Blockchain for the food industry—Wishful thinking or disruptive investment?
Blockchain provides a way to digitize every step of the supply chain through a distributed, connected ledger, linking all records from source to shelf.
In the past few months, Walmart, Bentonville, Ark., has shared plans to use blockchain to manage the traceability of mangos, spinach and lettuce. The Dairy Farmers of America (DFA), Kansas City, Mo., announced its own blockchain pilot aimed at connecting farmer-owners with customers. And, Alibaba Group, San Mateo, Calif., confirmed a new partnership with Chinese authorities focused on monitoring rice quality and brand authenticity.
While the hype surrounding blockchain continues to grow in the food and beverage industry, why is the industry only seeing a handful of implementations?
In fact, a survey of 600 executives conducted by PwC, UK, found that 84% of respondents are actively engaging with blockchain. But, only 15% have actually gone live with a project, with 52% still in research and development stages. What’s the hold-up? Unfortunately, mistrust often comes with any new, hyped technology.
Here’s why blockchain is more than just wishful thinking.
Rundown on blockchain
Bitcoin inventor and cryptocurrency pioneer Satoshi Nakamoto developed blockchain in 2009 as a way to track the exchange of Bitcoins. Each transaction is saved in cryptographic blocks on a public, distributed ledger within the network. No one can change the record of a transaction without changing all of the subsequent blocks, establishing trust and transparency between all connected parties. The secure and transparent design of blockchain makes it an ideal solution for industries challenged with managing multiple movements of commodities between widespread individuals or organizations.
Connecting the many pieces of the supply chain puzzle
Today’s food and beverage supply chain stretches from ingredient suppliers and farmers, manufacturing plants and distribution centers, to transportation providers, retail channel partners and back. It is a very complicated puzzle with many pieces. More often than not, each piece uses its own system to manage its respective role. For instance, production sites tend to use their own enterprise resource planning (ERP) systems, which run independently from the ERP systems on the retail end. This makes it hard to work cohesively on many aspects of the food business.
Blockchain provides a way to digitize every step of the supply chain through a distributed, connected ledger, linking all records from source to shelf. There is permanent, irrefutable proof of where a product came from, how it has been handled and who has touched it. Within the cold chain, manufacturers possess trackable records of the temperatures set in product storage, loading and transportation to ensure goods remained in an acceptable environment.
It can also help with other considerations, such as labeling. If consumers learned that they were misled or suffered a medical concern due to an inaccurate label, it could hurt brand reputation and make it difficult to regain their trust and business. But, backed by solid historical data on the blockchain, companies can remove any doubt whether or not a product is genuinely organic, gluten-free, dairy-free, peanut-free, etc.
Improving food safety and recall mitigation
When faced with a food safety crisis, manufacturers can use blockchain to mitigate the negative ramifications of a recall. They can easily trace a problem to its source, since every step is recorded in the digital ledger.
For example, they may look back and detect that a frozen product was not kept at an adequate temperature during transport to multiple groceries in a region. They can then find out which stores received the affected goods and do a targeted recall to remove products from only those stores. This way, they don’t have to do a sweeping recall of everything, inadvertently removing acceptable goods in the process. A manufacturer can then minimize the amount of waste generated from product destruction and lost profits.
Optimizing replenishment and shelf life of goods
The disconnects across the supply chain force most cold chain companies to approach demand planning and inventory management from a reactive model. Demand increases, so they up production. Items run out of stock or sit past their expiration date, so they send more to replenish refrigerators and freezers.
Unfortunately, a reactive approach also results in costly supply and demand imbalances. Companies end up with excess channel inventory. Grocery stores and retailers can’t sell products past their expiration date, which creates new problems in what to do with all of the excess stock. At the same time, manufacturers may under-project demand and not deliver enough replenishment, resulting in out-of-stocks, unhappy customers and lost sales.
Instead, real-time data flow through blockchain can provide instant insight into what people are buying, as well as which products are nearing expiration. Companies can thereby proactively plan production upstream in the supply chain, rather than react to stock-outs. Thus, they can always get the right foods to stores to satisfy demand and optimize shelf life.
To wrap it all up, blockchain is more than wishful thinking. It is a worthwhile investment set to disrupt the food and beverage industry. Companies ready to rise above the hype will be able to connect their supply chains and promote better food safety, reliability and business outcomes.