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Requiem for reconciliations:DL Freight, a blockchain-enabled solution by Walmart Canadaand DLT LabsMary LacityWalton College professor and director of the Blockchain Center of Excellence (BCoE)Remko Van HoekProfessor of practice and executive director of the CSCMP Supply Chain Hall of Fame,hosted bythe Sam M. Walton College of BusinessAbstractSupply chain partners across many industries are often in disputes over theaccuracy of invoices. Shippers are suspicious of unexpected charges that appear oninvoices; carriers dislike fighting to get paid on time. Such disputes are largely causedby the lack of data transparency among supply chain partners. When each partymaintains its own internal systems of record, the records often do not match,prompting expensivereconciliation processes on both sides.Blockchains offer a different approach based on a shared-information system,with records distributed to authorized trading partners. Blockchains, however, do notrequire supply chain partners to abandon their existing technologies. Whenblockchain applications are connected to each partner’s internal systems of record, itcan enable what is known as “triple-entry bookkeeping”. Supply chain partners getthe benefits of transparency and agreement over events and charges, with minimalchanges required totheir internal systems of record.In this BCoE case study, we explore how Walmart Canada and DLT Labsdeveloped DL Freight, a blockchain-enabled solution for freight invoicing andpayment processes that nearly eliminated disputes (from 70 percent to less than 2percent). We discuss the development of the solution, present before-and-afterpictures of the processes, document the business value delivered, offer lessons forother enterprises considering similar solutions, and compare blockchain technologyto alternative technologies that can enhance supply chain capability.IntroductionFor the past three decades, companies have been improving internal supply chain operations through theadoption of enterprise resource planning (ERP); electronic data interchange (EDI); transportationmanagement systems (TMS); sensor devices like radio frequency ID (RFID), global positioning system(GPS), and temperature-reading devices; better inventory management practices; and Six Sigma qualityimprovement programs. Many supply chain operations are lean because of these investments, but onlywithin the boundaries of the firm. Across firm boundaries, supply chain partners still face significantchallenges trying to synchronize the data about the flow of physical goods with the actual flow of goods.Because each partner independently maintains its own systems of record, the records often do not matchacross supply chain partners, which results in disputes, overpayment, underpayment, and nonpayment.1Transaction costs escalate as each partner’s army of accountants, bookkeepers, and support staffinvestigate and negotiate settlements. The reconciliation process is expensive, slow, and can sourrelationships with trading partners.Copyright 2021 Mary Lacity and Remko Van Hoek All rights reserved2
Blockchain offers a different approach based on a shared-information system, with a single ledger ofrecords distributed to, and shared among authorized trading partners. The implications for the threemajor accounting processes – namely, procure-to-pay, order-to-cash, and record-to-report – areundeniable. Mike Walker, Senior Director of Applied Innovation and Digital Transformation forMicrosoft, said, “Reconciliations are on the endangered-species list.”How do blockchain technologies eliminate the need for reconciliations? Instead of reconciling data frommultiple partners through a matching process, records are created jointly by participating parties. Ablockchain application uses a tamper-resistant ledger. Smart contracts automate the confirmation oftransactions based on the rules to which parties agree in advance. A smart contract, for example, can beused to automate the confirmation of a proof of delivery for the receipt of goods based on a GPS sensorreading, or can confirm that the product is viable based on temperature readings from IoT devices. Smartcontracts confirm the transactions before posting to a shared ledger, i.e., they “confirm before posting”rather than “post and confirm later”. Every authorized party relies on the shared ledger and agrees, “Thisis what happened”. Blockchains are inherently auditable. In fact, the digital ledger is the audit trail.Blockchains move us from the long-standing, double-entry bookkeeping system to triple-entrybookkeeping,2 in which every