MDD-801

MBA Major Project

Block chain integration in Supply Chain Management: E-commerce

Submitted by
Kushagr Aggarwal
2019SMF6636

Under the mentorship of

Prof Ravi Shankar

Department of Management Studies

Indian Institute of Technology, Delhi
 ACKNOWLEDGEMENT

It gives me immense pleasure to express my deepest sense of gratitude and sincere thanks to
our highly respected and esteemed guide Prof Ravi Shankar, Professor, DMS, IIT Delhi, for
his valuable guidance, encouragement and help for completing this work. His useful
suggestions for this whole work and co-operative behaviour are sincerely acknowledged.

I also wish to express my indebtedness to my parents as well as my family members whose

blessings and support always helped me to face the challenges ahead.

Place: Delhi Kushagr Aggarwal

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Abstract

Blockchain is a concept of decentralizing the storage of information. Blockchain technology

was first implemented in cryptocurrency named Bitcoin and now has found its application in
other areas as well. Blockchain offers an added layer of security and protection from data
loss. E-commerce industry has evolved exponentially in the 20 years since its operations
formally started. The e-commerce industry has various operational challenges which can
effectively be solved using blockchain concepts which is what we will discuss in this paper.
This paper discusses in detail how e-commerce supply chain works from procurement,
inventory management and delivery and how some companies are technologically ahead of
the competitors. There are various challenges discussed which can be observed in some major
e-commerce companies and how blockchain concepts can be used to overcome such
challenges. This paper also discusses why blockchain concepts can not be implemented in the
current e-commerce market and what might be some of the challenges that people might face
while implementing the same.

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 Table of Contents

S.No Description Page Number

.

1 Acknowledgement 1

2 Abstract 2

3 Introduction 4

4 How Blockchain can help any industry 5

5 Challenges in Operations and Supply Chain 6

6 Challenged in the e-commerce industry 7

7 How Blockchain will transform e-commerce industry 8

8 Framework to implement blockchain in operations and supply 9

chain

9 Research Work 11

10 Research Methodology 12

11 Conclusion 13

12 Exhibits 14

13 References 17

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Introduction

Blockchain technology is a system of decentralizing the storage of information in such a way

that it is virtually impossible to change, hack or cheat the system. Blockchain technology was
created by an unknown group of persons under the pseudonym Satoshi Nakamoto around 10
year ago to develop the online crypto currency Bitcoin. Bitcoin has since then developed to
be one of the most expensive currencies and shown tremendous growth with 1 Bitcoin being
worth almost $50,000 during its maximum rise. The enormous applications of the Blockchain
technology and the popularity of Bitcoin has made other industries realise the importance and
the use cases of the blockchain technology and how the implementation of Blockchain can be
helpful against the conventional methods which make use of servers and data warehouses to
store data. A lot of major companies have adopted Blockchain technology for their day to day
tasks as well as some special projects. Companies like Walmart have implemented blockchain
technology for its day to day operations which has hence opened up a new possibility to
implement blockchain technology in operations and supply chain management.

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How Blockchain can help any Industry

The blockchain technology was introduced in the year 2008 with a digital currency Bitcoin.
Blockchain technology is a decentralized storage mechanism which gives us distributed,
immutable, timestamped, secure and programmable data which can be used for any purpose.
It gives us higher transparency, enhanced security and easier traceability of any amount of
data.

Blockchain can help any industry with its features in the following ways:
● Increased Transparency: Since the data is immutable i.e. once a data is stored in the
blockchain, it cannot be changed, it is easier for the companies to make all the
transactions public. Making the transactions public adds an added layer accountability
for all the players to act with integrity towards the company’s growth.
● Increased Efficiency: Since all the data in Blockchain is decentralized, it removes
the need of middle men thus making the system more efficient and less prone to
human errors.
● Better Security: Blockchain is far more secure than any other software or technology
because any new transaction is encrypted and linked to the previous transaction. The
data is then stored in the blocks which are then linked or chained to each other
through an entry in the ledger. Because of the system of block and chain with
encrypted data, the data which goes inside the blockchain is immutable i.e. cannot be
altered and incorruptible i.e. cannot be lost. Hence all the data is safe from falsifying
and hacks.
● Improved Traceability: The ledger maintains a record of all the transactions being
recorded and the source of the transactions. Thus any particular transaction can be
traced back to its roots. This not only helps in improving security but also helps to
verify the authenticity of traded assets.

