Linking the Food Chain, Supply Chain, and Blockchain: Walmart’s Path to a Fully Transparent Food System

How can Walmart use Blockchain technology to revolutionize food supply chains worldwide?

In 2015, more than 500 people reported falling ill from an E. Coli virus outbreak in Chipotle stores. In the wake of the outbreak and smaller ones to follow, Chipotle’s profits have dropped by more than 80% [1], 43 restaurant locations were closed due to the virus [2], and the stock price remains a fraction of its value at the start of 2015. Shockingly, the cause of the outbreak was never identified. This outbreak serves as a salient reminder of the importance of precision and transparency food supply chain, and illustrates how far society has yet to go.

Challenges Facing the Industry Today

Managing a supply chain for food has never been easy. In addition to traditional supply chain challenges such as poor communication across parties and low traceability of individual items, the food industry faces additional, unique hurdles including high amounts of quality variability across different food items, limited shelf lives, and high-stakes health implications, to name a few. Figure A highlights several the risks incurred at varying stages of the chain. The current system relies on a highly inefficient and manual process: farmers, processors, and distributors work in isolated silos, and most record-keeping is still done on paper or systems that do not speak to each other. [3]  The consequences are staggering. The World Economic Forum estimates that almost 95% of the world’s food waste in poorer countries, amounting to over $750 billion per year, stems from supply chain inefficiencies [4].

Figure A

 

Walmart, IBM, and the Digitization of the Food Supply Chain

Walmart is one of the largest and fasting growing players in the grocery space. Loop Capital analyst Andrew Wolf estimates that the retailer holds a 21.5% market share in the U.S., outstripping traditional grocers’ same store sales by 2.9% in the first quarter of 2017. [5]  Earlier this year Walmart, in partnership with IBM, began leveraging blockchain technology to tackle the complex worldwide supply chain problem. Blockchain, otherwise known as distributed ledger technology, allows multiple parties to securely and immutably record all business transactions, with full visibility for all stakeholders across the network. [6]

Under the new system, blockchain would replace all paper tracking and manual inspection programs. Food products would be tagged on the farm with numerical identifiers, then digitally tracked through each step of the process. Suppliers at various stages of the chain could save processing details, batch numbers, storage temperatures, expiration dates, and more. [7] The result is a simple and effective record keeping system that allows for real-time tracking for all agri-food products, immediate defect detection that can help to identify and isolate potential health hazards, and peace of mind for the end consumer.

In the short term, Walmart has begun two blockchain experiments abroad. [8] The first involved tracking the movement of pork in China, a particularly relevant issue because Chinese agriculture has in recent years gained notoriety for violations of food safety mandates. [9] The pilot project’s results have thus far been heartening; Walmart has reported that it has been able to trace pork products from suppliers to retail and ultimately to consumers. The program’s success in China suggests the high scalability and flexibility of the technology, which was quickly implementable in large wholesalers and small farms alike. [10] The second experiment traced the supply chain of mangoes in Mexico. The time required to determine the origin of any given mango was shortened from almost a week to about two seconds. [11]

In events such as Chipotle’s E. Coli outbreak, the improved turnaround time may mark the difference between a singular contamination incident and viral outbreak. But even beyond health implications, improved efficiency across the entire system could result in less wasted food, decreased fraud, and easier regulation.

Where Do We Go From Here?

Walmart’s results to-date have been encouraging, but not conclusive. If these initial tests are successful, Walmart plans to expand pilot programs to a more diverse portfolio of food items in China and Mexico. [12] While the benefits of digitization in the food supply chain are abundant and clear, Walmart’s management must also consider additional challenges associated with implementing the system at scale. Some key tasks include: gaining cooperation and buy-in from all involved parties, addressing licensing costs and maintenance of the hardware and software needed, and integrating the new processes across a diverse set of IT systems, to name a few.

Moving forward, what additional risk factors would Walmart have to consider when moving all food supply chain transactions to blockchain technology? How should it think about combating these new risks?

 

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References

[1] “Chipotle Profits down 82% in Wake of E. Coli Outbreaks.” CNN Money, 22 July 2016, <money.cnn.com/2016/07/21/investing/chipotle-earnings/index.html>.

[2] “Amid E. Coli Outbreak, Chipotle Closes 43 Restaurants In …” Eater, 2 Nov 2015. <https://www.eater.com/2015/11/1/9653980/chipotle-e-coli-outbreak-washington-oregon-closes-restaurants>.

[3] “Case Study: How Walmart Uses Blockchain.” Case Study: Walmart – Supply Management. N.p., n.d. Web. 15 Nov. 2017. <https://www.cips.org/supply-management/analysis/2017/june/case-study-walmart/>.

[4] N.p., n.d. Web. 15 Nov. 2017. <http://vc.cs.nthu.edu.tw/home/paper/codfiles/drchen/201611161033/An%20Agri-food%20Supply%20Chain%20Traceability%20System%20for%20China%20Based%20on%20RFID%20&%20Blockchain%20Techonology.pdf>.

