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Episode 15: Making Sense of Blockchain

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Note: Dale Chrystie will be leading a discussion about blockchain at the Connection Cafe at the 2020 ASCM CONNECT Annual Conference.

Bob Trebilcock: Welcome to The Rebound, where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post COVID world. This podcast is hosted by Abe Eshkenazi, CEO of The Association For Supply Chain Management, and Bob Trebilcock, editorial director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now, to today's episode.

Bob: Welcome to today's episode of The Rebound, Making Sense of Blockchain. I'm Bob Trebilcock.

Abe Eshkenazi: I'm Abe Eshkenazi.

Bob: Joining us today is Dale Chrystie, a Blockchain strategist at FedEx. Dale, welcome.

Dale Chrystie: Hello.

Bob: [chuckles] Thanks Dale. There are a lot of exciting new technologies these days for the supply chain manager's toolbox. It's everything from robotics to robotic process automation. The challenge for supply chain managers in this new landscape is to identify which technology can transform a process and deliver real value. The answer is obviously going to be different for every organization. The one that challenges us the most, in my view, is blockchain. While there's a lot of excitement around the technology, some might say hype, it can be difficult to figure out why it's different and why it's better than legacy solutions already in place.

Today, Dale is going to help us understand why blockchain should be on your roadmap, and where you might find value along with the potholes that might slow down your adoption. Abe, why don't you get us started today?

Abe: Thanks Bob. Dale, when we were getting ready for this episode we covered a number of topics and a couple of them really stuck out. One of them was when you were speaking about blockchain as a technology concept, you said we're missing the point here. Why isn't this just a technology discussion as companies are evaluating digital transformation, why isn't blockchain a just technology concept for them?

Dale: First of all, thanks for the invitation to be on this podcast. I appreciate it and I enjoyed a year ago speaking at the actual in-person conference. Thank you very much for that repeat appearance here. I think technology is front and center. Blockchain is a technology discussion. My comment would be it's not only a technology discussion. We are an entity that goes to 220 countries and territories. We have the most ruggedized databases around and many people listening to this have the same databases, very similar, very ruggedized, very robust, very enterprise ready. This is just not yet at that point. It's not yet very fast or very scalable or very mature, but what it does it does really, really well.

Where authenticity matters we think it's going to be game changing. Yes, it is an interesting technology, but a lot of people from a business perspective, not the technology folks, I'm on the business and strategy side, the technology folks would be able to go deeper into the technical stack and why it's important, all the rest of those things. I would just tell you that a lot of the business side of things where I represent would look at this as a new unproven, untested, mysterious and scary technology and they would leave it over in the corner office.

The point I make here is, it's not only a technology discussion, but the C-suite is an important constituent to have in this conversation. I believe that's part of this audience. I think that's a big part of the audience that's hearing this, is that while that technology is new and all those things, if you stopped listening when you said, I heard the FedEx guy say it's new and it's not yet very fast or scalable or mature and you stopped listening, I think that would be a mistake. As a former strategy officer, part of my goal is to share this with the C-suite, with that group of people. What they are focused on, not only within their own expertise, but also commonly, they're responsible for risk and opportunity.

One of the examples of this technology that gets to-- There's probably two things that we're going to talk about more than anything else. One is peer to peer technology, where if you and I can find each other, we may not need a middleman that sits between us and essentially sits between supply and demand and has a business model between us. The other is smart contracts. Smart contracts are essentially code on the cloud. Basically it's just code that's going to allow us to do all things to include essentially a micro-payment.

Some of these things are going to challenge existing business models and that's why the C-suite should be very aware of this, even if ultimately they decide to stay on the front row, on this sidelines here for a year or two, I would say do so strategically and not passively. If you only listen to the talk about the technology and about how new and unproven it is, then you might say, "Let me just come back to it in a few years." I just don't think strategically that's the right decision.

