Blockchain and Burgers

Digitalization has led to the availability of extraordinary amounts of data but how should companies, like Wendy’s, be utilizing this data to strengthen its customer promise? 

Wendy’s [1] has spent considerable time and money to digitalize data related to its products and systems, however this vast amount of extracted data exists in silos that currently provide little incremental value to the Company. [2] Blockchain technology is a solution that is being used to take these “islands of insight” and pull them into an “integrated global view” that will ultimately result in a transparent and traceable supply chain. [3]

Blockchain to improve food safety at Wendys

The way the food supply chain works today, there are constant safety issues that are costly in terms of both dollars and lives. Food-borne illnesses account for over 400,000 deaths and costs ranging from $55 to $93 billion in the US each year. [3] When these events occur it is critical to have all the facts about the situation and ultimately to have a clear line of sight into the origin of the event within the supply chain. In December 2015, 55 Chipotle customers in 11 different states developed food poisoning from E.Coli. [5] The chain was unable to identify the source of the outbreak and the FDA required the chain to close 43 restaurants in response to the initial occurrence and the incident was not officially announced as over until February 2016. [6] The incident led to a 13% decline in sales for 2016. [7] One of Wendy’s top priorities is food safety because the inability to trace and track the source of these events can, as shown by Chiptole, lead to significant issues including: more damaging outbreaks, negative publicity, production shutdowns, and ultimately declining operating results. [8]

Blockchain technology has been tagged as the premier solution to this lack of transparency and accountability within the food supply chain. This technology which many may recognize as the basis for bitcoin currency, “is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” [9] The technology connects the physical world with the digital world, providing a clear line of sight from the farm to the end user, in seconds, not hours or days. [10] “The goal of its implementation is to engender trust amongst the parties doing business and the consumers who utilize the Brand.” [11]

Wendy’s roadmap to Blockchain utilization  

Wendy’s has acknowledged that food traceability is a critical customer demand and the Company has been working to achieve this goal. In 2012, the Company joined the GS1 US Standards Initiative, “an industry-wide collaboration…to enhance supply chain efficiencies, improve product information, and lay the groundwork for better traceability.” [12] GS1 Standards are essentially a “product’s data ‘DNA’—the building block for connecting an item with all the information about it.” [13]

The process to become fully GS1 compliant will likely take almost a decade, but progress to date has been significant. In the near-term Wendy’s products must all be tagged with GS1-128 barcodes, which are the application standard of the GS1 implementation. [14] As of November 2017, about 20% of products in their supply chain are GS1 compliant and a roadmap has been laid out to have all remaining products compliant within the next several years. [15] Simultaneously, Wendy’s is working with suppliers, distributors and restaurants to add the capability to scan GS1-128 barcodes, which is a crucial step in being able to add relevant transactional information to the product’s ledger. [16] Traceability in the food supply chain is critical to meet the demand of Wendy’s customers and the initiative has additional benefits for the Company.

 Further applications of Blockchain to improve Wendy’s supply chain

In the longer-term Wendy’s should consider utilizing additional features of Blockchain technology to lessen the risk of food safety. Personnel who interact with products could be given traceable identifiers that would give Wendy’s the ability to monitor their activity and ensure that appropriate procedures are being followed. [17] The Blockchain technology can also be used to improve accuracy in tracking and managing resources at the ecosystem level, eventually resulting in better demand forecasts and less food waste. [18] And its production of a consolidated view of all transactions can be utilized to improve the efficiency of supply chain financing by reducing the number of disputes and their cycle time. [19]

Additional considerations and concerns

Given Wendy’s complex supply chain of suppliers and distributors, my primary concern is the Company’s ability to keep up with its competitors’ implementation of traceability. What will be the financial and reputational impact of falling behind? Should Wendy’s be providing incentives to its distributors, suppliers, and franchisees to speed up the process?

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[1] Wendy’s supply chain coop, QSCC is an independent, non-profit cooperative that was organized by Wendy’s. For simplicity, throughout this article I will use Wendy’s when referencing the Company and QSCC.

[2] Josh Sell, Sr. Director – Commodities, Industry Affairs & Supply Chain Analysis, interview by author, November 2017.

[3] Deloitte, “Supplier and service provider risk management,” 2017, https://www2.deloitte.com/us/en/pages/operations/articles/blockchain-supply-chain-innovation.html, accessed November 2017.

[4] Brigid McDermott, “Blockchain in Food Safety,” IBM, 2017, accessed November 2017.