[5] “Supermarkets Are Now Using Blockchain to Keep Food Fresh.” Walmart Is Using Blockchain Technology to Track Food Safety Problems — Quartz. N.p., n.d. Web. 15 Nov. 2017. <https://qz.com/1060607/supermarkets-are-now-using-blockchain-to-keep-food-fresh/>.

[6] “Supply Chain Inefficiency to Blame for Majority of Wasted Food.” Supply Chain Inefficiency to Blame for Majority of Wasted Food – Supply Management. N.p., n.d. Web. 15 Nov. 2017. <https://www.cips.org/supply-management/news/2014/january/supply-chain-inefficiency-to-blame-for-majority-of-wasted-food/>.

[7] “Wal-Mart Regaining Grocery Share from Competitors at ‘accelerating Rate’.” Wal-Mart Regaining Grocery Share from Competitors at ‘accelerating Rate’. N.p., 24 May 2017. Web. 15 Nov. 2017. <https://www.cnbc.com/2017/05/24/wal-mart-regaining-grocery-share-from-competitors-at-accelerating-rate.html>.

[8] “Wal-Mart Tackles Food Safety With Trial of Blockchain.” Bloomberg. N.p., n.d. Web. 15 Nov. 2017. <https://www.bloomberg.com/news/articles/2016-11-18/wal-mart-tackles-food-safety-with-test-of-blockchain-technology>.

[9] “Walmart and 9 Food Giants Team Up on IBM Blockchain Plans.” Walmart and 9 Food Giants Team Up on IBM Blockchain Plans | Fortune. N.p., n.d. Web. 15 Nov. 2017. <http://fortune.com/2017/08/22/walmart-blockchain-ibm-food-nestle-unilever-tyson-dole/>.

[10] “Walmart, IBM Provide Blockchain Update.” MEAT+POULTRY. N.p., n.d. Web. 15 Nov. 2017. <http://www.meatpoultry.com/articles/news_home/Business/2017/06/Walmart_IBM_provide_blockchain.aspx?ID=%7B24B47705-09C1-4A89-A98C-28403AF874C1%7D>.

[11] “Why Big Business Is Racing to Build Blockchains.” Bitcoin Ethereum: How Blockchain Tech Is Revolutionizing Business | Fortune. N.p., n.d. Web. 15 Nov. 2017. <http://fortune.com/2017/08/22/bitcoin-ethereum-blockchain-cryptocurrency/>.

[12] “Walmart and 9 Food Giants Team Up on IBM Blockchain Plans.” Walmart and 9 Food Giants Team Up on IBM Blockchain Plans | Fortune. N.p., n.d. Web. 15 Nov. 2017. <http://fortune.com/2017/08/22/walmart-blockchain-ibm-food-nestle-unilever-tyson-dole/>.

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7 thoughts on “Linking the Food Chain, Supply Chain, and Blockchain: Walmart’s Path to a Fully Transparent Food System

  1. First of all, I think that this is a great essay. It is very interesting to learn about alternative usage areas of Blockchain technology and how it will affect retail industry. In my opinion the challenges to implement Blockchain technology has two different aspects. First one is the technical and economic challenges that Walmart and its suppliers will face. I believe that a fully up and running system Blockchain system will bring many advantages. To elaborate, it will help to manage supply chain operations more effectively and efficiently, which will both decrease costs associated and have a positive impact on bottom line. However, the transition period requires investment on both Walmart’s and suppliers’ side and this might especially cause a problem in suppliers working with very low margins. Therefore, if Walmart wants to implement Blockchain technology it should also create a low upfront investment model and maybe also share some its additional earnings with suppliers to compensate their costs. Secondly, I think that giving customers the ability to track supplier and origin of a good sold might change customer behavior. It is very likely that customers will be reluctant to buy products imported from emerging markets because of their lower quality perception. At the end of the day increasing awareness on customer side might also hurt their willingness to pay and cause decrease in sales of certain products.

  2. I liked how you have combined both supply chain and digitalization topics together in one essay. The essay has clearly explained the application of blockchain technology to track the source of food sold through Walmart. It all makes sense in terms of tracing back the origin of each product. However, what is lacking in this article is to explain how quality control system can be enhanced along the way. I’d imagine there has to be some kind of quality inspections in process. I wonder if results from these inspections are tied to barcode or other identifiers. By incorporating this piece, the essay ties back to how blockchain in supply chain can help identify and prevent food contamination.

  3. Thanks, Sarena. Really interesting read in light of the emerging consumer trend of demanding for increased transparency in not just grocery products but also apparel, shoes, beauty and others. Food and beverage are particularly sensitive categories and I think that the opportunity here outweighs all the risks. Consumers are educating themselves on a lot of topics related to the origin of ingredients and are actively seeking brands that can not only promise but also have a track record of maintaining high standards of quality.

