Blockchain Technology Offers Retailers High Level of Transparency, Accountability, Security and Visibility
People working in the retail supply chain typically don’t like the words “block” and “chain” used in the same sentence. These words imply a disruption in the seamless flow of goods from producer to consumer. However, taken as one, the term "blockchain" may bring new life to the interconnectivity of the retail supply chain.
Blockchain is a new computing infrastructure that has grown within the digital currency industry and is now being brought to the retail market by the likes of Microsoft (i.e., Azure), IBM (i.e., Hyperledger), powerhouse retailers, and many strong retail brands. Why? Simply put, security and speed.
At its heart, a blockchain is a distributed database of records (a public ledger of sorts) that represents all transactions or digital events that have been executed and shared among participating parties. Once entered into the blockchain, the information cannot be deleted or erased (data is logged in a distributed ledger so no single user can unilaterally delete it). However, many users may access, inspect or even add additional blocks to the data. The end result is a high level of transparency, accountability and visibility.
Consider an agreement between a U.S. retailer and a Chinese manufacturer. Once the business partners create an agreement for making transactions (e.g., placing orders), the standards are set. This occurs for every transaction so discrepancies are quickly uncovered and plans can be adjusted in a much more agile manner. Future transactions become automated, allowing the Chinese company to fill the next order without complex logistical discussion and paperwork. In fact, with the rules of the order set, the Chinese company can move forward with all documentation overnight while the retail employees sleep in the U.S. Additionally, if the terms of the agreements and the orders match, payments can all be made straightaway. This means those problematic handshake agreements we all use in business can now be recorded, tracked and paid directly in a simplified way without forgoing a detailed “data trail.” All of this should make retailers and their channel partners very happy.
However, there are currently two drawbacks when it comes to considering a blockchain-based strategy in retail. First, the fewer members of the supply chain involved the weaker the value. Of course, this is typical of any supply chain-spanning technology (e.g., ERP or even EDI). As time goes on and members join, the value will increase and the complexity of getting things done will be reduced. Secondly, the technology is very much grounded and understood in the banking industry, but other potential uses across retailer-supplier relationships haven't yet been fully pursued. While this isn't a huge negative, it does suggest some potential growing pains.
The good news is a multidiscipline research team is working at Auburn University to understand the full retail and supply chain value of blockchain technology. Eight professors and Auburn’s RFID Lab are collaborating with many of the world’s top technology providers, powerhouse retailers and leading brands to flesh out the uses of blockchain. Early expectations are that the advancement may replace EDI, improve transaction traceability and visibility, increase product and accounting security, streamline financing and payments, solidify supplier network structure, and simplify logistics documentation.
The future looks bright for this technological advancement, especially in a world where documentation, agreements and relationships have become very complex and service failures equate to lost customers, declining revenue and increased cost.
Dr. Glenn Richey is the Harbert Eminent Scholar in Supply Chain Management at Auburn University's Raymond J. Harbert College of Business. Dr. Shashank Rao is the Jim W. Thompson Associate Professor of Supply Chain Management at Auburn University’s Raymond J. Harbert College of Business.