Bob: Thanks, Dale. I know that FedEx is doing some things with blockchain. I want to go back to a couple of points you just made, because they were points they made in our original conversation. One was that, companies like FedEx already have these massive databases in place to run their businesses. You referenced that a moment ago. The other was, as a technology right now, blockchain is boring and useless. Your company is doing things and you clearly see an opportunity. Walk us through what was your, uh-huh, moment for the potential of blockchain to change supply chains?

Dale: Several years ago, I was a strategy officer for one of the FedEx opcos and we were focused on a quality action team. We were trying to reduce a dispute resolution scenario with a shipper, receiver and a carrier, where almost everybody listening to this can relate to that, and we were talking past each other. We had a lot of dispute, a lot of chargebacks, a lot of things like that. It was a couple of million dollars for us a year, and it was about 25 million a year for one of the other parties involved. Those tend to get people's attention. In the middle of that, we happened on the blockchain. We ended up using blockchain for the very first use case with FedEx as part of that quality action team.

It was interesting, and it still holds up. We could go down a whole separate podcast just the learnings on that, because it probably still does apply in the supply chain. However, as I said, because we go to 220 countries and territories, our default position is essentially the international space station. When I pulled back from our own very narrow scenario, and realized that the, aha moment for me was essentially crossing one or more borders. Shanghai to San Jose, London to Memphis where I'm domiciled, there are a number of people that sit between you and me in that supply chain, between supply and demand.

Peer to peer technology says that if you need a ride and I've got a car, then maybe a cab or a ride sharing app is fine, but it's still a middleman. It's still somebody that sits between supply and demand and carves off their business layer right off the top of that 30%, or whatever the case may be.

If you need a ride, and I've got a car, and we can find each other in a trusted environment, like blockchain, we may not need that middleman or we may need him then less. It may disrupt or impact them. That whole concept gets you to Shanghai to San Jose, London to Memphis, it gets you to broker and a forwarder and a brother-in-law and I know some lady, and all these people that sit between us, wherever the two of us are. That was the, aha moment about how transformative this could be.

Abe: Dale, let me expand upon that a little bit, you identified a couple of areas where blockchain is going to be transformative. One of the most is smart contracts, building on your aha moment. Help our listeners understand what a smart contract is, and how those are enabled by blockchain?

Dale: Blockchain is just data. It's not that exciting, it's just data. It's what we do with that data that makes it interesting. My five word definition of blockchain is, digital, ledger, permanent, transparent and shared. It is a ledger. If you think of double entry accounting, it is a ledger, but it's digital. Cryptography makes it permanent. When you and I have a transaction, neither one of us can change it. Once it's there, it's there. It is also transparent, so you and I can see what we've agreed to. Then finally, it is shared, which is to say it exists on the cloud.

That speaks to some of the infosec, info security folks that are worried about, some entity that they've seen online or in the media about losing 15 million IDs or something like that. It doesn't exist in any one place, it exists on the cloud. Of the two areas we talked about, and I'll come back to the other one here, but the smart contract piece, we have a lot of fun with our legal team. That's right, legal teams can have fun too. We have a lot of fun with our legal team who would tell you that smart contracts are neither smart nor a contract. That's a bit of legal humor there, but they're right. It's really not a contract and it's really not smart. It's basically just code, or as I would say code on the cloud.

What is a smart contract is a series of, if then statements, if, comma, then. If I do this, then this will happen kind of a thing. An example of that would be, think of a highly secure Excel macro, for many of you who are familiar with that reference. Here's an example of that. Today, if I agree to move a product for Bob or Abe, we do it in a certain number of days. There's a transit commit there and at some point, somebody verifies that, whether that's manually or digitally somehow, did we deliver it to you in time? Did we keep the temperature in the right range? Did we keep the humidity in the right range?

Increasingly, as these sensors are coming through, and things like vaccine shipments that are all going to have sensors, and we're going to have all very high levels of detail around some of those kinds of things but do I do it on time? Do I keep the temperature-humidity correct, et cetera. Those are all the if statements, comma, then you will pay me for it. That doesn't sound that transformative but a smart contract will do that automatically. It will do that via the computer code, some clever code, if you will, on the cloud.