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Challenges in Operations and Supply Chain

● Increasing Costs
Supply chain has seen a drastic increase in costs in recent times because of the
economic slowdown and the coronavirus pandemic. There has been an increase in
cost due to
○ Rising cost of commodities, thus making the raw material costlier
○ Rising fuel prices to market material through any of the mediums, road, rail,
water or air
○ Higher labour costs
Companies are now looking forward to ways to cut any insignificant costs and
coming up with new ways to do so. One such example is of Amazon using the
Amazon Day Scheme which enables users to select a particular day of the week which
is suitable for them to take delivery of all the items they order throughout the week.
This enables Amazon to save money on multiple trips made throughout the week to
the customer and enables them to transport all the materials in bulk rather than
individually.

● More complexity due to multiple channels to market

There has been an increase in the number of channels which the manufacturers and
the retailers use to market their product. With the increasing number of channels, each
channel comes with its own set of rules regarding the delivery time and quantities.
Some of the prominent channels to market are as follows:
○ E-commerce: e-commerce has been in the market for over 20 years now. It is
one of the cheapest and fastest growing channels which small scale, medium
as well as big scale companies use. With the advent of social media platforms,
it is even easier to set up an online shop and start selling goods online. With
the ease to market and reach customers, e-commerce comes with a great
logistics challenge to deliver goods on the promised dates and at the lowest
costs because the switching costs of the customers has been reduced to
virtually zero.
○ Conventional Retail and wholesale shops: Conventional wholesale and retail
shops still tend to attract a lot of customers but require heavy storage of

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 inventory. The number of SKUs and the companies providing various goods
and services has risen which requires the shop owners to maintain stock of
almost all the popular brands and products thus making it essential for the
shop owners to have best in class inventory management systems.
○ Third Party marketplaces: Third Party Marketplaces like Amazon, Flipkart,
Snapdeal, Paytm Mall, Shopclues etc. have seen a rise in the recent years with
companies like Amazon becoming one of the highest grossing companies
worldwide and Flipkart becoming one of the highest grossing companies in
India. These companies require their market partners to comply strictly with
the long list of terms and conditions and have deep understanding of the
fulfillment options
● Inventory Management based on balancing availability and costs: With the increasing
cost of property and warehousing, retailers no longer want to keep inventory on their
hand and their bank balances for slow moving products. They now need the inventory
to rotate faster which requires a faster upstream supply chain process.
● Better forecasts: Forecasts are data driven and with the sudden rise in competition
because of the e-commerce websites offering a huge range of products with a much
lower procurement and delivery time, it is much more important for companies to
maintain better data sources and have more accurate forecasts.

Challenges in e-commerce industry

With the advent of so many ecommerce companies, the competition in this sector is immense.
Customers have a wide range of websites or sellers to choose from, who can provide them
features like one day-delivery. With competition so high, e-commerce companies face a lot of
challenges, in order to keep up. Some challenges are:
● Cost of transactions - Many ecommerce companies are based on the old business
model which includes many middlemen for things like transactions. These middle
men charge a high percentage of their earnings as processing fee, which leaves very
less profit for the company.
● Data security - In today’s day and age, it has become crucial for ecommerce
companies to collect personal details of their customers, in order to provide them a
personalized experience. Along with that, companies also collect financial details of

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 customers for payment. In the process of data collection, there is a security risk.
Therefore, companies have to invest heavily in data encryption and security.
● Intermediary Management - The complete process of selling is very complicated for
ecommerce companies and it involves a range of different departments, like -
operations, logistics, payment facilitation, supply chain, inventory etc. Maintaining
efficient communication among these departments and the intermediaries is also
challenging.
● Lack of infrastructure - Many companies don't have sufficient infrastructure for
inventory management. To solve this issue, nowadays companies have to invest in
warehouse management systems that help the company with optimizing their
warehouse to be visible, flexible and mobile.

How Blockchain will transform ecommerce

1. Cost Effective
One of the challenges discussed above in the ecommerce industry is the added cost
companies pay to the payment facilitators as processing fee. But with blockchain
technology led by bitcoin and other cryptocurrencies, companies can transform their
payment processes into much more cost effective digital processes.

2. Better Inventory Management

Among the primary challenges this industry is facing currently is inventory
management. Using blockchain technology can help solve this issue in the future.
Sellers can easily implement it to understand their stock storage and refilling
requirements, and use them to plan ahead. This way, the ecommerce marketplace will
never run out of an item, and the cost of storing an unnecessary high amount of
products will also be minimized.

