Blockchain—what some say will have the most significant impact on accounting since double-entry bookkeeping was invented—may also revolutionize food supply chain management in future years.
Think about some of the more challenging issues the food industry faces these days:
- the need for quick and reliable food traceability in the event of product recalls
- the complexity associated with reconciling purchasing invoices and pricing contracts
- the fragmented nature of food distribution, warehousing and shipping logistics
- and growing customer demands for verified sourcing information about everything from sustainably-caught seafood to fair trade coffee to antibiotic-free chicken
Blockchain technology promises practical strategies to address such issues more efficiently and reliably than existing systems, while providing better supply chain transparency. That’s why companies like Nestle, Tyson, Cargill, Walmart and Kroger are actively testing blockchain’s application across these issues.
But just as in the past, the foodservice side of the industry seems likely to lag behind its retail sibling in any move to adopt the new technology. We’ll get to that, but first let’s look more closely at blockchain’s promise.
A New Approach to Data Sharing
Blockchain technology is basically a new approach to digital record keeping. It can create a secure, encrypted and unchangeable data ledger that permanently documents all of the transactions and data associated with a given business function or process.
Only authenticated data that complies with strict transactional rules built into the specific blockchain can be entered. Once entered, the data cannot be changed. And because the block chain record is distributed – that is, identically stored across a network of multiple computer “nodes” with multiple, participating owners – it is further protected from any manipulation.
Simply put, blockchain can allow business partners to securely and privately agree to share data associated with nearly any product or transaction associated to their business. And it lets them do so far more efficiently than is possible with the systems in place today.
Public vs. Private Blockchains
Unlike the public blockchains used to enable crypto-currencies like bitcoin, the private blockchain networks envisioned for the food industry would be user-restricted, with various levels of permissioned access. Trading partners that own transaction data embedded in a network would have to agree in advance about what information can be shared and by whom.
Permission levels would allow different degrees of access by different users, depending on what is to be accomplished. And just as consumers do not see the code behind the websites they visit, blockchain users would access key data points through an interface geared to their needs and permission level.
In practice, private blockchain networks could be used to manage a company’s financial transactions, transportation network or warehouse inventory. They could authenticate product sourcing information beginning at the farm and continuing through processing, packaging, and distribution to the end user.
As an example, freshness data points like core temperature readings, dock transfer times and shipping dates could be logged in real time and reviewed later via smartphone scans at the point of delivery, or used as an audit trail for quality assurance. Because all the data in a blockchain is immediately recorded and always available, it is quickly accessible when needed.
Traceability Becomes a Driving Force
The value of that data immediacy was underscored in the romaine lettuce food safety recall last year, when retailers and distributors were forced to dump all stocks of romaine because they had no way to determine which product was affected. It was a main driver in terms of why Walmart is exploring how blockchain can help it better deal with traceability issues.
In one experiment, Walmart tested how long it would take its supply chain to trace the sourcing details of Mexican-produced sliced mangos in its inventory. With existing systems it took nearly seven days. But in a follow-up experiment using blockchain, the same request was completed in seconds.
That dramatic comparison led the retail giant to require its grower-shippers to participate in a blockchain network by the end of 2019 that will collect detailed information about produce shipments sent to it. Developed for Walmart by IBM Food Trust, part of an IBM division specializing in blockchain solutions, it is one of many blockchain-enabled systems that are currently undergoing testing by some of the world’s largest food companies.
A “Network of Networks”
No single blockchain could ever contain all of the data that could be collected in a given industry or market. Instead, applications in the future could be what IBM VP of Blockchain Solutions Jerry Cuomo terms a “network of networks.”
“What if individual blockchain solutions could interoperate,” he asks. “Might they produce even more value if connected together?”
As an example, Cuomo imagines a produce distribution company that wants to ensure the safety and quality of its product mix, streamline its logistics systems and receive timely payments from business partners. A blockchain solution might have the company join three networks: one to track quality and freshness, another to manage shipping and a third to handle financial transactions. While each network independently brings value to the company, interoperability among them could conceivably bring even more value.
Theory vs. Reality
So—blockchain technology clearly offers tantalizing promise, and it appears the retail food industry is poised to employ it soon. But will that promise extend to foodservice?
One significant constraint would be the foodservice community’s mixed track record in universally adopting the data standardization that blockchain would require. Despite many efforts since the mid-1980s to encourage the use of UPC codes, common product databases, EDI exchange standards, GTIN numbers, GS1 initiatives and other programs, foodservice continues to lag far behind retail in this area.
Other constraints include the cost of technology and labor to code and track product at the case and pallet level; scenarios like the one envisioned by Cuomo would likely also require individual RFID tagging and embedded sensors. The ingredient-based nature of foodservice and the many proprietary products it uses also presents challenges.
Further, there are “institutional” constraints in the reluctance of many foodservice trading partners to fully share information they view as proprietary or essential to competitive advantage. It is worth observing that the foodservice industry’s largest distributors—Sysco, US Foods and Performance Food Group—have been notably silent about any intentions to explore the use of blockchain systems.
Looking for Market Champions
That is not to suggest that blockchain solutions are not in the restaurant industry’s future. But for them to take root will require major market drivers and operational champions.
As in retail, the challenge of dealing with product recalls and a need to ensure food safety is likely to generate the first groundswell of support. Demand for traceability programs, especially from large customers like restaurant chains, could drive the first, limited, applications. Other types of customers—like large college dining programs, which put heavy emphasis on verified sustainability and sourcing origin details—could provide further impetus.
Third-party foodservice supply chain and logistics providers like SpenDifference, widely used by restaurant chains, could well become blockchain’s biggest champions. That’s because they are already heavily invested in the digital tools and technology that could provide a foundation for blockchain implementation. They also tend to manage the integration of sourcing, procurement and logistical functions, where blockchain could provide the greatest benefits
There’s an old saying—“Where you stand depends on where you sit.” And where third-party supply chain providers sit puts them in a clear position to identify the purchasing and logistics efficiencies blockchain could offer their customers.
For now, stay tuned—the first proof of concept demonstration cases in retail could well be just around the corner. Especially if that results in competitive or financial advantage, players in foodservice will have some serious choices to make.
To learn more about SpenDifference’s supply chain and logistic solutions, contact us here.