Companies in the consumer packaged goods (CPG) industry are looking to deploy blockchains for all the right reasons: They want to streamline operations and become more autonomous, nimble, reduce processing errors and become easier to do business with.
Right now, banks and financial institutions are leading the way in deploying blockchain, but CPG companies are following suit. Driven by Walmart and other big names such as Dole, Kroger, McCormick and Nestle, the large CPG companies have blockchain initiatives underway.
Simply defined, a blockchain functions as an automated sequential transaction that offers an immutable record of each transaction in the workflow process. Blockchains come with security built-in and typically integrate into a company’s enterprise resource planning (ERP) system, such as SAP or Microsoft Dynamics. Popular blockchain providers include Microsoft, SAP, Ethereum, Hyperledger and Corda, among many others.
There are at least five areas in which blockchains can improve business processes at CPG companies:
1. Smart contracts. CPG companies do a lot of business with large and small manufacturer suppliers and service companies. For a CPG company, a smart contract could automate the entire manufacturing process so that, during each step of the process — procuring the raw materials, producing the actual product, handling the final payment and doing the required paperwork — would be automated with no human intervention.
2. Tracking damages. In food handling, a blockchain could — combined with internet of things (IoT) devices — potentially make it possible to identify the specific farm and area of the farm where a product was damaged. Think of the cost savings to retailers. Instead of having to destroy all the lettuce or whichever product was damaged, they could check the lot numbers and remove only the damaged goods from the specific lot.
3. Tracking adherence to green and sustainability guidelines. Blockchains can also be used to track whether suppliers are following the sustainability guidelines set by state and local authorities. For example, it would be possible to track overall production to ensure that no child labor laws had been violated during production. This is especially critical in long and complex supply chains where products can change ownership several times en route to the customer. The immutability of blockchain technology allows provenance to be maintained from end to end.
4. Payments based on cryptocurrency. Some retailers are investigating moving off the credit card system toward a financial system based more on bitcoin or a similar cryptocurrency. Even though they will lose the 2 to 3 percent service charge now levied on credit cards, banks are embracing cryptocurrency mainly because they recognize that blockchains are the future. The same is true for CPG companies. Additionally, CPG firms and retailers may consider using blockchains to accelerate payments for marketing promotions, scan-based trading proceeds and other similar business-to-business funds payments. Cash-flow optimization and managing money via credit cards have become tremendous costs, so blockchains offer a secure way to run financial transactions while at the same time reducing costs and adding overall efficiencies.
5. Consumer loyalty and rewards. As digital technologies have empowered the consumer with greater influence in the buying relationship, CPG firms are seeking to measure, track and improve customer loyalty by creating more buying opportunities as well as increasing revenue and profit for their best customers. Blockchains can be used to track the accumulation of loyalty points accrued by a given customer and serve as a platform for reward programs in which customers spend accumulated points
While it will take a few years for the CPG industry to fully deploy blockchains, it’s fairly clear that efforts such as IBM’s Food Trust blockchain has gained support from industry leaders, the most notable being Walmart. Companies looking at digital transformation know they have to move forward with blockchains because they offer a new, highly secure environment to digitize their operations, reduce costs, win over and retain customers while digitizing and enhancing the consumer experience.