3. Transparency
Most ecommerce companies store data from customers like reviews, photos, ratings
and so on. This data is only stored with the ecommerce platform and the individual
sellers do not have any access to it. With the use of blockchain, this can be changed
and such helpful data can be made accessible to sellers as well. This will give them

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 real time feedback of their products and they can improve their performance using
this data.

4. Personalized Offerings
As it has become increasingly important to store personal data on preferences of
customers, it will become easier to do so using blockchain technology. Using this
technology, platforms will be able to provide personalized offers like reward points
and loyalty discounts to customers.

5. Data security
The transactions happening online daily are increasing exponentially. And this has
caused people to leave an unimaginable amount of digital footprints of their
transactions. This leaves a major security risk to their personal details like bank
account number etc. With the use of blockchain technology, this risk can be mitigated
through encryption and digital identities.

6. Increased Supply Chain Reliability

With a great number of orders being placed, it becomes important for retailers to have
real time updates like what items were ordered, when will new stock arrive and so on.
Using blockchain can ensure that retailers can easily track their orders and stock.

7. Easier Warranty Management

It is very common for sellers to be unable to fulfil warranty coverage requirements,
because of misplacing the paper receipts of the order. With blockchain technology, all
such data like receipts, manufacturer, customer details, order details etc. will be easily
accessible online, and there will be no dependence on paper trail.

Framework to implement Blockchain technology in operations and supply chain

Implementation of blockchain technology in any organization is an organization wide change

and thus needs to be implemented in a systematic manner in order to allow the organization
and all its employees to better and easily adapt to the changes and exploit the new technology
to get the maximum output.

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There exist a variety of frameworks which can be adopted to instill such a change in the
organization viz:
● ADKAR Model
● The Lewin Model
● Mckinsey 7-S Model
● Satir Change Management Model
● The Kübler-Ross Model

In our opinion, what all these models have in common is the basic series of 5 steps which
needs to be followed in order to successfully adapt an organization wide change like the
implementation of blockchain. The steps being as follows:
1. Evaluate challenge Impact and Readiness - Before even implementing the new
change, the organization needs to analyze what is the impact which the
implementation of blockchain technology would have on their organization in terms
of monetary needs, employee training programs, hiring of more workforce, firing of
the existing workforce, new hardware or software requirements etc. in addition to the
readiness of the organization to accept such a change.
2. Formulate your strategy - The second step after evaluating the impact of the new
implementation and the readiness of the organization is to formulate the strategy as to
how exactly will the new technology be implemented. What are the various training
which the employees need to undergo for the same and the strategy on how the
training can be completed while not impacting the existing work of the employees.
The strategy formulated should be such that the employees do not resist the new
change and are able to readily accept it.
3. Develop Change Management Plans - After the formulation of the strategy to
implement blockchain technology in the daily activities, it is important to develop the
change management plans i.e. the documentation, actions, timelines of the
implementation, resources necessary etc.
4. Executing Change Management Plans - Once all the planning and development is
complete, the next step is to execute the change management plans and carefully
investigate through each step the acceptance of the new technology by the employees
and acceptance in the daily operations of the organization
5. Closing Change Management Effort - All of the actions are now documented for
future uses and all the resources are now required to close the change. The

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 organization can now start using the new technology for the daily activities and
analyse any changes that it might observe and document the positive and negative
impacts which the new technology has on the organization.

Research Work

The research work done in this project includes a survey conducted which saw participation
from around 100 small scale businesses who majorly operate in the ecommerce segment. The
participating companies belong to several domains including Fashion and fashion
accessories, Groceries, FMCG and perishable products, Electronics and Electronic
Accessories, and Office and Stationary. The research included some basic operational and
supply chain difficulties which these companies are facing and the delivery service providers
which they majorly partner with for their day to day activities. The research also asked the
approximate amount of money which these companies spend on Inventory ManagementOrder
Management/Personnel Management softwares and how much money they are willing to
spend if they can get all the facilities in a one stop software which runs on blockchain
technology.

