The day hadn't begun well.
I’d watched the sun rise as I hauled my luggage around the corner of Marble Arch, looking for Number 31. I felt like Harry Potter; searching for the mysterious Platform 9 ¾. After a couple of laps and a fair contribution to my daily 10,000 steps, I came to the imposing black door of Number 31. It was nestled between a small, boutique florist and a bustling Pret a Manger. And as it happened, it was the wrong address.
Upon successfully completing the first challenge of finding the venue, I sat down amongst the equally bemused 17-strong Blockchain Conference delegation who had distributed themselves across the vast ballroom.
I’m an interested Blockchain sceptic.
And as I’ve written previously, I feel there are many questions left unanswered for commercially compelling retail applications of Blockchain technology. My attendance to this conference was to continue my journey of understanding and hopefully find why others hold do much faith.
If I’m honest, I had only scanned the conference description. And it was only now that it began to dawn on me that – just like a dog lover attending a dog festival in Korea – this may not be Crufts. After wading through a fumbled introduction from the MC, full of technical issues and Freudian slips, it became clear that the focus was far from FMCG (Fast Moving Consumer Goods).
I felt out of my depth and out of pocket.
Banking, cybersecurity and database efficiency…
But fortunately, I soon was to be proved very wrong.
Blockchain – A recap
The first speaker began with a summarisation of the attributes of a Blockchain. I was familiar with the core concepts already. But a quick recap and alternate interpretation is always useful to strengthen your understanding.
He described the four elements of Blockchain that combine to create Blockchains unique characteristics:
- Cryptographic - Information within a blockchain is encoded with only specified information able to be decoded by other parties.
- Decentralised - The encrypted information is verified by thousands, if not millions, of computers on a ‘distributed ledger’ simultaneously to remove the ability to forge or corrupt information.
- Identity - Confidential or personal information (like who is making a transaction) and asset identifiers (like owns a unique piece of artwork) are protected by the encryption with authenticity verified through depersonalised strings of characters - known as ‘hashes’.
- Transactional - Blockchain is ultimately an interdependent web of transactions with information (‘meta data’) attached to each transaction. For the likes of bitcoin these transactions contain payment instructions. For traceability, it contains location, supplier or process information.
And then came my lightbulb moment
In my previous article on Blockchain, I had concluded that product traceability alone doesn’t justify the cost and complexity of blockchain. I find the consumer facing product-scanning apps to be gimmicky and fail to recognise the risks of ‘full transparency’ of a complex supply chain in a world of simplified consumer marketing messages.
For me, the business case simply doesn’t stack up.
However, the light bulb moment came as I began to better understand the very agenda items that alienated me at the start of the conference. Supported by a wonderful cohort of speakers, I began to understand the Blockchain benefits for financial and business transactions. And how traceability can piggy back.
- Speeding up supplier payments
One concept new to me was that of a ‘Smart Contract’. Think of these as ‘self-enforcing’ business rules that live on the Blockchain – when A happens; do X.
For retail, the most obvious application is paying suppliers. In its most simple form: when my staff scans the product into the warehouse, pay the supplier. For the avoidance of doubt, these payments can be in whichever currency the parties prefer. They are not limited to Blockchain celebrity crypto-currencies like Bitcoin and Ethereum.
- Integrating Product Safety and Traceability with Finance
Additional criteria like depot quality control checks, delivery van temperature and whether the delivery was on time can all be added into the criteria and influence the payment value - all without any human financial processing.
I believe it is by adding to these criteria that you can begin to incorporate product safety and traceability into a financially-driven Blockchain model.
- Faster Supplier Onboarding
Supplier onboarding can be cut to a fraction of the time with third-party accreditations like British Retail Consortium (BRC) Global Standards and SEDEX Ethical Audit data automatically authenticated prior to supply. Wider banking adoption also opens the door to instant financial stability assessments of new suppliers.
The benefits are clear to both parties: quicker payments for the supplier whilst the retailer significantly reduces human administration.
- GSCoP compliance
In the UK, retailers are increasingly held to stricter codes of practice by the Grocery Conduct Authority (GCA) and their Grocery Supply Code of Practice (GSCoP). The instant and programmable nature of Blockchain Smart Contracts allow those practices and terms to be delivered consistently and independent of emotion.
Additional business rules can be written into the smart contracts to factor in conditional reward and recharge amendments to supplier payments – without intervention, without prejudice.
Of course, supplier relationships are far from pure transactions and therefore it’s important to recognise that the cold, hard logic fails to factor in the nuances of relationships and strategic alliances. Humans are comparably inefficient at processing payments. But they know better than any machine when charging a supplier simply isn’t the right thing to do.
The other element to consider is when factors that influence transactions are subjective. Quality benchmarking, sensory testing and product specification standards must all be clearly defined, agreed to and arbitrated by a mutually trusted body.
- Finally: Slowing down supplier payments
The converse of faster supplier payments is actually a more attractive and logical proposition for retailers wishing to use Blockchain. And it is this more radical procurement approach that may be needed to encourage companies to harness the financial incentive of blockchain beyond the first tier of their supply chain and thus make a viable system for farm to fork product traceability.
An example of this can be illustrated by Bext360, a Dutch start-up who pay their coffee growers and packers directly using Blockchain. Touted as a revolutionary democratic approach within the capitalistic, high-margin world of coffee, Bext360 thrive on their ‘good guy’ image.
However, it is this very approach has the potential to put more power in the hands of the retailer than ever before. In theory, Blockchain makes it possible for a retailer to pay (or more importantly not pay) a supplier based on the actual outcome of a product’s shelf life.
Blockchain allows retailers to deliver an instant, single unit payment at the actual moment a till transaction – no sooner. Product not sold? No payment. Customer subsequently complains – the supplier automatically refunds the retailer.
There’s long been speculation that delaying supplier payments allows supermarkets to, in effect, to use their collective supply base cashflow to their advantage. Sceptics say supermarkets use their suppliers as ‘a bank’.
Blockchain holds the ability to systemise this. A retailer would in-effect formally inherit the risk-profile of a marketplace holding no stock of their own, deferring stock management incentives and thus cashflow liability.
Is it worth it… yet?
The complexity and experimental nature of blockchain means the initial development cost still far outweighs the potential savings versus more traditional server providers like Oracle and Azure or database providers like SAP and IBM.
There also remain many environmental issues about the process power required to support Blockchain. With growing consumer scrutiny over retailer ethical practices, innovators open themselves to further criticism.
I do believe that Blockchain will one day be the default choice for any organisation requiring efficient, transparent facilitation and arbitration of transactions at scale. We will see this emerging in over the next few years for products comprising a single, refined raw material within a closed supply chain where the relative simplicity makes it easy enough to implement and the innovators – such as Bext360 - can leverage it as a point of different, but I think it will be many years before we see this as the mainstay of supply chain transactions
I can see the day where Chief Technology Officers (CTOs) will unite Product Development and Technology with Finance Shared Service functions under a single, streamlined solution. At this time, I believe that this remains the only scalable and sustainable Traceability solution based on Blockchain.
For retailers, this type implementation remains out of reach without wider consortium to share the costs and enforce a shared set of standards. Unless of course, you’re the Amazons or Walmarts of the world…
And there lies the primary reason why, just maybe, Blockchain may be worth the risk.