New trends on the block
Three burgeoning blockchain use cases for eComm and where investors should be leaning in
When people hear the word “blockchain,” they typically think about cryptocurrencies like Bitcoin and Ethereum. However, cryptocurrency is only one popular use case for blockchain technology out of the many more relevant applications appearing recently. Specifically, blockchain technology can be hugely beneficial and potentially transformative for improving supply chain visibility among online retailers.
In this post, I’ll provide a high-level overview of a handful of what I believe to be the most interesting eComm use cases for blockchain, and the top trends investors (and business leaders) should be on the lookout for in 2021 and beyond.
Caveat: While this post is by no means a comprehensive deep dive into each of the below topics, I hope it serves as a helpful launchpad into your future research efforts for potential investment consideration. Feel free to comment below or reach out to me directly to continue the conversation!
The eComm supply chain visibility problem
I first came across the overwhelming need and market gap for improved supply chain visibility when conducting research for my VC Fellows thesis with Lerer Hippeau on eComm enablement tech. To explain why supply chain visibility is so important for online retailers, it’s first necessary to address how complex and interwoven current supply chain systems are and what supply chain visibility means.
Simply put, supply chain visibility is the capacity to track raw materials from suppliers to producers to manufacturers to distributors to retailers all the way to a consumer’s front door. In an ideal world, all parties and steps involved — and there are many — would be operating under a single centralized network with transparency into demand data, order quantities, production queues, delivery estimates, and more. While understanding the status of the above-listed components may sound like business table stakes, that is unfortunately far from the reality.
The truth is that the current supply chain ecosystem is actually extremely fragmented, with each contributor operating under their own unique (and often disparate) systems to record movements along the chain. This means that it is very uncommon and somtimes simply not possible for companies to undertand the real-time status of their orders or quantity of raw materials available from suppliers due to the complexity and opacity of traditoinal networks. Enter: blockchain.
Blockchain use cases for eComm
1. Blockchain for improved production quality, inventory forecasting & demand signaling
Blockchain technology is a potential game-changer for online retailers looking to prevent costly supply chain execution errors because it creates a unique record of every transaction in real-time and increases accessibility to this information for all parties along the value chain. In other words, by leveraging blockchain, it can finally be possible for businesses to catch mistakes as they happen, such as missed shipments, production defects, or duplicate payments, and make adjustments instantly.
Such early detection not only allows businesses to get ahead of problems before they arise, but it can also efficiently correct issues after the fact by tracing the sequence of activities along the blockchain ledger.
Remember the romaine recalls of 2019? With blockchain, if a shipment of romaine had been discovered to be contaminated with E. coli after it went to grocery stores, a blockchain ledger would allow the distributor to instantly trace the outbreak’s history back to the farm it came from, cross-reference everything it contacted, and deploy recall efforts with extreme accuracy, fixing the issue in record time and potentially saving lives in the process.
Further, because blockchain ledgers provide a single source of truth for each party on the chain, blockchain eliminates the need for superfluous communication between suppliers and manufacturers, saving time and money for everyone involved.
For example, instead of emailing a supplier to ask if they have enough raw material to complete an order, a blockchain ledger would allow the supplier to trace inventory throughout the supply chain in near real time and optimize raw material quantities with automatic replenishment cues. Thus, a blockchain-enabled process can not only proactively anticipate demand increases, but can also reduce stock-outs or excess inventory, and enable dynamic pricing for the supplier. Cha-ching!
2. Blockchain for enhanced ESG compliance (Environmental, Social & Governance)
As consumers continue to demand that companies maintain a degree of environmental and social consciousness, transparency into procurement and sourcing practices will hasten the need for increased supply chain visibility.
Today, people want to see companies maintain an auditable record of corporate accountability. In this way, lack of supply chain visibility presents a problem for brands that don’t currently have the means to be transparent about how their products are made, where they come from, and the working conditions of the people making them.
To underscore the difficulty of accomplishing complete supply chain visibility for retail, I intentionally used the phrase “have the means to” above. To be clear, it’s not that companies don’t want to be ethical in their procurement and sourcing practices; the reality is that it is actually extremely difficult — especially for big retail brands, whose supply chains can involve hundreds or even thousands of suppliers at any given time.
In the news:
• Everlane — a D2C retail brand that vocally touts its supply chain transparency practices — received a “not good enough” overall rating from Good on You for failing to track greenhouse gases and for an absence of initiatives to reduce water use
• New industry accountability boards such as the Fashion Transparency Index spotlight luxury megabrands for unethical sourcing
• Gucci’s sustainable “Off the Grid” collection left consumers skeptical about greenwashing
The vast majority of today’s retailers do not own their manufacturing facilities. This means, in addition to sourcing fabrics from dozens of vendors overseas, there are also a handful of suppliers further down the chain that weave, dye and finish materials as well as farms that grow the fibers used to make our clothing. Given this complexity, it is nearly impossible for distributors (or the big companies commissioning such work) to have transparency into all stages of the sourcing process, which poses both reputational and financial risks for eComm brands. This reality is especially true for trendy D2C companies attempting to win over the hearts and wallets of Gen-Z and millennials consumers, who increasingly identify as belief-driven buyers* (64% of all consumers, according to the Edelman Trust Barometer).
*Belief-driven buyers are those who choose to switch, avoid or boycott a brand based on its business ethics.
Given the new realities of consumers’ rising environmental and societal expectations, brands will soon run out of excuses for this lack of transparency and be forced to adopt blockchain solutions that give them the ability to create a complete, trustworthy, and tamper-proof trail of every stage of the manufacturing process.
3. Blockchain for reduced counterfeiting
Last but not least, I believe one of the most obvious yet overlooked use cases for blockchain is in its ability to put an end to the $320 billion counterfeiting problem that plagues businesses every year. Most recently, we’ve seen the proliferation of counterfeit goods move beyond a business issue (with common imitation items such as luxury apparel, sneakers, handbags, and perfume) and become a societal health hazard.
In the wake of COVID-19, when consumers were most desperate for protections, the market for counterfeit facemasks, substandard hand sanitizers, and unauthorized antiviral medication plagued street corners and online marketplaces everywhere. Even sales of legitimate products became concerning, as third-party retailers such as Amazon experienced significant price increases for basic household items.
If blockchain technology had been established as a business norm prior to 2020, such deception would not be possible — or at the very least, thwarted by consumers’ ability to trace products through unique tokens or ledger addresses that link them back to the original manufacture, proving authenticity and validating costs.
Looking ahead
Despite a promising economic outlook for 2021 and governments now experimenting with blockchain for COVID vaccine distribution, businesses everywhere are far from finished with their digital transformations.
Having been exposed to their weakest vulnerabilities during the pandemic, I believe C-suite executives will be on the lookout for innovative solutions that can act as a safety net to the next supply chain catastrophe, and investing in risk management via blockchain will be a top priority.