What that really translates to is, if you are a chief financial officer, back to my C-suite reference, you may say, "Look, leave the cutting-edge technology to our business development folks, or our innovation lab, or whatever the case may be." No, let me talk to you, Mr. or Ms. CFO, you're interested in reducing your accounts receivable. You've got an average receivable of I don't know, let's throw a number out there 40 days or something like that. Because the contracts are net 10, net 30 net 60, or I'm going to keep calling you until you pay me.

Well, a smart contract means that yes, we can verify the transit commit, yes, we can verify all the data points around temperature and humidity, comma, and you will pay me turns it not into a net 30 or 60 but in net-zero so it becomes a micropayment. Now you just got the CFO's attention, because now it's no longer this weird technology that they're not that familiar with, it now affects what they do every day and what their annual goals are.

Smart contracts will allow people to code things to say you'll be able to use, in the e-commerce side of things, I want you to go out and hunt for a product at a certain price, and if you can find it, go ahead and buy it and move it over to my website and add a margin to it and put it back out there. All of those kinds of things and many, many others are going to be able to be done with smart contracts.

Bob: Dale, I want to take you back to the other use case that you referenced and you talked a little bit about peer-to-peer technologies like Uber and Airbnb, why don't you expand a little bit on that on why blockchain is going to be transformative for those aspects of the supply chain?

Dale: Well, at this point, blockchain does several things that have never been done before. One of those is that it allows two companies to share essentially sensitive data securely at this point. Till now we've always had to go through some middle layer of software or something along those lines but again, if you need a ride, and I have a car back to that example, and we can find each other in a trusted environment, we can transact, we can do that transaction together in this secure and trusted way. Peer-to-peer technology, I have to go back just briefly because the original concept of blockchain is now actually almost a teenager.

It came out online in about an 8 or 10 page paper on Halloween of 2008. That's the original, it's referred to as the original Bitcoin paper. At the time, if you recall, that was at the back end of a recession. We didn't have a lot of competence in the financial communities that were rock back on our heels, in terms of what was going on with mortgages and all kinds of things and this paper comes out and it says, "Look, in this case, with this technology, it wouldn't require you to have a trusted third party." That's really the peer-to-peer that I'm referring to. In other words, if we can find each other, what can we do, really opens up all kinds of things.

I've spent my entire career in the supply chain, in the LTL side of things, almost all of my career up until a few years ago, and I moved into the blockchain and so I understand that, my brain connects dots. I've spent a lot of years in process improvement and quality and strategy. When I understand how those dots connect, it becomes disruptive, if I am bringing Bob and Abe together and that's my business model and now Bob and Abe can find each other without my help. I need to be aware of that.

That's why I think you don't go passively into the next few years on this technology. You open your eyes and your ears and you work your way through that because peer-to-peer means that again, a movement across a border. What does that do for brokers, forwarders? There are lots and lots and lots of people. I think of some of these processes, like people handing, think of a picture of people handing sandbags, one to the next, to the next, to the next, to the next. There's a whole lot of people standing there waiting for the next sandbag.

Well, that's a lot of our current business processes, and this type of technology, we believe will be very disruptive to that, it's not a doomsday thing. It's not they are going to go away. That's not the point but if that's the role that you currently play, you certainly want to be on the front end of this, even though it's a bit mysterious and uncertain and unknown and not very mature, you still want to be on the front end of this so that you can make the right decisions for your company and for your industry.

Abe: Dale, really interesting, the adoption, adapting to the different models that you're discussing here. You discuss a number of murram blockchains, such as the consortium model, or an open-source model. Help us understand, is this a beta versus VHS? Are we headed towards multiple models? Help us understand this.

Dale: Well, again, to boil it down, it's just data, you can't sprinkle blockchain on something and have it grow six feet tall. It's just data and it's the way we secure the data. Everybody has data. Data is essentially the currency moving forward. When we saw the internet, when we first got to the internet, none of us knew what to do with it. Okay, we have the internet so what?

