Class 18 - Blockchain

Blockchain, Walmart Canada Reading

Blockchain

An open, distributed leger that can record transactions between two or more parties in an efficient, verifiable and permanent way.

What problem does Blockchain solve

Companies that keep private records tend to be distributed across different internal units/functions making it time consuming and expensive to reconcile across different parties.

Blockchain principles

1. Distributed database: Each party has access to the entire database, but no single party controls the data

2. Peer-to-peer transmission: Communication occurs directly between peers, rather than a central node

3. Transparency with pseudonymity: Every transaction and value is visible to anyone with access to the system

4. Irreversibility of records: Once a transaction is entered and the accounts are updated, the records cannot be altered

5. Computational logic: The ledger has built-in programming logic and rules for triggering transactions between nodes

Blockchain from an accounting and audit perspective

Accounting

• Transactions are recorded directly into a joint register

• Creation of an interlocking system enduring accounting records

• Entries are distributing and cryptographically sealed, so falsifying or destroying them to conceal activity is practically impossible

Assurance

• requires extensive technical expertise

• Current legal, regulatory, and professional guidance is currently sparse

Blockchain Concerns

• Obsolesce: most current blockchain implementations will soon be out of data and will require replacement

• Outsized expectations: CIOs have overestimated the capabilities of the technology

• Disparate vendors: the fragmented market for blockchain makes implementation complex

What problems was Walmart Canada struggling with before the DL Freight blockchain platform?

• Long invoice processing (11 steps)

• Disputed 70% of their invoices

• It took days, weeks, and months to agree on an invoice after the delivery

• High costs for reconciliation

• Late payments to freight carriers

• Poor carrier relationships

Describe the DL Freight blockchain platform that was adopted by Walmart Canada. What changes did Walmart Canada make to their invoice processing

Description:

1. Provides a real-time, single version of truth to eliminate disputes

2. Create a tamper-resistant traceable history of events to simplify workflow and compliance

3. Automate execution with tamper-resistant smart contracts to accelerate business processes.

Changes:

1. Reengineering invoice processing across firm boundaries - using smart contracts that automatically update from IoT data feeds

2. Creating a single version of the invoice - sharing the same invoice on the blockchain’s distributed ledger (only authorized parties can read and write on an invoice)

3. Configuring an existing platform rather than building custom software - it’s a configuring system like an ERP

4. Providing freight carriers with DL freight as a SaaS application - minimizes their IT investment costs

What value/benefits did blockchain implementation provide? What challenges did Walmart Canada face?

Value/Benefits:

• Invoice finalization within 24 hours of final delivery

• Disputed invoices fell to under 2%

• Walmart Canada achieved substantial cost savings

• Cash flows improved for freight carriers

• Relationships between Walmart Canada and freight carriers improved

• New opportunities for revenue generation and additional supply chain improvements

Challenges:

• Initial resistance from freight carriers

• Complexity of ecosystem integration

• Initial deployment of high volume data

• Governance and compliance issues with multiple stakeholders

• Training and change management

• Technical complexity

• Resolving disputes with historical data

Blockchain TED Talk Takeaways

• Blockchain is based on a human story - as humans, we find ways to lower uncertainly about one another so that we can exchange value

• Blockchain is a public registry of who owns what who transacts what

  • Transactions are locked in blocks of data that get encrypted when stored

• Blockchain is like Wikipedia - an open infrastructure that stores many kinds of assets (history of custodianship, ownership, and location)

• Harness our collective uncertainty to collaborate and exchange more, faster, and more open

• Blockchain is not the solution to everything - it will need room for a lot of experimenting