Solving supply-chain challenges: The Walmart Strategy
🗣 Walmart has long been known as a leader in supply chain management. However, its prowess could not insulate it from a problem plaguing the transportation industry for decades: vast data discrepancies in the invoice and payment process for freight carriers, which required costly reconciliation efforts and caused long payment delays. Then Walmart Canada pioneered a solution: It employed blockchain, a distributed ledger technology, to create an automated system for managing invoices from and payments to its 70 third-party freight carriers.
The essential service of moving a massive quantity of goods (many of which are perishable) across borders, time zones, and different climates is an enormous operational challenge. For example, each load shipped requires tracking data points such as stop locations, gallons of fuel, and temperature updates that need to be independently calculated and incorporated into each invoice. With over 200 data points that needed to be factored into invoices, it is easy to see how the invoice and payment process could be fraught with data discrepancies. And with 70% of invoices requiring reconciliation efforts, there were increased transaction costs and unhappy carriers waiting for payments.
How it all started
🗣 We rarely think about it, but the modern food system is a marvel. We have access to fresh produce all year round, buy exotic food from all around the world, and have more variety than our ancestors could ever dream of.
When an outbreak of a food-borne disease happens, it can take days, if not weeks, to find its source. Better traceability could help save lives by allowing companies to act faster and protect the livelihoods of farmers by only discarding produce from the affected farms.
Our food is generally safe to eat. Still, occasionally it can make us sick. In 2018 there were at least 18 reported outbreaks of foodborne illnesses in the USA, including the E. coli found in romaine lettuce. According to Walmart, millions of bags or heads of lettuce had to be removed, and consumers lost confidence in romaine lettuce altogether. Better traceability could help save lives by allowing companies to act faster and protect the livelihoods of farmers by only discarding produce from the affected farms.
For this reason, Walmart has always been interested in enhancing transparency and traceability in the food system. Walmart’s CEO explains that the company has tried many systems and approaches to solving this problem over the years; none had brought them the kind of results they were after. When Walmart’s CEO first heard about blockchain and the idea of using it to trace food in the supply chain, he was skeptical, but the available data turned his opinion around.
Challenge and approach
🗣Analysis identified the root cause of the problem: the use of multiple information systems between Walmart Canada and its carriers that could not talk to each other. Consequently, reconciliation had to be performed manually — a labor-intensive, time-consuming process riddled with inconsistencies.
One of Walmart Canada’s tech leaders suggested automating the process by creating a blockchain network, which would overcome the problem of incompatible enterprise systems and would establish a shared single source of truth for all parties.
The idea that came to life from this approach turned out to be better than expected. The Hyperledger Fabric blockchain-based food traceability system built for two products worked. For pork in China, it allowed uploading certificates of authenticity to the blockchain, bringing more trust to a system where that used to be a serious issue. And for mangoes in the US, the time needed to trace their provenance went from 7 days to… 2.2 seconds!
Walmart can now trace the origin of over 25 products from 5 different suppliers using a system powered by Hyperledger Fabric. The company plans to roll out the system to more products and categories in the near future. In fact, it has recently announced that it will start requiring all of its suppliers of fresh leafy greens (like salad and spinach) to trace their products using the system.
Choosing the blockchain
🗣 Walmart Technology considered several blockchain technologies but ultimately decided to go for Hyperledger Fabric. “IBM brought Hyperledger Fabric to us. We looked into Ethereum, the Burrow project, and others. Ultimately, we decided to go with Hyperledger Fabric because it met most of our needs for blockchain technology,” Bedwell said. “We felt that it best met our needs. It is enterprise-grade blockchain technology, and it is permissioned.”
The team also found it important to work with an open-source, vendor-neutral blockchain. Since the food traceability system was meant to be used by many parties, including Walmart’s suppliers and even direct competitors, the technology ecosystem underlying it needed to be open.
Hyperledger Fabric is a blockchain framework implementation and one of the Hyperledger projects hosted by The Linux Foundation. Intended as a foundation for developing applications or solutions with a modular architecture, Hyperledger Fabric allows components, such as consensus and membership services, to be plug-and-play. Hyperledger Fabric leverages container technology to host smart contracts called “chaincode” that comprise the application logic of the system.
How it all developed
🗣 In October 2016, Walmart, together with its technology partner IBM, announced two projects: one was about tracing the origin of mangos sold in Walmart’s US stores and the other aimed to trace pork sold in its China stores.
For the mango POC, they started by creating a benchmark. First, they bought a packet of sliced mangoes at a nearby Walmart store and asked his team to identify which farm they had come from – as fast as possible. The team started calling and emailing distributors and suppliers, and eventually had an answer almost seven days later. This was not bad by industry standards, but Walmart wanted to do much better. So together with IBM, they got to work building a blockchain-based food traceability system.
The Walmart Technology team looked at their own processes as well as those of their suppliers to design the application. Suppliers used new labels and uploaded their data through a web-based interface.
The Hyperledger Fabric blockchain-based food traceability system worked. For pork in China, it allowed uploading certificates of authenticity to the blockchain, bringing more trust to a system where that used to be a serious issue. And for mangoes in the US, the time needed to trace their provenance went from 7 days to… 2.2 seconds!
🗣 Here are the lessons from the Walmart Canada effort that other companies interested in creating a blockchain network can apply:
- Involve key stakeholders. The participation of Bison Transport, which has one of the largest truck fleets in North America, allowed the design team to get the carriers’ view of the problems that needed to be solved and ensured that solutions would work not just for Walmart but also for its logistics partners.
- Weigh the pros and cons of using a private vs. a public blockchain. A public blockchain network — one that anyone can join without asking for permission — allows unlimited viewing of information stored on it, eliminates intermediaries and operates independently of any governing party. It is well-suited for digital consumer offerings (like NFTs), cryptocurrencies, and certifying information such as individuals’ degrees or certificates.
But private networks are often far better suited for businesses because access is restricted to verified members and only parties directly working together can see the specific information they exchange. This better satisfies industrial-grade security requirements.
- Agree on the business rules and calculations. Any complex business has both fixed and variable processes and costs and they are rarely, if ever, the same for any two companies. A fundamental prerequisite for creating a blockchain-enabled system is to get the parties to agree to all the calculations and business rules that the network will employ.
The DL Freight blockchain synthesizes all the data points in real time throughout each unique delivery, taking into account information such as fuel costs, off road mileage, and delays at the delivery point. The system creates a running invoice that evolves in real time as costs accrue.
- Build in checks and balances. Automated checks and balances can and should be built into the blockchain system — both to prevent errors and to identify opportunities to enhance performance. These checks and balances result in a self-learning system. As multiple carriers travel between identical start and end points over time, the history of the carriers’ performance is aggregated and automatically compared to each subsequent trip.
The financial value of automated checks and balances goes beyond payments, making possible highly efficient management of working capital and creating a market for financial institutions that can now provide financing at any stage of the supply chain.
- Don’t try to replace legacy IT systems. While legacy systems may be older and rigid, they almost always have unique strengths, and the data they hold is valuable. So rather than insisting the legacy systems be replaced, any blockchain system should rest on top of the parties’ legacy systems. Its ability to do so is one of its great benefits.
One of the biggest benefits of the blockchain platform is the unprecedented level of trust its end-to-end supply chain visibility has created between Walmart Canada and its carriers. The original goal of the initiative was to eliminate disputes and wasted resources. But the blockchain solution has also provided Walmart and its supply chain partners with insights that have led to major operational improvements.
🗣 The success of Walmart Canada’s system has demonstrated the potential of blockchain. It has shown that the technology can generate significant operational and financial gains and improve supplier relations.