We had no perspective, we had no connection to it until we got things basically, that gave us that kind of three-dimensional perspective, which is, "Oh, the internet is kind of a foundational layer. It's kind of a protocol layer." Then when we got things like email or web browsers that kind of sit on top of the internet, now we had this relationship, "Oh, now I get it, okay, the internet is kind of this big thing and other things sit on top of that and let us do other types of things."

The problem is when Bitcoin came out in late 2008, early 2009, nobody really knew what to do with it and nobody understood that it was actually the app, it actually sat on top of something but nobody was really talking about blockchain at the time. Blockchain is that foundation. As I would say, if you think of a shiny new car, as Bitcoin, as this cryptocurrency, blockchain is the engine or the motor within the car. We now know today, you can pull that motor out and make a generator or a power washer, all kinds of things out of it. That's what we're focused on from that point of view.

However, I want to stick with the internet example for just a second because when we got to the internet, there was a rush, like a gold rush. Back in the day, everybody wanted to get to the internet, they wanted to get a few smart people, get a little money, build a product, put it out there and get rich, et cetera. The natural tendency, when this first happened, was to do exactly the same thing, although it was 20, or whatever years later, was to get a few people so Bob, and Abe and Dale, and a few others, we all sign non-disclosures, we get a little money, we make a product, we slap a logo on it, we go out there. That's what most people took this on originally is that internet model.

When we think of global commerce, from a FedEx point of view, again, that default position at the International Space Station, there's no FedEx, there's no industry, and there are no borders. Data knows no geographic borders unless we tell it about borders. It's just data. When we think of global commerce, how will this impact global commerce? We think that that 3 or 5 or 10, or 50, or 100, or even 1,000, people all signed up to non-disclosures and all that, the bigger it gets, the more friction there is to keep it going.

Well, in global trade, global commerce, there are 100,000, multiple hundreds of 1,000s of entities all the way to a bicycle delivery company. We think that's a fork in the road. The first part of the fork is these consortia or consortium model where a bunch of people sign up, and we don't think that will scale globally. The other side of that fork in the road is that if we can all agree on an open-source license, Apache License or MIT license, or one of those licenses where we can all say, "Can you agree to this? If so, come on in." We think it just scaled globally.

We think it's going to take-- we think open is inevitable that's not intuitive. It's the first time we've ever said that in 50 years of being FedEx but almost 2 years ago, our Chief Information Officer walked out on stage in Toronto and said, "We don't think we can put a FedEx logo on the side of this thing and have the world come to us and our competitors pay us to use it or vice versa. We think for it to be transformative, it has to be bigger than us."

We think open is inevitable and we think that there is not yet a dominant design, back to your beta – VHS/Betamax reference, we don't think there yet is a dominant design but we do believe one will come because we've seen that historically and we think it will be open in the global commerce and the global trade side of things.

Bob: Before we wrap up, one of the conversations in the supply chain community goes to something that you've referenced a couple of times, which is the reason I wanted to ask it, and that's how do we elevate what we do to the C-suite? On a couple of different occasions during this discussion, you've referenced this will get the CFO's attention, this is a senior-level discussion that the CEO should be involved.

One of the challenges we all face in supply chain is how do you get the attention of the C-suite? I don't know if you've had that experience at FedEx or working with FedEx customers, but how do you persuade the C-suite that they should be interested in blockchain, in the technology?

Dale: Well, first of all, I always lead literally every presentation I do with quotes from our corner office. I have that luxury and I never forget that that is a luxury I have. It's not one single person at some company who's an evangelist who's passionate and stops you in the hall whenever they see you or the equivalent of the hall right now in these virtual days. Fred Smith, our founder, and chairman spoke in early 2018 at the biggest event of its kind in the world, which is Consensus New York, and calmly sat down on stage and said, "Blockchain is going to completely change worldwide supply chains. If you're not at the edge of innovation, you need to be prepared to be commoditized or potentially to become extinct."

