How Walmart Canada Uses Blockchain to Solve Supply Chain Challenges
Walmart has long been known as a leader in supply chain management. Even so, its expertise could not protect it from the major data inconsistencies that have plagued the transportation industry for decades. These inconsistencies arise during the invoicing and payment process for freight carriers, requiring costly reconciliation efforts and causing payment delays. Then, Walmart Canada pioneered a solution: it used blockchain, a distributed ledger (DLT) technology, to create an automated system for managing invoices from and payments to 70 third-party freight companies.
One of the authors of this article (John Bayliss) and his Walmart Canada team began to think of new ways to solve the problem and launched this initiative. The scale of the data was enormous. Walmart Canada delivers more than 500,000 shipments per year to distribution centers and stores across Canada, using both its own transportation fleet and third-party carriers.
Providing a core service for transporting large quantities of mostly perishable goods across borders, time zones, and different climates is an enormous operational challenge. This process requires tracking data points such as stopovers, fuel amounts, and temperature updates, which must be calculated independently for each shipment and included in each invoice. Considering that there are more than 200 data points that must be included on invoices, it makes sense that there are many data inconsistencies in the invoicing and payment process. Inconsistencies needed to be resolved on 70 percent of invoices. Meanwhile, transaction costs were rising, and carriers waiting for payment were unhappy.
An analysis identified that the root cause of the problem was the use of multiple incompatible information systems between Walmart Canada and its carriers. As a result, account updates had to be done manually, which meant a labor-intensive and time-consuming process full of inconsistencies.
One of Walmart Canada's technology leaders proposed automating the process by creating a blockchain network that would overcome the problem of incompatible enterprise systems and establish a single source of truth shared by all parties. However, some were skeptical of this transformation because blockchain technology had not yet been used in a significant and business-critical function. Furthermore, there were multiple blockchain varieties. Would it be better to have a public blockchain network, like those used for cryptocurrencies, or a private blockchain network?
Walmart Canada turned to DLT Labs, a leader in developing and implementing innovative enterprise solutions using distributed ledger technology, for assistance in this matter. Shortly thereafter, Bison Transport, one of Walmart Canada's carriers, joined the team tasked with developing a network. After a pilot version involving Walmart Canada and Bison Transport was thoroughly tested, it went live in January 2019. The trial process was successfully completed, and in March 2021, the network, known as DL Freight, was extended to 69 additional carriers. The system continuously collects information at every step, from the carrier's quote to the delivery document and payment confirmation. This information is kept and synchronized automatically and in real time, and can only be viewed by the parties involved in the transaction.
According to all the data, the system has achieved tremendous success. Before DL Freight, more than 70 percent of invoices were inconsistent. Today, less than 1 percent of invoices contain inconsistencies, and those disputes are easily identified and resolved quickly. The days of payments taking weeks or months are over; carriers now receive their payments on time.
Lessons that other companies interested in building a blockchain network can learn from Walmart Canada's success include:
1. Involve key stakeholders.
The involvement of Bison Transport, one of the largest transportation fleets in North America, allowed the design team to obtain carriers' perspectives on the problems that needed to be solved, ensuring that the solutions worked not only for Walmart but also for its logistics partners.
2. Evaluate the pros and cons of using a private or public blockchain.
A public blockchain network, which anyone can join without permission, allows for unlimited viewing of the information stored on it, eliminates intermediaries, and operates independently of any administrative party. These types of networks are well-suited for digital consumer offerings (such as NFTs), cryptocurrencies, and verifying individuals' degrees or certifications.
However, private networks (those that require parties wishing to participate to obtain permission) are generally much more suitable for businesses. This is because access is limited to verified members, and only the parties working directly together can see the specific information they exchange. This better satisfies industrial-grade security requirements. For these reasons, Walmart decided to use a private network built on Hyperledger Fabric, an open-source platform.
3. Agree on business rules and calculations.
Any complex business has both fixed and variable processes and costs. A fundamental prerequisite for building a blockchain-enabled system is to ensure that the parties agree on all the calculations and business rules the network will use.
For Walmart and its carriers, this meant working with each carrier's unique data (such as vendor name, payment terms, contract duration, and general terms and conditions). This information is combined with master information tables such as fuel and tax rates. In other words, the parties must jointly agree on the formulas that the blockchain will use to calculate invoices.
The DL Freight blockchain processes all data points in real time throughout each delivery, taking into account information such as fuel costs, travel expenses, and delays at delivery points. The system generates an evolving invoice in real time as costs accrue.
4. Establish checks and balances.
Automatic checks and balances can, and should, be built into the blockchain system both to prevent errors and to identify opportunities to improve performance. For example, information from the carrier about miles traveled and fuel consumed is automatically compared against Internet of Things (IoT) data reported from independent devices on the trucks, and any discrepancy is immediately identified.
These checks and balances create a self-learning system. Multiple carriers travel between the same starting and ending points over time. Carriers' performance history is collected and automatically compared with each subsequent trip. This helps both Walmart and the carriers optimize their operations.
The financial benefits of automatic checks and balances are not limited to payments. For example, because the system automates all financial calculations and continuously updates them throughout the process, any financial services such as carrier financing on outstanding invoices can also be automated. This is because the blockchain system eliminates the need to determine whether an invoice is accurate and valid. This enables working capital to be managed with high efficiency, thus creating a market for financial institutions that can provide financing at any stage of the supply chain.
5. Do not try to replace legacy IT systems.
Although legacy systems are older and more rigid, they often have unique strengths, and the data they hold is valuable. For this reason, instead of insisting on replacing legacy systems, it is important that any blockchain system be designed to integrate with the parties' legacy systems. Being able to do this is one of the greatest benefits of blockchain.
One of the biggest benefits of the blockchain platform is the unprecedented level of trust that end-to-end supply chain visibility has created between Walmart Canada and its carriers. The original aim of the initiative was to eliminate disputes and wasted resources. However, the blockchain solution went beyond that and also provided Walmart and its supply chain partners with insights that led to major operational improvements.
For example, it is now possible to identify which routes are safest or best in terms of time and fuel consumption, and to optimize efficiency by vehicle, route, load weight, and even the most appropriate time (day or night) for travel. The blockchain system has also helped take on the very difficult task of balancing the arrival of so many shipments: by continuously and automatically sharing vehicles' expected arrival times with distribution centers or stores, deliveries can be better coordinated.
The success of the Walmart Canada system has demonstrated the potential of blockchain, showing that the technology can provide significant operational and financial gains and improve supplier relationships.
HBR Turkey
