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Walmart: Benefits of the Blockchain in the Supply Chain

I must admit to being something of a skeptic on the blockchain. The first I really became aware of the technology was a decade ago, when the first hype cycle for bitcoin was raging. For me, writing in “A skeptical look at Bitcoin” (Mihelic 2013), I argued that bitcoin itself did not fulfill any of the three basic definitions of money. Instead, it acts like a commodity or an equity, but the difference is that there is not cash flow except for the new people coming into the space, and that is problematic if you want people making transactions and treating the technology as a currency. Bitcoin and related protocols have not sold me, despite their incredible appreciation in dollar value. I have learned more in that there are also limits to how fast you can make transactions and the cost of these transactions with the proof of work protocol. Some of these issues have been worked on with different protocols that make the transaction less computation heavy.

The ideal blockchain is one where you have a need for two parties that function as equals in an exchange but there might be limited trust, and this is a transaction where you want the details to be immutable. The very nature of the ledger is that the history is there embedded in the chain. This transparency is good in that there is no need for middle-people and the market can clear and exchanges or contracts are executed, and the people move on. This exchange is recorded, but there is a potential for distance in not knowing who the actors are. There is a balance between transparency and anonymity. Using a cryptocurrency based on the blockchain is thus the primary possible use case, especially for something like remittances. Unfortunately for the boosters, it feels as if cryptocurrencies are actually exchanged for goods or services the anonymity is the prime benefit, using the technology for ransomware or drugs and not for something like remittances. Ultimately the blockchain feels like a cool and interesting technology chasing a use case. In a lot of ways you could use an ordinary currency or an SQL-based Access database for a lot of the things people trumpet as uses for the blockchain.

However, blockchains do have their uses, even if only in niche cases. For example, the video “Blockchains: how can they be used?” covers using blockchain technology to prevent odometer fraud (2018, 1:10). It is the perfect example because you have two or more parties at the same basic level of power, and you want that transparency so that everyone can track the mileage of a car – from the insurance companies and mechanics to a future purchaser of the used car. It’s a niche case and as the second example of a way that blockchain be used, it is not very overwhelming. The problem with this is that it still needs centralization and coordination to work. To really make blockchain work, you need people to want to coordinate their efforts or you need some sort of centralized director. The niche cases of blockchain thus will work best if siloed in one company or industry that has these existing incentives.

One company that has the power and incentives to work on these niche cases is Walmart. Aside from everything else they do, and their giant footprint in the digital retail space, they have over a quarter of the market share in the US grocery market (“CEOS,” 2022). This means that they are basically responsible for coordinating the feeding of 80 million Americans every year.  That Walmart manages has managed to do so as they have grown is a marvel of efficiency, but there are always more places to be more efficient. Using the blockchain in their supply chain management will have multiple advantages, in an initiative called by McKeen and Smith as a “Business Improvement,” where the goal is to “reengineering initiatives to help organizations streamline their processes and save substantial amounts of money by eliminating unnecessary or duplicate activities” (2019 p. 23).

Currently many retailers use the UPC codes, which identify which specific group that an item belongs to, but the UPC just shows that item as part of a set. With blockchain technology, every single individual item will be able to be tagged with a unique identifier. Either it can be scanned at different points, or it can take advantage of technology like RIFD chips which will allow the item to be tracked in real time and not rely on scanners. This technology may be cost prohibitive at scale for less expensive items, but it does have the benefit of not needing the human labor in the loop every time an item needs to be scanned and inventoried. A company with the scale of Walmart will have the ability to find the break-even point and implement the technology, and additionally this connects to the internet of things which as it scales will help drive company costs down.

Once the tagging and blockchain are implemented, Walmart should be able to see several business improvement benefits. Most of these will be clear to the bottom line, while others will be less tangible. First, the entire supply chain will be visible to the blockchain system in real time. The company will be able to see where things are moving well and places where things are sitting around causing bottlenecks. This will help them be able to be smarter in their purchasing and to be able to reduce prices to move out stale inventory and hopefully reduce the cost of storage as having real time tracking means that just in time purchasing is more feasible. If there is one thing worse than having too much inventory, it is not having the inventory your customers want to buy.

A blockchain based system is also more secure. The ledger is permanent, so any potential malfeasance in terms of faking the inventory count is lowered. The real time tracking also means that you know where your items are until the moment that the leave your store. If you are Walmart, you want that item to have left the store through the act of purchasing, and not by leaving surreptitiously through the front or back door. The blockchain supply chain will lower shrinkage from your customers and your employees.

Finally, the blockchain based inventory system will make your customers safer. The news often has frightening information about some sort of vegetable that has some sort of contamination that makes it unsafe for consumption. This is scary because often these recalls are extremely broad, making you throw out your spinach that might be perfectly fine, but that you dispose of it out of caution. A more robust inventory and supply chain solution will allow Walmart to be able to identify that supplier and to remove their products from the stores immediately. There would be a greater benefit if Walmart could use their power to push tagging and identification out to their suppliers so they could track any potential issues to a single box of grapes, but that is an initiative that might be for down the road as it exists on the edge of the company’s silo. The swift and targeted removal of tainted produce will not just save money, but will help generate goodwill from the customer base, as they learn that Walmart can be trusted to have fresh and safe produce.

There may be other benefits from the implementation of a blockchain for supply chain and inventory tracking at Walmart, but of the potential business improvements that we looked at, all should have a positive effect on the bottom line of the business, and help grow the business as customers know that Walmart will continue to have what they need, when they need it, and at competitive prices because of the efficiencies that they gain from their investments in technology.

 

References

Bitter, A. (2022, December 1). CEOS from Kroger and Albertsons say they're worried about competition from Amazon, but the e-commerce giant barely makes up 1% of US grocery sales. Business Insider. Retrieved January 29, 2023, from https://www.businessinsider.com/walmart-kroger-still-top-grocer-challengers-amazon-gopuff-2022-2

McKeen, J. D., & Smith, H. (2019). It strategy et innovation. Prospect Press.

Mihelic, J. E. (2013, November 28). A skeptical look at Bitcoin. Econ Autodidactic. Retrieved January 29, 2023, from https://econautodidactic.blogspot.com/2013/11/a-skeptical-look-at-bitcoin.html

Simply Explained. (2018, May 29). Blockchains: How can they be used? (use cases for blockchains). YouTube. Retrieved January 29, 2023, from https://www.youtube.com/watch?v=aQWflNQuP_o