[5] FDA, “FDA Investigates Multistate Outbreak of E. coli O26 Infections Linked to Chipotle Mexican Grill Restaurants,” 2016, https://www.fda.gov/Food/RecallsOutbreaksEmergencies/Outbreaks/ucm470410.htm, accessed November 2017.

[6] Ibid.

[7] John Kell, “Chipotle Has to Finally Shake Off Its E. Coli Slump in 2017,” 2017, http://fortune.com/2017/02/02/chipotle-sales-decline-2016/, accessed November 2017.

[8] Wendy’s, 2016 Annual Report, accessed November 2017.

[9] Marco Iansiti and Karim R. Lakhani, “The Truth About Blockchain,” Harvard Business Review, 2017, https://hbr.org/2017/01/the-truth-about-blockchain, accessed November 2017.

[10] Dennis Hecker, Senior Vice President – Quality Assurance, interview by author, November 2017.

[11] Ibid.

[12] GS1, “About GS1,” https://www.gs1.org/about, accessed November 2017.

[13] GS1, “GS1 Standards,” https://www.gs1us.org/what-we-do/standards, accessed November 2017.

[14] GS1, “GS1-128 Barcodes,” https://www.gs1-128.info/, accessed November 2017.

[15] Josh Sell, Sr. Director – Commodities, Industry Affairs & Supply Chain Analysis, interview by author, November 2017.

[16] Ibid.

[17] Michael J. Casey and Pindar Wong, “Global Supply Chains Are About to Get Better, Thanks to Blockchain,” Harvard Business Review, 2017, https://hbr.org/2017/03/global-supply-chains-are-about-to-get-better-thanks-to-blockchain, accessed November 2017.

[18] Paul Brody, “The Power Of A Blockchain-Enabled Supply Chain,” 2017, http://www.digitalistmag.com/finance/2017/08/30/power-of-blockchain-enabled-supply-chain-05306212, accessed November 2017.

[19] Brigid McDermott, “Blockchain in Food Safety,” IBM, 2017, accessed November 2017.

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4 thoughts on “Blockchain and Burgers

  1. Thanks for the thought provoking article- I’m especially struck by the idea you raised of using this technology to monitor employee behavior. This seems to be a crucial step to me as many food safety issues are caused by incorrect storage or preparation, and even maintaining the block chain will require employees to scan and cook the correct items in the correct order. Hopefully, automation of many of the food prep processes in the future will further contribute to consumer food safety.

  2. Thanks for this article; I never thought about how blockchain technology could be applied to fast food!

    I wonder whether Wendy’s could turn this into a competitive advantage for them or whether this will just be standard by which ALL companies in the future track their inventory and raw materials. It would also be interesting to find out how much they’re investing in this technology. Clearly, when a Chipotle-like event occurs, the long-term reputation risk to the brand is very difficult to overcome. The team at Wendy’s must have done the math to say that given the expected value of this event occurring to us (probability * cost), we think the investment in this technology is well worth it to quickly identify and prevent food contamination issues.

    The last thing I wonder is whether consumer would pay more for a burger for Wendy’s if they knew exactly where it came from and that there was 0% chance that it was contaminated. I don’t eat beef, but maybe I would pay a little more for a chicken sandwich!

  3. Thanks for the post. I just learned about blockchain today during an info session. However, I didn’t understand the difference between using blockchain technology vs a database storage. It seems like tracking source of food and its steps along the supply chain can be easily achieved with barcode and scanner. There is also little incentive to alter data stored in the database. I do see however, there are more guarantees in using blockchain technology since the marking is permanent. We will see how this all plays out. Hopefully our food safety can be improved with this new initiative.

  4. What an insightful article! Today one of the main barriers for the spread of cryptocurrencies and blockchains is its usability. How will people take advantage of this decentralized technology and apply it to our daily lives? The most reasonable and easy way to think is the use in financial transaction, where money goes from one place to the other and several nodes validate the transfer. However, applying the concept of blockchains in other contexts is more complex and people will require some time to adapt and understand what this technology is about. Unfortunately, the buzz created by the outrageous increase of the Bitcoin and Ethereum prices this past year is not reflecting a spread or technology adoption, but simply a supply/demand unbalance where people are buying because the price is going up and the price is going up because people are willing to buy it. The initiative started by Wendy´s tries to find and applicability for blockchains and it extracts value from one of its main features, which is the record of all data and traceability of transactions. Hopefully this will draw attention and incentivize other companies to find an applicability for this amazing technology, where the main advantage is the guarantee of TRANSPARENCY. I´m curious to see what the next chapters of this story will be.

    Thanks for sharing!

    Thiago

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