Retail industry giants may still consider blockchain "something for the future," yet many IT firms and merchants have taken steps toward exploring its use in operations today. A study conducted by the UCL Centre for Blockchain Technologies examined 105 initiatives using this form of distributed ledger technology across supply chains throughout the US, EMEA, and Asia; 15% are already underway production-wise.
Product provenance and supply chain management have become two critical use cases within retail that are garnering much interest; therefore, this article focuses on these use cases. Merchants are exploring other applications, such as digitizing warranties for products they already offer digitally, revamping loyalty programs, or creating peer-to-peer markets similar to Uber, Airbnb and eBay platforms.
What Is Blockchain?
Before discussing what blockchain can offer the retail sector, we must understand some key characteristics associated with its technology and smart contracts. Blockchains are distributed ledgers or databases shared across a computer network. They are designed to keep records immutable in cryptocurrency systems. However, other sectors could use blockchain tech, too, to keep records safe from change. Blockchains have long been recognized for this role but are increasingly being utilized to protect decentralized records of transactions in any given industry - or vice versa.
You may have worked with databases or spreadsheets before. Since a blockchain is a database that stores and enters information, it is comparable in certain ways. However, the structure and accessibility of the data distinguishes a blockchain from a conventional database or spreadsheet.
A blockchain is made up of programs known as scripts that carry out the operations that are typically performed in a database: entering, retrieving, and saving data, among other things. A distributed blockchain requires many copies to be kept on numerous devices and must match in order for it to be considered legitimate.
Decentralized Ledger
Distributed ledgers are databases jointly created, agreed upon, and synced across several locations, organizations, or regions while accessible by multiple users. Witnesses to transactions may then become publicly visible - each participant at every network node owns an identical copy of recordings circulating across all nodes within minutes, giving all participants instantaneous notification of additions or modifications made to the ledger.
A centralized ledger, such as those typically employed by businesses, differs significantly from its distributed counterpart in that its single point of failure leaves it more prone to fraud and cyber-attacks than its distributed counterpart. Assuring the data shared across an extensive network is accurate and up to date - without anyone altering or falsifying it for personal gain - is one of the primary challenges.
Traditional trust has been built by storing data on one party's centralized database, serving as the "single version of truth." For instance, banks use such databases to calculate our bank balances. Blockchain takes an innovative approach to building trust within networks: each member of the network owns their own copy of a distributed or decentralized database instead of having only access to one master copy - hence why blockchain is known as decentralization or distributed control technology (DCT).
Each member of a blockchain network can be confident in knowing "each member can see other member's transactions" since each has an identical copy of their database. Another crucial feature of distributed database approaches is their inevitability - once data has been approved by a network (using some sort of consensus mechanism, no one can go back), changing or erasing it is very hard indeed; updating may occur occasionally, but transactions remain accessible and accessible in principle to network participants.
What Role Does Blockchain Play In The Retail Industry?
Product Provenance
As retailers attempt to meet consumer demands for instantaneous service, many are feeling pulled in opposing directions: the pressure for more information and transparency regarding product provenance grows. At the same time, supply chains become ever more globalized and complex - two examples being:
- Customers requiring additional information on possible allergies or dietary restrictions;
- The desire for additional details regarding environmental and fair trade activities;
- Improved ability to respond more swiftly in product recall situations (for instance, US worries in 2018-19 about potential contamination by E. Coli in California-grown romaine lettuce);
- To fight off fake goods; and
- The requirement that businesses comply with laws like the UK Modern Slavery Act of 2016, which mandates they take steps against human trafficking or slavery within their supply chains.
Advocates of blockchain technology believe it can assist shops in surmounting these challenges.
Supply Chain Management
As previously discussed, retail supply chain management can also benefit greatly. Although supply networks for many shops are becoming more intricate, a significant proportion still use paper documentation (for instance, physical bills of ladings are sometimes required by port authorities) for supplies to reach stores.
Shipping an avocado container from India to the Netherlands involves multiple individuals and companies: regulators must approve its contents, farmers deliver avocados directly, boats collect them from farms, and someone must ensure the fruits have not gone bad during transport. Most exchanges and handoffs occur through analogue technologies such as paper.
