July 21, 2016 | Written by: Mark Treshock
Categorized: Thought Leadership
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Blockchain is getting a lot of attention as a technology poised to disrupt the Financial Services industry. But its potential is far reaching, and has implications for many industries including retail, and may be the thing that makes Omnichannel a reality.
What is Blockchain?
Blockchain is the technology at the core of digital currencies such as Bitcoin. It’s a digital ledger of transactions distributed among a network of computers. Each node in the network can securely change the ledger without the need for a central authority or clearinghouse. This is how Bitcoin is able to operate without banks or other middlemen.
What is Omnichannel?
Omnichannel is matching customers with their purchases with the least friction. For customers, frictionless means buying through the channel of their choice (web, mobile, phone, store, etc.) and receiving their purchases as they please (via shipment, in store/store pickup, locker, etc.). For shipped orders, frictionless means shipping from the most ideal distribution point (distribution center, store, or drop-ship partner) to reduce shipping cost and delivery time.
Keeping track of orders and inventory across these distribution points is the responsibility of the Order Management System. Inventory is visible across the entire network of distribution points and business logic helps fulfil orders intelligently, balancing shipping costs against delivery time.
Challenges with Current Order Management Systems
Current Order Management systems are capable, but complex to implement and maintain—so much so that few companies have been able to fully realize their potential. They rely on a central clearinghouse to keep track of the activity across the network. As a result, these systems can become sluggish during periods of high activity and require elaborate caching strategies.
This problem seems similar to financial trading systems which bring together buyers and sellers, a problem Blockchain appears well suited to solve. Current trading systems typically use a central clearinghouse to verify trades. Transactions can take a comparatively long time to settle and the clearinghouse charges a fee for its services.
Using Blockchain technology, each bank in the network maintains a copy of the complete ledger. All of the copies are kept in sync using an agreed upon consensus mechanism—a set of rules which govern how updates to the ledgers are made and distributed. Trades made using this system clear in seconds or minutes and no fee is paid to a middleman.
How can Blockchain help Omnichannel?
Imagine an Order Management Systems based on Blockchain technology:
- It is a “private” or “permissioned” Blockchain since the network only contains known participants. Trust has already been established and proof of work mining is not required.
- It is distributed, without a central clearinghouse, and composed of Blockchain nodes, each with a complete copy of the ledger of inventory and orders.
- It is fault tolerant. If one node goes down, others can step in since they each have a complete copy of the data.
- It is scalable. The number of nodes can be changed to meet demand. For example, during Black Friday or Cyber Monday additional nodes can be spread across the network to limit latency and improve performance.
- It is smart. The nodes can process business logic around how best to fulfil orders through Smart Contracts.
- It is synchronized. The nodes keep each other synchronized using a consensus mechanism.
- It is fast since proof or work mining is not required.
The benefits of Blockchain-based Order Management systems include scalability, fault tolerance, and the ability to easily add supply chain partners if they also leverage Blockchain. The speed of theses systems remains an unknown and needs to be tested.
More work needs to be done to validate this approach and Blockchain-based Order Management systems are (probably) not just around the corner, but the potential impact of this novel technology on Omnichannel commerce is great.
Blockchain’s potential impact on retail is not limited to order management and includes customer loyalty programs, fraud management, and supply chain.
To learn more about what IBM is doing with Blockchain visit our website.
Related to Omnichannel, IBM and SAP are hosting a webinar titled Customer Engagement in the Digital Economy: The CMO Perspective.