury goods through the supply chain. This helps protect suppliers, buyers and shippers against theft, forgery and corruption.
Distributed retail shopping platform Gatcoin has found another use for blockchain. Digital marketing manager Chris Tong says that with its high-speed, super-large ledger technology, the company’s platform allows retailers to issue their own cryptocurrencies in place of traditional discount coupons, loyalty points and gift vouchers. Cryptocurrencies can be used to buy products or traded by holders for other retail currencies or cash on Gatcoin’s cryptocurrency exchange.
“We believe the biggest application for blockchain in retail is for rewards and incentive programs.
Its inherent features make it ideal for customer acquisition, engagement and retention, while collecting analytics on spending habits across multiple market segments,” says Tong.