According to an article published by The Economist in 2018, here are some of the issues this is creating:
- Delayed deliveries: Over 65% of US importers surveyed reported that more than 25% of their international shipments arrive late;
- Excessive paperwork: 42% reported spending more than two hours filling out paperwork related to setting up their shipment;
- Lack of visibility: 83% of respondents reported having difficulty keeping track of items when traveling overseas.
According to this analysis, posting all trade documents pertaining to Asia-Pacific online could:
- Time savings associated with export products could reach 44%;
- Reduce associated costs by up to 31%; and
- Exports could grow by as much as $257 billion each year.
One issue in the supply chain can be its disparate data systems; each party uses their database to record information about items being produced to sell, making it harder for retailers to gain an overall view of their supply chains.
Read More: Exploring the Significance of Blockchain Technology: Understanding its Impact and Potential
How It Works In A Nutshell
Blockchain solutions for supply chains are still in their infancy; nearly half of the initiatives assessed by UCL in its paper are still at either pilot or proof-of-concept stages. Yet general principles regarding how blockchain might function within supply chain settings may still exist.
Three Fundamental Issues
We believe the following three core issues could impede blockchain's successful application to various use cases:
How Do We Ensure The Accuracy Of Data Recorded On Blockchain?
As discussed previously, one of the primary aspects of blockchain is how hard it is to alter or delete stored information within it. Granted, "data on public blockchains may remain immutable, but that does not speak for the quality of their original contents", as explained by a Financial Times piece on blockchain drawbacks.
Conversely, blockchain technology cannot prevent suppliers who wish to falsify information regarding, say, the sustainability or fair trade practices associated with their bluefin tuna or cocoa bean purchase from falsifying such claims. But this serves to underscore that no amount of technology will completely eradicate human error (or deceit) in transactions between people.
Blockchain systems may efficiently eliminate fraud or human errors in certain instances, such as when data comes directly from trustworthy, impartial sources. They could integrate seamlessly with the so-called Internet of Things technology, so temperature sensors connected via IoT track shipping containers containing avocados being transported in cold environments. Then, using blockchain storage capabilities, this information may be safely kept without human involvement, providing an impartial record of the avocados' condition during transportation and travel to their final destination.
How Can You Connect Data Stored On A Blockchain To A Tangible Product?
While retail has seen an upswing in digitalization, physical products still provide consumers with tangible experiences that must remain real to be considered valuable offerings by stores.
Thus, maintaining consistency between natural objects and data stored on blockchain systems is one of the primary challenges associated with their usage. While much has been written about how physical products' blockchain records serve as "digital twins", how are such claims verified?
Custom blockchain solutions utilize QR codes which should be attached physically to the goods in question - for instance, inside an expensive handbag's inner pocket or on its label - while others employ RFID chips similar to those marathon runners rely upon during races to track speed and distance.
How Is A Blockchain Ecosystem Constructed?
As soon as you decide to explore blockchain supply chain solutions, another issue quickly arises: Should we create our solution or collaborate with others - possibly even competitors - to create an ecosystem shared by all? Each strategy presents risks.
As soon as you create your own solution, however, the risk increases that all participants in your supply chain--possibly comprising several businesses -will accept and use it. However, this would not be straightforward; significant expenses may be involved, and pressure may exist on necessary suppliers to prioritize products offered by competing shops. Few merchants will have the power to convince their suppliers to utilize a blockchain solution they prefer, though some retailers have had success with this. Without end-to-end traceability of your products and fewer "gaps", its business case for blockchain solutions may vanish altogether.
However, forming a group to work on creating blockchain solutions won't be simple either. An excellent example of this would be Facebook's cryptocurrency Libra; many early backers, including PayPal, Visa, Mastercard, Stripe, and eBay, have left since its debut.
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Conclusion
At present, it can be hard to anticipate just how significant blockchain technology will have on retail supply chains in terms of meaningful impacts. Given their competitive environment, however, retailers should likely at least consider whether blockchain could present any opportunities for cost savings, productivity improvements, and improved customer service.