transaction has three entries: the credit, the debit, and the receipt stored ona shared ledger (see Figure 1).Figure 1: Triple-book AccountingSource: Adapted from -E7nMkQ.pngWithin a blockchain application, security is increased by copying the shared ledger to all authorized hostcomputers (called nodes) in the blockchain network (see Figure 2). The independent copies constantlychatter with each other to make sure no party can tamper or alter the records. Figure 2 also illustrates anotherimportant concept: In the Walmart Canada and DLT Labs’ solution, a key to success was for theblockchain-enabled solution to directly and continuously integrate to existing systems of record ratherthan replace them. Party A and Party B still operate their own internal systems, but now, agreements areencoded into smart contracts to automatically synchronize the data, validate and then add transactionsto the shared ledger. Within a public blockchain, any participant can operate a node. With a permissionedblockchain solution, only authorized participants can operate a node, and only authorized participantscan create, update, or read a shared ledger. In the case of Hyperledger Fabric, a permissioned blockchainCopyright 2021 Mary Lacity and Remko Van Hoek All rights reserved3
protocol, there is further security as access rights occur at the level of private channels between contractingparties inside the overall network.Blockchain technologies promise a host of benefits to trading partners, but the hype has made manysenior executives skeptical.3 For the past few years, the C-suite has been assailed with messages aboutblockchain’s potential impact to disrupt business models, disintermediate trusted third parties, andtransform “the very nature of economic, social, and political systems.”4 The extreme viewpoints may bereconciled as a matter of timing; many of us overestimate the short-term effects of a technical innovation–thus the “hype” – and underestimate the long-term effects on disruption.BlockchainNetworkFigure 2: Triple-book Accounting on a Blockchain NetworkMany senior executives need concrete examples of actual business value delivered before taking aserious look at blockchain. DL Freight, the blockchain-enabled solution for freight invoice andpayment processing developed by Walmart Canada and DLT Labs, serves as one such model. (SeeSidebar for an overview of the companies.) After Walmart Canada and its freight operators adopted ablockchain-enabled solution in March 2020, invoice disputes fell from 70 percent to less than 2percent. In this BCoE case study, we explore the adoption journey from conception to execution,present before-and-after pictures of the processes, peek under the hood to reveal the technicalcomponents, discuss the governance and business value delivered, offer lessons for other enterprisesconsidering such solutions, and compare blockchain to alternative technologies.Copyright 2021 Mary Lacity and Remko Van Hoek All rights reserved4
Sidebar: An Overview of Walmart Canada and DLT LabsWalmart Canada, the Canadian division of Walmart, was founded in 1994 through the acquisition of 122stores from Woolworth Canada.5 Approximately 1.2 million customers visit one of Walmart Canada’s morethan 400 retail stores each day. Net sales for 2020 were 18.4 billion, or about 3.5% of Walmart’s overallrevenues of 524 billion.6 It employs 85,000 associates. Walmart’s motto is “Save money. Live better.”Walmart Canada’s fleet of 2,000 trailers, along with more than 70 third-party freight carriers, move about500,000 loads per year.7 Horacio Barbeito is President and CEO of Walmart Canada. Central to this casestudy, John Bayliss was Senior Vice President of Logistics and Supply Chain Management and is now EVPChief Transformation Officer; Francis Lalonde is VP of Transportation; and Alexey Shlykov serves as SeniorDirector of Information and Analytics. Sergei Beliaev was Chief Information Officer of Walmart Canadafor the adoption of this blockchain technology but has since become EVP and Chief Strategy Officer atDLT Labs.DLT Labs is based in Toronto. After approximately 5 years of research, it was founded in 2017 by AjaySingh, Umesh Singh Kushwaha, Neeraj Srivastava, Loudon Owen and David Freeman. It provides asoftware-as-a-service (SaaS) platform based on distributed ledger technology (DLT). It offers out-of-thebox, modular, and configurable core products, with a scalable architecture and a comprehensive suite ofmanaged services. By the end of 2020, DLT Labs had approximately 300 employees, offices in the US,Canada, India, and Japan, and multiple technology partners, including