Sysco: Is America’s largest food distributor ready for the latest supply chain revolution?
The use of blockchain technology in food distribution supply chains produces many customer and consumer transparency benefits. Is Sysco moving fast enough to stay ahead of its industry?
The digitalization of supply chains, specifically the use of blockchain technology, has the potential to disrupt large food distributers, like Sysco Corporation.
Sysco is a large US-based distributor of food and other food products. Its customers include restaurants, schools, hotels and other venues that serve food. The company has approximately ~75% share of the US food distribution market as of Q2 2017 as well as a large international market share[1]. While Sysco’s market share is large, the company acknowledges often that its industry has few barriers to entry.
In the food supply and distribution context, digitalization of supply chains entails increased transparency throughout the system, which drives better supply chain planning, better customer service, less inventory and fewer costs[2]. Here, we analyze the use of blockchain in food product supply chain digitalization, which is an emerging industry trend. One of blockchain’s key predicted benefits is its ability to keep track of every action touching a food product. This means faster traceability when food recalls happen because a single ledger can provide management information on where a shipment has been or was contaminated[3]. Because of this benefit, many food producers like Dole and distributers and sellers like Walmart are already collaborating with IBM to develop a blockchain for their food supply systems.
Digitalization with blockchain also produces many consumer transparency benefits, such as less food fraud, better traceability and therefore marketability for ‘true’ organic products, and higher sustainability of the industry as a result of less food waste[4]. Many start-ups are springing up to promote these consumer transparency benefits[5]. Because of these benefits to customers and consumers, the emergence of a food distribution supply chain digitalized with blockchain should be of serious concern to the management of Sysco. Despite being the largest food distributor in the US, Sysco has made few strides towards getting ahead of this emerging industry trend. In an industry with low barriers to entry and potentially high recall-related costs stemming from even small mistakes, Sysco’s management should ensure the company is doing all that it can to improve the underlying technology used to manage its supply chains to ensure maximum traceability and transparency.
As it currently stands, Sysco’s management has adopted a plan for ‘digital transformation’ to be implemented in the next 3-10 years that addresses the general food product supply chain digitalization trend, but fails to address the newer industry trends concerning the use of blockchain. For example, the company is digitalizing some aspects of its supply chain to better serve its customers and growing vertically by providing a point-of-sale systems app for restaurants to help them better manage orders and costs. But these initiatives won’t be enough to stay ahead of the industry[6].
Therefore, I would recommend that Sysco’s management team collaborate with other industry leaders and IBM in developing the best food supply chain blockchain system in the short term. Without getting in on the ground floor, it will be harder for Sysco to find an adoptable product down the line. Regarding medium term goals, Sysco can become a market leader by becoming more transparent and sustainable. Sysco should task its small ventures group with figuring out a way to label organic products to provide high levels of traceability, such as having a QR code on each product that when scanned, shows the consumer all of the product’s touch points. This system would build trust with both customers and consumers. Sysco should also develop and track a credible sustainability measure concerning how much food is wasted throughout the supply chain. It could then use this measure as a way of communicating to sustainability-conscious customers that the company is thinking about and improving its sustainability.
Some open questions to consider:
- How do others think existing market participants will behave going forward. Have these existing companies not yet jumped in due to fear of sharing data with companies like IBM?
- Separately, what are the implications of creating open ledgers on companies’ supply chains that could show national security-sensitive data on things like shipping or flight routes?
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[1] SYY Sales vs. its Competitors Q3 2017, CSI Market via csimarket.com, accessed Nov 2017, [csimarket.com/stocks/compet_glance.php?code=SYY]
[2] Alicke,K.,D. Rexhausen, and A.Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company
[3] Robert Hackett, “Walmart and 9 Food Giants Team Up on IBM Blockchain Plans,” Fortune, Aug 22, 2017. [fortune.com/2017/08/22/walmart-blockchain-ibm-food-nestle-unilever-tyson-dole], accessed Nov 2017.
[4] Kim S. Nash, “IBM Pushes Blockchain into the Supply Chain” Wall Street Journal, July 14, 2016. [wsj.com/articles/ibm-pushes-blockchain-into-the-supply-chain-1468528824], accessed Nov 2017
[5] Michael J. Casey and Pindar Wong, “Global Supply Chains Are About to Get Better Thanks to Blockchain” Harvard Business Review, March 13, 2017. [hbr.org/2017/03/global-supply-chains-are-about-to-get-better-thanks-to-blockchain], accessed Nov 2017
[6] Mitch Wagner, “Sysco Looks to Multi-Cloud for Digital Transformation” Enterprise Cloud News, Aug 30, 2017. [enterprisecloudnews.com/author.asp?section_id=570&doc_id=735845], accessed Nov 2017
Great piece! I agree with the theme of your questions, and believe it might be tough for Sysco to begin sharing some of its data with its partners and other third parties. Sysco’s supply chain is one of its key competitive advantages, as moving $50B of mostly perishable food per year requires an incredibly sophisticated operation. I’m not sure if Sysco management would be willing to open up its supply chain management and potentially allow competitors to gain insights from the Sysco system.
Additionally, I’m curious if a move to blockchain could be implemented across all the parts of the Sysco supply chain. Would some of the smaller farmers that Sysco works with be willing to implement a new system utilizing an unfamiliar technology? Would Sysco be in charge of funding the new systems necessary for a blockchain conversion? The company appears to have taken a substantial amount of debt in preparation for acquisitions, would it make sense to invest in a project that may not necessarily increase revenue, especially if it is used to reduce food waste?
Interesting piece! To address your first question, I actually would have thought that Sysco would have very high barriers to entry due to its scale. National food retailers often require their distributors to have similar scale to reliable deliver product on time to their various distribution centers. As an example, Walmart has recently put in an initiative to cut down the numbers of suppliers it uses, seeking to consolidate to only its largest suppliers in an effort to decrease costs. This may be why Sysco seems to be in such a comfortable position and not worried about investing in future technologies, leaving the company vulnerable. I would be curious to see if more technologically advanced food start ups do enter the scene, whether Sysco will even try to compete organically or just use its scale to acquire the start ups and gain the technology quickly, as they will likely be far behind in developing their own systems.
Nice piece, DPI. Industry giants like Sysco can lag the innovation curve (R.I.P., Blockbuster), and you bring up some great points regarding the importance of getting ahead of technological change. Sysco does have a nice-sized moat in an industry where low margins increase the importance of scale, and many smaller operators cannot build out the infrastructure to compete; however, complacency is a dangerous strategy. I agree that a 3 to 10 year time horizon is much too long and there should be a greater sense of urgency. I would be curious who you think are the top up-and-comers that are potential challengers. For Sysco, it may be beneficial to allow this next layer to develop and acquire a player that is best suited to fill Sysco’s needs, similar to Walmart’s acquisition of Jet in 2016 in response to e-commerce pressure from Amazon.