In an Amazon-dominated world, blockchain provides brands with paths to both partner more effectively with retailers and, more importantly, to sell directly to consumers.
For brands, blockchain is a big deal.
Talk of the distributed ledger technology is everywhere these days. Any discussion of blockchain needs to start with an explanation of what it is. At its simplest, blockchain is a distributed ledger layered on top of the Internet. It can contain many different kinds of information posted in real time, such as transactions and attributes including credentials. The information is recorded to build a chronological, transparent chain. Like cloud technology, it can be either public or private permission-based, although the majority of blockchain initiatives today are permission based. Blockchain contents are ordered and immutable.
What does blockchain mean for CPG companies, and for the supply chain? Put simply, it can reshape the way they connect with consumers, and, as a result, their business models. Far more than just an internal efficiency play, blockchain creates a new, collaborative infrastructure, and it can serve as the foundation on which brands adopt the data-driven, outside-in perspective that builds market and customer understanding.
In an interview, management guru Peter Drucker once said, “You'd be surprised how much outside information about customers and noncustomers companies simply do not have and, in many cases, cannot get.”
Blockchain is set to open the spigot.
Because blockchain can build a trusted connection from supplier to shopper, it offers transparency in sourcing and ingredients as well as provenance that no other mechanism can offer and that companies must otherwise build in from scratch. Current track-and-trace capabilities don’t match blockchain’s level of detail and security.
What’s more, through smart contracts, blockchain’s versatility is useful for automating complex business processes that involve multiple parties – think supplier procurements, trade spend and media spend. Smart contracts are instrumental in replacing the siloed handoffs of today’s front- and back-office constructs with integrated, end-to-end connectivity.
Perhaps the most dramatic change for brands, however, comes from blockchain’s ability to eliminate middlemen like retailers and banks. Blockchain enables CPG companies to interact with consumers directly, and in entirely new ways that replace storefronts and payment functions with software-based processes. Through those direct-to-consumer connections, brands gain access to data – and a bonanza of information. Blockchain addresses the industry’s fundamental disconnect: Brands are great at product insight, but because few retailers share data with them, brands often miss out on shopper insights.
As the Harvard Business Review puts it, the gist of blockchain is similar to the gist of so many digital technologies: it’s about disintermediation, and it brings the ends of the chain closer together. I’ll go a step further and add that not only does blockchain bring the ends closer together, it can integrate the process from the outside-in, and that’s its power.
The blockchain construct is already flexing its muscles. GS1 is adding blockchain-enabled capabilities to its standards. In October, Transparency-One announced its partnering with Microsoft to add blockchain capabilities to its source-to-store software. Watch this webinar by Supply Chain Shaman for details on IBM’s ambitious blockchain pilot with shipping giant Maersk.
One of the boldest blockchain initiatives to date for brands is tech company INS’s plans for a direct-to-consumer online grocery service. INS predicts its service will allow shoppers to bypass supermarkets and buy direct from CPG companies at prices up to a third less. (As this blog goes to print, INS is selling tokens – or fiat currency – and has reached 78.1% of its hard cap).
The effort is an example of the disruptive business model that’s at the heart of distributed ledger technology – and that can make CPG companies more competitive in the age of Amazon. Given CPG companies’ reticence to publicly discuss the technologies they use, the announcement that Unilever, Mars and Reckitt Benckiser have signed on as anchor tenants for the INS service is an indication of both the dramatic change afoot in the consumer-goods industry and blockchain’s role in its future.
The rise of blockchain provides brands a way out of push-based models and into outside-in, pull-based ones. Brands that continue to talk about connecting the front with the back miss the point: The changes they need aren’t tweaks but new ways of thinking about business, which is what blockchain and distributed ledger technologies provide.
Scale is no longer the competitive weapon it used to be for CPG companies. Today’s ammo is personalization and localization. The marketplace has changed, and it requires different business models to serve it. Distributed ledger technologies are the mechanisms that enable CPG companies to not only serve new markets and compete with the likes of Amazon, but to do so while continuing to use the internal ERP platforms in which they’re heavily invested. Blockchain works in tandem with the systems on which most brands already manage their planning, forecast and order-to-cash systems.
As we move into 2018, online sales of replenishment goods are where the growth is in the CPG industry. Brands are taking action to show it’s not business as usual. It’s no coincidence that Kraft Heinz appointed its first president of global online and digital growth initiatives as part of its efforts to build capability for the pull factor in online sales. Retailer Kroger’s far-reaching Restock initiative is evidence that, even among traditional brands, competitive advantage is in data science, not distribution channels.
Blockchain isn’t the answer to all of the CPG industry’s problems. (Exclusive, innovative products are.) But it’s an important mechanism to transform a business model that’s not working today. As an infrastructure technology, blockchain in its current form has fundamental shortcomings -- in scale, security and energy costs. But it’s only the first example of a distributed ledger technology. Alternatives such as Hashgraph are already beginning to attract attention.
What can organizations do today while blockchain continues to evolve? There are several actions they can take to prepare to leverage this new foundation. For one thing, they can explore viable use cases for transparency in provenance, supplier procurement, and media and trade spend. For another, they can begin to better formalize processes around contracting so they’ll be in a position to capitalize when distributed ledger technologies mature into industry-grade capabilities.
Amazon isn’t going away. It’s time to jump in with both feet and get competitive.