Microsoft, PwC, KPMG, Deloitteand Salesforce. Neeraj Srivastava is Chief Technology Officer and Loudon Owen is CEO and Chair of DLTLabs.Overview of Business ProblemThe case study begins in summer 2018, when the supply chain and logistics team within WalmartCanada asked the technology organization to assess whether IT could help improve freight invoicing.Thefragmented and complex process was not working well for anyone in the supply chain. A singleinvoice can have up to 200 data elements from various partners in the supply chain. Because each partnermaintains its own systems of record, Walmart Canada’s information often conflicted with their partners’information. At any given time, some 70 percent of invoices were in dispute and required manualinvestigations, driving administrative expenses to about 20 percent of transportation costs.8 WalmartCanada was frustrated with the time and resources needed to verify carriers’ variable charges (calledaccessorial charges) on invoices. Carriers were complaining that it was taking too long to get paid.9Beliaev, then-CIO of Walmart Canada, explained, “For each invoice that was in dispute, a small armyof people on both sides chase down facts. Payments were outstanding, which was a significant strain onthe financial stability within the carrier community. Relationships were strained, as well. It involved aback and forth on who’s right, who’s wrong. It was taking too much of management’s time to resolve.”Walmart Canada’s business team created a business case for the project. Francis Lalonde, VP ofTransportation for Walmart Canada, explained that Walmart Canada set three objectives: resolve carrierpayment issues, improve the efficiency of how Walmart works with carriers, and create visibility toestablish trust with carriers.10 The business case estimated a substantial one-year financial return oninvestment.11Copyright 2021 Mary Lacity and Remko Van Hoek All rights reserved5
While working to improve freight invoicing, Walmart Canada’s leadership asked a provocativequestion: Instead of reducing reconciliations, can we remove them altogether? The technology team wasaware that blockchain technologies could establish a real-time, single, shared version of truth, but thesolution would need to allow each carrier to continue using their own internal systems of record, yetshare reliable, standardized information with Walmart.12 Blockchain could work if it could be integratedwith all of the partners’ existing technologies.Blockchain Selected as an Enabling TechnologyAt the time, Walmart Canada’s technology team considered blockchain technologies to have advantagesover traditional solutions. Compared to traditional applications, blockchain applications uncomplicatetrust, reduce costs, and accelerate business processes by (1) providing a real-time, single version of thetruth to reduce disputes, (2) creating a tamper-resistant, traceable history of events to simplify workflowand compliance, and (3) automating execution with tamper-resistant smart contracts. 13Walmart Canada decided to bring on a technology partner that specializes in blockchain-enabledsolutions so it could focus on its core business capabilities. Walmart Canada wanted a technology partnerthat could deploy a solution quickly, knowing that business partners – not only within Walmart, but alsoin carrier organizations – have limited time, limited funds, and many competing priorities.Although large and well-known technology providers were considered, Walmart Canada selected DLTLabs, a rapidly growing boutique technology platform developer. While most providers pitched buildinga customized solution from scratch in about 18 months, DLT Labs showed Walmart Canada aconfigurable platform that could deploy a solution more quickly than a custom-built application. Theplatform configuration would need to be validated, but validation would be faster than coding and testinga new application. Loudon Owen, co-founder, chair, and CEO of DLT Labs said, “Even moreimportantly, the DLT Labs’ platform had already been proven to be reliable in production. Whileindividual projects were being done extensively in industry, they were being done almost exclusivelyfor proof-of-concepts (PoCs), and not for production. Leveraging an existing platform providedcertainty of both outcome and timing, and eliminated the risks otherwise associated with digitaltransformation.”DLT Labs was also perceived as a no-nonsense provider. It showed Walmart Canada the specificemployees – all with proven track records – who would be assigned to the project. Alexey Shlykov,Senior Director of Information and Analytics at Walmart Canada, advises