    Other retailers are also building programs that allow shoppers to see where the products come from and track the production chain of individual units. Less than a year ago, Amazon launched a program called Transparency (still limited to a few strategic vendors) where each product that is ordered into an Amazon warehouse from the manufacturer has a QR code. A customer can scan the code, log into the Amazon app and see where the product has been manufactured, what are the ingredients in it and where the product has been in each step of the supply chain (from manufacturing facility to distributors to warehouse). This also solves for counterfeit products that are specifically dangerous in the vitamins and supplements space. Below is an example of what a detail page looks like for one of Amazon’s private label brands of vitamins:

    Amazon Elements Calcium Complex: https://www.amazon.com/Amazon-Elements-Calcium-Complex-Capsules/dp/B01L081SO2/ref=lp_16579851011_1_1_sspa?s=hpc&ie=UTF8&qid=1512099976&sr=1-1-spons&psc=1

  4. Thank you for this very interesting article. I do think that distributed ledger technology holds enormous promise for food distribution, and your essay clearly illustrates some of the compelling reasons why early experiments with this technology have excited many people.

    You’ve also touched on some of the key concerns with widespread implementation; chief among them in my mind is the concern over expanding to universal adoption among all partners in the supply chain, especially in emerging markets. The blockchain derives its power from network effects – because of this, early efforts at adoption may prove challenging due to the relatively small benefit derived during early stages of the adoption curve.

    Another concern that Walmart and other players will have to confront is the “garbage in, garbage out” problem. The information on a blockchain is only accurate if a physical transaction is recorded accurately in the first place. Walmart will need to establish clear standards and operating procedures for all of its supply chain partners in order for the blockchain to deliver its full promise as a system of record for the entire ecosystem.

  5. Really interesting article. I lived in China as an expat and there was always a big concern about food safety. I particularly enjoyed eating late night “chuar” and recently found out I may have been eating rat meat (see NYT article below).

    Locals and expats are increasingly concerned about the safety and cleanliness of their food… so I see this as a big opportunity in China and other developing markets. My concern is as follows: 1) can you really assure the quality/safety of the food and 2) how expensive will this be? The process you outline is highly manual and is susceptible to fraud and human error – what controls and assurances are in place across the supply chain?

    http://www.nytimes.com/2013/05/04/world/asia/rat-meat-sold-as-lamb-in-china-highlights-fears.html

  6. This is a very interesting use of block chain technology, but one challenge I am very curious to see how they address is adoption, particularly on the farmers’ side. Although farmers have actually been quick to adopt new technologies in recent years, as their margins are heavily squeezed and benefits are clear, I expect that block chain will be a tough pitch to sell them on. On one hand, it seems like they might have the least to gain in this scenario. With full tracability of every item down the supply chain, once a problem arises downstream it will be easy for everyone to point blame back up the chain ultimately to the farmer. Furthermore, the complexity of this technology (versus a new tractor or other harvesting equipment, for example) will be a tough sell to make. Finally, this is going to add significant cost and complexity for the farmers, while set up and implementation for all the other stake holders seems to be cheap and easy.

    There are a few different ways they could add incentive for farmers to implement this. One idea would be to expand functionality, so that farmers could use the data to improve yields on future grows. Another idea would be for processors, distributors and retailers to help subsidize the cost, in exchange for all the safety benefits they gain. Finally, perhaps farmers could be able to command higher prices for their crops with this service added, but these increases would likely be passed along to consumers. In any case, I believe this technology will ultimately be adopted, it just comes down to who will ultimately pay for it.

  7. This is a very timely analysis. The recent acquisition of Whole Foods by Amazon could accelerate adoption of this technology given Amazon’s scale and expertise in tracking their inventory.

    I’m hopeful that blockchain technology will reduce disease outbreak, though I think the adoption curve might be slow in this space until customers demand that their foods include this information. I do think that there will be faster adoption in urban areas, especially those where organic foods are pervasive like Portland. In fact, there was a Portlandia (TV show on IFC) episode in 2011 where the writers satirized a couple who asked a million questions about the chicken that they were eating (video and article link below). In the episode, the couple asks the name of the chicken and whether it had a healthy social life (“Does he put his little wing around the other ones.” The waitress brings a picture of the chicken and a birth certificate. Instead of ordering the chicken, the couple asks the waitress to hold their seat while they take a visit to the farm where the chicken was raised.

    Though this was a comedy bit, it speaks to the potential demand for this type of product in certain areas. I could see a future where there is strong demand from high-end restaurants to have this information included with their meat and produce.

    1. Portlandia Clip: https://www.google.com/search?q=portlandia+chicken+colin&oq=portlandia+chicken+colin&aqs=chrome..69i57j0.7226j0j7&sourceid=chrome&ie=UTF-8

    2. Article about Portlandia Farm Episode: https://www.eater.com/2011/1/14/6701741/portlandia-skewers-farm-to-table-fanatics

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