Walmart Inc.’s recent mandate that suppliers of leafy, green vegetables use blockchain by September 2019 faces two important hurdles that other companies should consider: the adoption rate of a nascent technology and possible pushback from partners.
Walmart hopes that blockchain asset tracking will help it more accurately and quickly pinpoint issues in the food supply chain to better protect customers against foodborne illnesses. The retail giant worked with IBM and 11 food companies to develop a blockchain-enabled food traceability network built on open source technology.
“The way this will work is by digitizing what is referred to as traceability events and capturing those events in the blockchain network,” said Frank Yiannas, the former vice president of food safety at Walmart. “And some of the pilots and studies that we’ve done showed that we can do that in seconds, and not days or weeks.”
Yiannas — who has since joined the U.S. Food and Drug Administration (FDA) as deputy commissioner for food policy and response — said blockchain will enable companies to track food-related problems, identify implicated products, potentially remove them from the market quicker and protect people from getting ill.
“By being able to do that trace-back that rapidly, you can do better root cause analysis to figure out what happened and try to prevent future similar occurrences,” he said before his FDA appointment.
Important food industry goals include product safety, fair trade and the creation of a more responsible food supply chain. Blockchain asset tracking can help achieve those goals, said Csilla Zsigri, an analyst at New York-based 451 Research.
“In the event of food contamination, blockchain can assist retailers with quickly identifying the problem source and removing only affected items from shelves rather than having to remove all stock of that type,” she said. “Blockchain technology can also make just-in-time delivery more reliable, allowing optimization of the cold chain for fresher production.”
Generally, blockchain adoption is low
Although blockchain, in theory, can improve tracking and tracing, it is still early days for the technology, said Rajesh Kandaswamy, an analyst at Gartner.
Csilla Zsigri451 Research
Generally, across industries, the adoption rate for blockchain asset tracking is low, with 42% of organizations stating that they are only in the discovery phase when it comes to implementing blockchain. Meanwhile, 30% percent are considering possible blockchain vendors, according to Globant’s “2018 Digital Transformation Report.”
“Do we really need only blockchain?” Kandaswamy asked. Food chain tracking problems “could be solved with other technologies because, basically, we’re talking about tracking data end to end. But, at the same time, blockchain comes with the ability to trace things well.”
Walmart’s move in some ways bypasses arguments about adoption, as it is, in essence, forcing adoption on suppliers that want to work with the retailer.
Debate ensues on whether suppliers will push back
Walmart is a leader in the supply chain world, and as it adopts a technology, such as blockchain asset tracking, other retailers are likely to follow, said Andy Borchers, professor of management and associate dean at the College of Business at Lipscomb University in Nashville, Tenn.
Pushback from suppliers is likely but, ultimately, if powerful retailers demand adoption of a new technology, partners are likely to follow, according to Borchers.
“Supplier pushback will be due to the cost for systems to implement,” he said. “Further, they may bristle at Walmart knowing details of their supply chain.”
However, Yiannas said Walmart hasn’t had any pushback from suppliers. “This isn’t anything that came out of the blue,” he said. “We had done two pilots over a year and a half ago, broadly communicated to [the suppliers].”
Walmart then worked collaboratively with 10 suppliers to continue to test, scale and learn.
“We were very public about what we were doing, sharing our experiences and learnings,” Yiannas said. “By the time we made this announcement, I think everybody pretty much knew that we were very interested in leveraging this technology to try to run a smarter, safer and more efficient food system.”
Yiannas also said Walmart reviewed the costs of mandating blockchain asset tracking against the long-term savings of better food-related supply chain traceability.
“We carefully weighed the pros and cons — how costly this would be — [and] conducted a cost-benefit analysis,” he said. “And when you think about the cost of not having a digitized food system, we think the benefits of digitizing certainly outweigh the cost and, on balance, it will save money as opposed to costing money.”
Kandaswamy is not yet sure whether more companies will follow Walmart’s lead and mandate that suppliers use blockchain in the food supply chain. He sees a significant disconnect between the hype in the market versus actual adoption.
“We see many companies that are starting [a] proof of concept, and then the proof of concept stalls — not necessarily because they want to completely reject blockchain,” he said. “They find that either the technology is too immature or the level of work that is needed to realize the benefits of blockchain isn’t really worth it.”
Walmart continues to embrace tech
Walmart has a history of mandating the adoption of technology, so its blockchain asset tracking announcement is significant, said Andy Stinnes, venture partner at Cloud Apps Capital Partners in San Francisco.
“First, it demonstrates how seriously the company and the industry as a whole are taking the opportunities offered by this new technology,” he said. “Walmart is a supply chain leader and has a history of innovation, from its early embrace of the internet and supplier collaboration with its Retail Link program to its 2003 mandate of RFID technology. This is the latest example. Walmart gets the opportunity and is serious about pursuing it.”
The company’s approach is also notable, Stinnes said. Walmart, along with a number of other grocers and consumer packaged goods companies, created an initiative in 2017 to develop and drive adoption of a blockchain-based distributed app platform hosted by IBM.
“Why is this important?” Stinnes asked. “By definition, a blockchain-based solution only delivers value when all participants use it.”
Driving future adoption, therefore, is paramount to success. At the same time, a technology company such as IBM — with a profit motive to invest — is equally important in this scenario.
“Walmart is pursuing this hybrid adoption model where a for-profit IT company [like IBM] is the developer, host and commercial beneficiary of the resulting solution, but with an industry consortium driving adoption and a proper governance model,” Stinnes said.