other leaders, “Forget aboutthe brand names and the size of their companies. Just ask providers simple questions: Can they deliver?Who are the people, name by name, who will be working on your project? And that may help you selectthe right party.”Configuration ProcessThe development cycle took only eight months from conception to live deployment. The first twomonths were spent specifying the requirements for the engagement. The next two months were spentconfiguring and testing DLT Labs’ platform to meet specifications. The pilot phase, which includedBison Transport, one of Walmart Canada’s largest freight carriers, took four months.Copyright 2021 Mary Lacity and Remko Van Hoek All rights reserved6
Concerning the configuration phase, DTL Labs already had released a number of modules on theplatform, including tracking and tracing; workflow; value transfer and exchange; contract compliance;provenance and authentication; credentials and certification; records management; and privacy andconsent (see Figure 3). It only took two months to configure and fully test the platform for DL Freight,including the rigorous review process by Walmart Canada. Loudon Owen, CEO of DLT Labs, said,“Walmart is renowned for its rigorous security and compliance reviews. We went through and passednine extensive security audits by Walmart Canada and its parent company, Walmart USA, to beconfirmed in this role, and are subject to ongoing periodic reviews.” 14Figure 3: DLT Lab’s Configurable PlatformSource: with permission from DLT LabsWalmart Canada forewent the typical PoC phase because DLT Labs had already proven that its platformwas reliable in production. Instead, Walmart Canada went straight to a production pilot that includedBison Transport. Walmart Canada and Bison Transport verified the data, cost savings, labor savings,compliance, and error prevention. The pilot was then easily moved into production. Sergei Beliaev, said,“By doing a production pilot deployment instead of a PoC, you can just implement the solution with theflip of a switch.”DL Freight brings all the information from IoT devices and digital documents from trading partners intoa distributed shared ledger and allows all authorized parties to view that information. Smart contractsautomate the calculations needed to produce an invoice, including accessorial charges for fuelsurcharges, liftgates, redelivery, layovers, shunts (movement of trailers within a site), demurrage (i.e.,reimbursements for late shipments), and diversion miles. By the time the last shipment is made, allcalculations are completed and confirmed, producing a final invoice that both parties accept. LoudonOwen, CEO and Chair of DLT Labs, said, “The system makes the world a lot simpler, and a lot morereliable.”15Copyright 2021 Mary Lacity and Remko Van Hoek All rights reserved7
DL Freight went live with the production-level pilot on January 1, 2019, with Walmart Canada andBison Transport on the platform. Next, Walmart Canada had to convince other carriers to join. Somewere understandably suspicious at first – would the solution benefit Walmart Canada to their detriment?In those cases, Walmart Canada met with the carriers to explain the business value to them. AlexeyShlykov said, “Some of the carriers were hesitant, and our conversations were never in a form of anultimatum. It was always in the form, ‘Let’s talk to help you understand why this is a better solution.’Walmart Canada’s IoT team helped with those conversations because as subject matter experts, theywere able to spell it out to carriers.” Seventeen of Walmart Canada’s additional national carriers, largeand small, were onboarded over the next six months.To be expected, there were some initial hiccups. During deployment, DLT Labs noticed there was anightly increase in network congestion due to the extensive volume of concurrent reporting by thenetwork participants. This congestion was causing lengthy times to generate the required reports, whichfrustrated users. DLT Labs solved the issue by releasing a set of scalable, high-performing servicesandalgorithms deployed as part of the platform. This dramatically reduced the time to generate reports – ingeneral, from eight hours to 30 minutes.Freight processing Before and After DL FreightThe DL Freight solution involved business process redesign. Before the solution, freight invoiceprocessing typically required 11 steps (see Figure 4). The value-added steps are the ones that processdata about the shipment, including confirming asset and shipment details (step 1); dispatching (step 2);accepting or rejecting delivery (step 3); issuing a correct invoice (step 7); and paying the invoice (step11). All other steps involved reviewing data and reconciling any discrepancies within the tradingpartners’ data.Figure 4: Freight Invoice Processing BEFORE the DL Freight SolutionSource: with permission from Walmart Canada and DLT LabsCopyright 2021 Mary Lacity and Remko Van Hoek All rights reserved8