Those are pretty powerful words from a pretty well-known chairman and founder. I start every one of my presentations with a quote from the corner office, but we have to speak to the C-suite where they are. We can't teach the C-suite other than maybe a CIO, the technology, it just won't work. Almost none of us, myself included, can read an article about blockchain and actually understand much about it. We have to demystify it. We have to put it in business terms which is, what does that C-suite do? What are their responsibilities?

Well, this one is responsible for finance or innovation or legal or whatever the case may be. We have to speak in their terms. We have to speak to them in their language. Well, in their language, the CFO, back to the example I mentioned, the accounts receivable example, if they could go from 40.0 to 39.9, they'd win all the awards for the year, let alone something that's transformative. Else, what do you mean in net-zero? What are you even talking about? Well, it's a micro-payment, and if that's the case, that can fundamentally change. I don't know any CFO who couldn't use a whole lot more money that they've already earned essentially.

I've already done all the work. I've already paid all the labor for that and I'm still waiting for you to pay me. If you can get that money earlier, that's transformative by itself. By the way, at that point, the CIO is going to need people to code, do those smart contracts, and code this into their world. The chief legal officer, if that's the case, is going to need essentially bilingual attorneys who are fluent in both paper contracts and smart contracts. Now we're halfway around the C-suite. It is a strategy discussion, it is a risk and opportunity discussion.

I think that's how we have to couch it to the C-suite. It's not this random, scary technology that somebody in the innovation lab is working on, and don't bother me with that. Unfortunately, one of the challenges is it's also-- That's a challenge by itself. The next challenge is that here I am sitting telling you that we think it's going to be open. That gets you to what I've used for several years, which is blockchain is a team sport. A couple of years ago, I started making the reference to coopetition. When I first started mentioning that, our lawyers didn't like that. That was an antitrust.

There were, "No, you can't say that. That's an antitrust." It's like, "No, it's not, it has nothing to do with antitrust." We fully understand that, but it's not about where we compete. It's about where we can agree. Where can we agree? Well, a great example of that would be we're part of a trade association that almost nobody knows about, which is a global express association. There's only three members, FedEx, UPS, and DHL. Last year, the three of us worked together to create a position paper on blockchain and emerging technologies that we provided as a recommendation to the World Customs Organization and later to the World Trade Organization.

These are very big, broad discussions. We're also working on, we've done a couple of proofs of concept with US customs. We're working on a third one with them. These are very big discussions and we have to broaden them to that level, but it's not taught in business school. Business school doesn't teach you how to work, sit down at a table and work with your competitor. This is brand new. This is not something that is intuitive for us. We tend to close the door and lock the door and slide pizza under the door to the smart people as they're building things. We don't think it's going to build out that way. We think it's going to take all of us to do that.

If that's the case, then working together is powerful. Just a brief aside here, what I've started referring to that the past couple of years, as in a blockchain sense. However, in the last 12 months, we've all seen coopetition, we've all lived, we've all existed in this pandemic world right now, which is, 12 months ago, we went from arguing over our back fence about whose sports team was going to win to instantly none of that mattered. Now, we are working together where we have a shared purpose. We are working together to get PPE and by the way, authentic PPE around the world and humanitarian shipments around the world and ventilators around the world, and soon vaccines around the world.

There are lots of great examples where companies can work together with a shared purpose. The pandemic is a fantastic example of that and heartwarming. By the way, I believe that now that we've broken through that barrier, to some extent beyond the pandemic, and yes, we will get beyond this pandemic. I believe that that will set us up to do all these kinds of things as well. I also think it applies in the blockchain space as well.

Bob: Great. Thanks, Dale. This was a great discussion. I know Abe and I both really appreciate your taking part in it. That's all the time we have for today. Thanks for joining. We hope you'll be back for our next episode. We look forward to seeing you then. I'm Bob Trebilcock.

Abe: I'm Abe Eshkenazi.

Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.

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