{"id":25008,"date":"2017-11-15T19:03:27","date_gmt":"2017-11-16T00:03:27","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/digital-pork-bringing-blockchain-to-wal-mart-chinas-supply-chain\/"},"modified":"2017-11-15T19:03:27","modified_gmt":"2017-11-16T00:03:27","slug":"digital-pork-bringing-blockchain-to-wal-mart-chinas-supply-chain","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/digital-pork-bringing-blockchain-to-wal-mart-chinas-supply-chain\/","title":{"rendered":"Digital Pork: Bringing Blockchain to Wal-Mart China\u2019s Supply Chain"},"content":{"rendered":"<p><strong>The Pork Problem<\/strong><\/p>\n<p>2011 was a tumultuous year for Wal-Mart China. \u00a0The American retail giant found itself in hot water abroad as Chongqing authorities demanded closure of 13 stores for failure to comply with food regulations by selling non-organic pork with organic labels. [1]\u00a0 The \u201cpork scandal\u201d illustrated the challenges of food supply chains in China, which are marked by inefficiency and fraud. \u00a0In recent years, Chinese food supply chains\u2019 quality controls have failed to scale commensurately with surging customer demand for certain products.\u00a0 The pork market in particular has been growing at breakneck speeds as China\u2019s middle-class gains purchasing power.\u00a0 While roughly matching American demand in the mid-1970s, today\u2019s Chinese consumers eat more than six times as much pork as their U.S. counterparts. [2]\u00a0 A major stakeholder in this market, Wal-Mart greenlighted a new effort in 2017 to mitigate risks like those exposed in the 2011 incident by using a nascent technology adopted from the fintech sector: the blockchain. [3]<\/p>\n<p>&nbsp;<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone \" src=\"http:\/\/farmdocdaily.illinois.edu\/2013\/06\/25\/fig1.jpg\" width=\"639\" height=\"436\" \/><\/p>\n<p>&nbsp;<\/p>\n<p><strong>Blockchain + Wal-Mart \u2013 Today and Tomorrow<\/strong><\/p>\n<p>Blockchain first emerged in 2008 as the technology supporting bitcoin, a digital currency that allows for trusted, peer-to-peer money transfer. [4]\u00a0 The system enables distributed, cryptographic validation of transactions by multiple participants across a network without the need for an intermediary, such as a bank.\u00a0 A network of computers, each operated by independent participants, works to record transactions on a single ledger, and this ledger is in turn updated to each node on the network, creating one source of truth.<\/p>\n<p>&nbsp;<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium\" src=\"https:\/\/pbs.twimg.com\/media\/DCOHY0QXYAAurx5.jpg\" width=\"700\" height=\"549\" \/><\/p>\n<p>&nbsp;<\/p>\n<p>While originally designed for a payments application, blockchain technology can be adapted by Wal-Mart China to improve its supply chain operations and its related partnerships and environmental footprint.\u00a0 Wal-Mart management aims to benefit in two primary ways in the coming years:<\/p>\n<ul>\n<li>Improved auditability &#8211; The \u201csingle, immutable truth\u201d on a blockchain ledger can reflect a transaction history of any asset of value, not just money. In other words, a blockchain can show a secure record of pork\u2019s lifecycle in the supply chain, from farmer to consumer.\u00a0 This should be one of the near-term realizable benefits from Wal-Mart\u2019s blockchain implementation; higher quality, digital data will improve auditability and allow Wal-Mart to identify the source of potential risk faster and with greater certainty. [5]<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>Food waste reduction \u2013 With more accurate, digital records, Wal-Mart can better manage perishability risk and over-ordering.\u00a0 The retailer can improve inventory costs and pass on savings to consumers. [6]\u00a0 This benefit is likely to occur over the medium term, as Wal-Mart first needs to build a data layer on the blockchain before designing optimization processes on top of the data.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><strong>Opportunities<\/strong><\/p>\n<p>Blockchain may become a powerful asset for Wal-Mart as it embraces the digitalization of supply chains.\u00a0 But to realize its full potential, management should consider taking additional steps beyond its current pilot implementation:<\/p>\n<p>First, Wal-Mart should ensure it works towards a public, open standard (e.g., an Ethereum-based solution), rather than one it manages privately on its own or via a consortium with only a few voting stakeholders.