Blockchain for the supply chain

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Blockchain for the supply chain

By Laurence Haziot - 01/19/2018

The holiday season may be over, but retailers can’t let down their guards yet.

From returns and exchanges, to everyday measures like ensuring the quality of the products they sell, competitive pricing and managing supply and demand, retailers are shining a spotlight this coming year on their supply chains.

Retail stores know merchandise returns and exchanges significantly impact their bottom line. Not only do one-third of gift recipients report exchanging at least one item during the holiday season, but returns equate to approximately $260.5 billion in lost sales for U.S. retailers, according to the National Retail Federation.

With the high volume of holiday gift returns on top of the existing complexities around supply chain management, it is becoming increasingly difficult for retailers to decipher between legitimate and fraudulent activity. Companies are searching for new methods to quickly identify fraudulent transactions and returns, which can cost retailers between $9.1 billion and $15.9 billion annually.

An easier, more secure solution for retailers to authenticate and effectively manage these transactions is by using blockchain technology. Simply put, blockchain is a shared ledger that is decentralized and resistant to tampering. It allows verified contributors to store, view and share digital information in a security-rich environment, which helps to foster trust, accountability and transparency in business relationships, making it an ideal solution for supply chains.

BLOCKCHAIN TO THE RESCUE

Blockchain’s trusted and shared system of record creates a permanent digitized chain of transactions, and provides retailers the ability to accurately and quickly trace products throughout the world.

The implementation of blockchain technology is growing at a rapid pace. In fact, a recent study by IBM’s Institute of Business Value (IBV) found one third of almost 3,000 C-Suite executives surveyed are using or considering blockchain in their business.

In our globalized economy that is dependent upon both exports and imports, properly tracking the shipments of retail products from manufacturers to stores to customers is complex. According to Maersk, a simple shipment from East Africa to Europe can go through nearly 30 people and organizations, including more than 200 different interactions and communications among them tracked largely in paper documents. This complicated process demonstrates the value of and need for blockchain’s digital chain that tracks products accurately and in real-time.

Not only does blockchain pinpoint a product’s location, but it also traces the authenticity of products. Fraudulent activity can occur as products move from manufacturer to the supplier, to retailer and finally to consumer — and back, if a customer is returning or exchanging the item.

Tracing authenticity is imperative especially with luxury items. Retailers can smart tag designer products — handbags, sunglasses, watches, etc. — and put them on a blockchain to ensure that the purchased or returned items are authentic. This puts a hard stop to brand impersonation. For example, Everledger uses blockchain to authenticate and trace the origin of high-value and luxury goods, such as diamonds and wine that are authenticated by trusted players like certificate houses. This better protects suppliers, buyers, and shippers against theft, counterfeiting and other forms of corruption.

THE IMPLICATIONS FOR FOOD

Blockchain doesn’t just help track holiday gifts. Its technology is also valuable in ensuring food safety among grocery retailers. Recently, a group of leading companies including Dole, Driscoll’s, Golden State Foods, Kroger, McCormick and Company, McLane Company, Nestle, Tyson Foods, Unilever, Walmart and IBM banded together to work across the global food supply chain to further strengthen consumer confidence in the global food system. As an extension of this work, Walmart, JD.com, IBM and Tsinghua University launched a Blockchain Food Safety Alliance in China to apply blockchain technology for food traceability to support offline and online consumers. This partnership demonstrates that blockchain is applicable in any retail sub-sector.

A new IBV study released this January surveyed 203 organizations in the consumer industry finding 18 percent of the total of consumer industry organizations are currently using blockchain. The top six specific consumer areas which those surveyed see blockchain transforming are product safety and authenticity, supply chain optimization, finance/operational processes, regulatory compliance, promotional strategy management, customer engagement and co-creation.

There are also significant opportunities to introduce new business models that transform customer engagement. Nearly three quarters of surveyed consumer executives using blockchain expect provenance enabled product safety and authenticity solutions with blockchain to positively impact their industry and 59% think it will help create new business models in product safety and authenticity.

This is important as customers can feel let down when their choice items are sold out, face shipping delays due to inclement weather, or have difficulty in the return or exchange process. These experiential challenges shape a customer’s overall opinion of a retailer and the customer service they offer. Blockchain can help to better manage these variables that impact customer experience and expectations.

As the global supply chain continues to become more vast and complex, reducing complications and potential risk while improving customer service is possible with blockchain. We will continue to see how this new emerging technology streamlines the retail industry in 2018—and believe it’s a key opportunity to maintaining market share in the years ahead. 

Laurence Haziot is Global Managing Director and General Manager Consumer Industries, IBM