● Out of the 102 responding companies, only 20% of the companies had over 100
orders per week. The other 80% of the companies were equally divided among <10
orders per week, 10-50 orders per week and 50-100 orders per week.
● Almost 45% of the respondents dealt in Fashion and Fashion Accessories. FMCG and
perishable products was the second most common answer with 33% of the
respondents operating in that industry. 31% of the respondents dealt in Electronic
products while 26% and 21% of the respondents belonged to the Groceries and Office
and stationary respectively.
● We asked the respondents what are the various operational challenges they face with
respect to Inventory Management challenges, delivery of raw materials and delivery
of finished goods. Out of the 102 respondents, 55% of the respondents face Inventory
Management challenges, 30% of the respondents face challenges with timely delivery
of the raw materials and 50% of the respondents face challenges with timely and
efficient delivery of the finished products.

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 ● Bluedart, DHL and Shadowfax were among the top three delivery partners preferred
by the respondents and significant other delivery partners were DTDC, Delhivery and
Fedex.
● 38% of all the respondents face 25-50% of the delivered products as returns or
replacement requests. 31% of the respondents face 10-25% of the delivered products
as returns or replacement requests. 23% of the respondents face less than 10%
replacement and return requests and they generally lie in the grocery and FMCG
sector. 8% of all the respondents face more than 50% replacement or return requests.
● Approximately 59% of the respondents spend Rs.10,000-Rs.50,000 per year on
Inventory Management/Order Management/Personnel Management softwares. 27%
respondents spend less than Rs.10,000 on such softwares while only 14% of the
respondents spend more than Rs.50,000 on such softwares.
● 53% of all the respondents are willing to spend Rs.10,000-Rs.50,000 on Blockchain
or such technology to ease their day to day operations. A major chunk of the
respondents, approximately 36% are willing to spend a maximum of Rs.10,000 on
such softwares while only 11% are willing to spend more than Rs.50,000.

Research Methodology

In order to conduct the research to understand the challenges which different companies are
facing and their willingness to adapt a technology like blockchain in order to enhance their
daily operations, we targeted the small scale companies which are generally active on social
media platforms like Facebook, Instagram, Snapchat etc. The main reason to target such
companies were:
● They were easily approachable and helpful in answering a small survey anonymously
● There was a high possibility to interact directly with the top management who could
give better insights
● These companies, since they are new, are more likely to face operational challenges
and hence more likely to adopt new technologies to better their operations. This
helped in gathering a better understanding of the market needs and vulnerabilities

After finalising the basic draft of the questionnaire, we searched the potential respondents
through social media applications and tried getting in touch with the head of operations or the
head of public relations through the social media pages and channels of such companies.

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Once the contact was established, we would send a link to an anonymous form trying to
understand the challenges faced and the extent to which the companies are willing to spend
on a technology like blockchain for its offerings.

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Conclusion

The research work done with the small scale e-commerce companies suggests that a lot of
these companies are facing operational and supply chain issues like:
● Adhering to the timely delivery of raw materials
● High return/replacement rate
● Inventory Management

These companies are willing to accept changes like a blockchain implementation which can
help them overcome all the above challenges but a major hurdle is the limited resources
which these companies have in terms of time which can be devoted to instilling such a
change in their organization as well as recurring expenses in order to subscribe to softwares
providing such services, if any, or companies providing such services. Large scale companies
however, like Walmart, a retail and ecommerce giant and shipping logistics companies like
UPS, FedEx, Maersk, are already on the track to implement such technologies and using
them to optimize their daily operations like tracking of the movement of raw materials and
shipping vehicles and other such transactions. In due course of time, blockchain is bound to
be adopted by a lot more companies in the operations, supply chain and logistics sector and
e-commerce companies are bound to exploit such services to the fullest.

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Exhibits

Exhibit 1: Features of the Blockchain Technology

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Exhibit 2: Steps to implement Blockchain technology in an organization

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Exhibit 3: Respondent Demographics

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References

● Blockchain. (2021, February 02). Retrieved March 17, 2021, from

https://en.wikipedia.org/wiki/Blockchain
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https://www.ibef.org/industry/ecommerce.aspx
● Chainalytics. (2020, February 19). India's biggest supply CHAIN challenges in 2020.
Retrieved March 07, 2021, from
https://www.chainalytics.com/india-supply-chain-challenges-in-2020/
● Cole, R., Stevenson, M., &amp; Aitken, J. (2019, June 11). Blockchain technology:
Implications for operations and supply chain management. Retrieved April 2, 2021,
from
https://www.emerald.com/insight/content/doi/10.1108/SCM-09-2018-0309/full/html
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s
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0blockchain

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