\u00a0 In the long-term, it is in the company\u2019s best interest to promote a trusted, open standard to maximize network participation and avoid conflicts of interest associated with private and semi-private blockchains.<\/p>\n<p>Second, Wal-Mart should test a marketing campaign with consumers that showcases the supply chain journey of its products to gauge customer reception to better quality and transparency with real data.\u00a0 Measurable purchasing improvements or brand value based on such a campaign would provide the company with a business justification for further investment.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Challenges<\/strong><\/p>\n<p>While immutability makes blockchain an ideal backend system for coordinating fragmented actors towards a single record of truth, challenges remain at the \u201cedge\u201d of the network, i.e. the point of data capture.\u00a0 Participants in the blockchain-enabled supply chain will still need to emphasize compliant sensor systems and data capture processes to reap the \u201ctrust\u201d benefits of the underlying blockchain.<\/p>\n<p>Sponsoring development of a new supply chain protocol built on a blockchain also represents major governance challenges.\u00a0 Wal-Mart will need to decide what role to play if it ultimately decides to take the open, public blockchain route, and may need to counterbalance its initial leadership with a long-term stance of neutrality to make the greatest bottom-line and social impacts.\u00a0 One solution may be (1) tokenizing a new, Ethereum-based blockchain via a \u201csupply chain cryptocurrency\u201d sale, (2) encouraging wide distribution of these tokens to potential network participants, and (3) establishing pro-rata voting rights for such token holders.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Looking Ahead<\/strong><\/p>\n<p>Two key questions for Wal-Mart stand out in the near-term:<\/p>\n<p>First, how can Wal-Mart best incentivize and coordinate fragmented participants its vast supply chain? \u00a0Second, how can the company ensure data input quality at the edge of the network to reap the full benefits of blockchain?<\/p>\n<p>&nbsp;<\/p>\n<p><strong>Word count: 773<\/strong><\/p>\n<p>&nbsp;<\/p>\n<p><strong>End Notes<\/strong><\/p>\n<p>[1] Jones, T. Y. <em>Reuters<\/em>. (2011, October 25). Penalized in China, Wal-Mart reopens Chongqing stores. Retrieved November 15, 2017, from http:\/\/www.reuters.com\/article\/us-walmart-china\/penalized-in-china-wal-mart-reopens-chongqing-stores-idUSTRE79O0TY20111025<\/p>\n<p>[2] Schnitkey, G. <em>University of Illinois at Urbana-Champaign Farmdoc Daily<\/em>. (2013, June 25). Chinese and U.S. Pork Consumption and Production. http:\/\/farmdocdaily.illinois.edu\/2013\/06\/chinese-us-pork-consumption-production.html<\/p>\n<p>[3] Aitken, R. <em>Forbes<\/em>. (2017, August 25). IBM Forges Blockchain Collaboration With Nestl\u00e9 &amp; Walmart In Global Food Safety. https:\/\/www.forbes.com\/sites\/rogeraitken\/2017\/08\/22\/ibm-forges-blockchain-collaboration-with-nestle-walmart-for-global-food-safety\/#2c2b53d63d36<\/p>\n<p>[4] Nakamoto, Satoshi. (2009). Bitcoin: A Peer-to-Peer Electronic Cash System. https:\/\/bitcoin.org\/bitcoin.pdf<\/p>\n<p>[5] Shafer, Erica. <em>Meat + Poultry<\/em>. (2017, June 2). Walmart, IBM provide blockchain update. http:\/\/www.meatpoultry.com\/articles\/news_home\/Business\/2017\/06\/Walmart_IBM_provide_blockchain.aspx?ID=%7B24B47705-09C1-4A89-A98C-28403AF874C1%7D&amp;cck=1<\/p>\n<p>[6] Galvin, D. (2017). IBM and Walmart: Blockchain for Food Safety. https:\/\/www-01.ibm.com\/events\/wwe\/grp\/grp308.nsf\/vLookupPDFs\/6%20Using%20Blockchain%20for%20Food%20Safe%202\/$file\/6%20Using%20Blockchain%20for%20Food%20Safe%202.pdf<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How can Wal-Mart China improve its food supply chain with the blockchain?<\/p>\n","protected":false},"author":10179,"featured_media":25009,"comment_status":"open","ping_status":"closed","template":"","categories":[2608,2123,33,3222,3898],"class_list":["post-25008","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-blockchain","category-digitalization","category-food","category-global-supply-chain","category-wal-mart","hck-taxonomy-organization-wal-mart","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-china"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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