Retail is an exciting and complex business. Successful retail happens at the intersection of multiple factors. Starting with locations, footfalls to pricing strategy, promotion, and marketing, branding, supply chain, inventory management, customer experience, and trust, all have to come together in the right proportion at the right time for retail to work.
Over the last 200 years or so, modern retail has created processes that manage all these variables to maximize their business. In contrast, the last 20 years, especially the last two, have forced them to look at their businesses and processes anew and reinvent themselves. Digitalization of retail has changed the ballgame – no, actually – created a completely new game. Retailers are getting familiar with terms like omnichannel, distributed ledgers, and blockchain. Customers now want to be sustainable, forcing retailers to be responsible, environment-friendly, and carbon-footprint-aware, while demonstrating all of that transparently to their customers. Retailers have started using a smorgasbord of digital technologies to meet these objectives, but today we will talk about one of them and how it is impacting retail supply chains worldwide. Blockchain!
Let’s start by understanding a bit about blockchain and what it does. Simply put, a blockchain is a database of transactions. But it differs from a traditional system in one significant way - the structure of the database. A blockchain collects this data in groups or blocks. Each block has limited space and when it gets filled, the system closes the block and links it to the previous block thus creating a chain aka Blockchain. Since the data is collected in chunks (blocks) rather than linear tables, once entered, its data structure makes it virtually impossible to change. Each block (as it gets created) also gets a timestamp, and at every step, the blockchain is duplicated and shared across all computers in the network, thereby making it part of a decentralized and distributed database. This database has an irreversible timeline, immune to data manipulation.
The goal of Blockchain is to allow digital information to be recorded and distributed, but not edited. In this way, a blockchain is a foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. Because of the decentralized nature of blockchain, all transactions can be transparently viewed by either having a personal node or using blockchain explorers that allow anyone to see transactions occurring live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added. Of course, the records stored in the blockchain (as well as most others) are encrypted. This means that only the owner of a record can decrypt it to reveal their identity (using a public-private key pair). As a result, users of blockchains can remain anonymous while preserving transparency. So, using a blockchain leads to transparency, high security, speed of transaction, reduced costs, identity protection, and privacy.
Now let’s turn our attention to the retail supply chain and its customers. What are today’s customers looking out for? They are increasingly becoming concerned about the truth of claims that retailers make about their merchandise and fair-trade practices. Additionally, the demand for authentic and ethically-sourced products is growing – pushing retailers to be transparent about the sourcing (For example - in industries where the retailer is dealing in farm-to-fork or factory-to-home models).
What challenges face the retailer who’s trying to respond to these new demands? Profit margins are under pressure because of the increasing costs throughout the supply chain network. The rising price of fuel to transport goods (by road, sea, or air), increasing commodity prices raising the cost of raw materials, higher labor costs from suppliers and manufacturers, and complex international logistics leading to higher charges for storage, transfer, and management of products, are all squeezing the profit margins. Additionally, with the consumer demanding speed and quality within minutes, the need to have certainty around the location and timeliness of raw materials, parts, and products is imperative.
Blockchain can transform the retail supply chain - by disrupting the way we produce, move and consume our goods. Let’s look at trust and transparency. Blockchain has the ability to prevent data defects, counterfeits, and contamination by giving every product a ‘digital ID’ that secures all information about it, along the product lifecycle – from origin to the retail store. It can help reduce costs and improve speed through blockchain-linked smart contracts. Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. Typically, they are used to automate the execution of an agreement, so that all participants can be immediately certain of the outcome, without an intermediary’s involvement or loss of time. Smart contracts will impact the transactions among disparate partners that are prone to lag and error by introducing automation and also building more efficiency.
Blockchain technology supports low-powered mesh networks for IoT devices reducing the need for a central server and enhancing the reliability of sensor data. In effect, retailers will now be able to
● Tackle counterfeiting and observe manufacturing practices
● Recall a specific batch of produce in face of a contamination alert or detection of defects
● Handle vendor relationships with ease
● Accelerate regulatory checks and auditing
Blockchain technology creates authentication at each touchpoint which enhances the speed as well as security and data transfer. This makes them a perfect fit for both big retail supply chain companies in India like DMart, Reliance retail, and the 10-minute delivery players like Zepto, Blinkit, and Swiggy Instamart. Additionally, lengthy times to settle transactions and high processing fees for merchants are also significant roadblocks for retail players. Large-scale adoption of financial transactions on a blockchain and mobile payment options will go a long way to resolving these challenges.
Other potential benefits of adopting blockchain in the retail supply chain include:
- Product tracking/tracing - where information on the product could be traced through the supply chain relating to track and trace and product provenance.
- Logistics - the blockchain is utilized to capture information on the physical movement of the goods relating to automation, supply chain management and inventory management, use of IoT, and cold chain and environment history recording.
The value and impact of blockchain can be enormous not only in the retail supply chain but also in the customer-facing part of retail. This includes a better understanding of consumer behavior and trends, managing brick and mortar inventory as well as warehousing, etc. If you are a retailer and have still been only thinking of dipping a toe in the blockchain environment, it’s time that you took the plunge. The results could be refreshing for your business.