After the solution, freight-invoice processing requires just five steps in the “happy path”, i.e., the flowthat triggers no exceptions or error conditions (see Figure 5).In the first step, shipment details are confirmed for the bill of lading and the invoice begins to be builtwith the shipment details, load details, and delivery instructions. Known charges are applied to theinvoice, including fuel, line haul, stops, and hazmat. During the second step, IoT devices that tracktemperatures, GPS locations, and times are read and posted in real time to the ledger while the shipmentmoves along the transportation route. Variable accessorial charges are added to the invoice along theway, such as charges for wait times, shunts, redeliveries, and layovers. In step three, the carrier agreesto the shipment details and proof of delivery from IoT devices, which automatically updates the invoice.In step 4, the carrier updates the invoice with any additional accessorial charges, the invoice iscompleted, payments are preapproved, and the invoice is issued to the shipper. Lastly, the invoice ispaid according to payment terms captured in the smart contract. Normally, the countdown clock forpayment terms, such as “pay the invoice in net 35 days”, does not start until the parties agree to the finalinvoice. With DL Freight, invoices are agreed upon soon after final delivery, ensuring that carriers getpaid the right amount within the agreed-upon timeframe. In short, carriers receive certainty of the amountand the actual receipt of payments faster.16Figure 5: Freight Invoice Processing AFTER the DL Freight SolutionSource: with permission from Walmart Canada and DLT LabsSo far, over 98 percent of invoices follow the “happy path”. When exceptions or errors do occur, theparties must still reconcile differences; however, discrepancies now are resolved when they happen, ratherthan waiting weeks or months to appear on an invoice, as before. For example, if a driver takes a detourCopyright 2021 Mary Lacity and Remko Van Hoek All rights reserved9
that was not preauthorized, an exception is triggered, and all parties can investigate immediately. SergeiBeliaev, said, “The beauty of resolving disputes right away is that the information is fresh, everybody hasfull context of what’s taking place right now or what has just taken place, so fact-finding is quite easy.”The before and after pictures may also be viewed from an ecosystem perspective. Before DL Freight, theecosystem was very complex with far too many touchpoints. After DL Freight, touchpoints are consolidated(see Figure 6).Figure 6: Freight Invoice Processing Ecosystem BEFORE and AFTER DL Freight SolutionSource: with permission from DLT LabsUnder the Hood of DL FreightWhile Walmart Canada was convinced of the value of deploying the solution on a blockchain, it deliberatedat length as to which specific blockchain architecture it should use. More than 15 different technologieswere considered.17 DLT Labs’ platform is blockchain agnostic, so it could accommodate virtually anyselection. The choices discussed included a public blockchain, like Ethereum, but the relative immaturity,lack of scalability, and transaction cost variability were deemed too risky. Private blockchain code basesthat drew attention included Hyperledger Fabric, Corda, and Quorum. In the end, Hyperledger Fabricwas selected. Sergei Beliaev said, “We are deployed on a permissioned solution, Hyperledger Fabric,because it was better from the enterprise perspective than, for example, deploying on Ethereum.”Hyperledger Fabric is one of the projects sponsored by the Hyperledger Project, a nonprofit organizationlaunched by the Linux Foundation in December 2015 to advance the application of enterprise-gradeCopyright 2021 Mary Lacity and Remko Van Hoek All rights reserved10
blockchains across industries.18 Although the Hyperledger Project has other major blockchainframeworks, Fabric has received considerable media attention, thanks to its active testing by enterprisessuch as IBM, Walmart in the US, DLT Labs and Maersk.19 Digital Asset Holdings and IBM initiallycontributed to Hyperledger Fabric’s code base. Twenty-six other companies – including Fujitsu, GE,Hitachi, State Street, and SAP – contributed to the open-source code that was released in 2017.20 DLTLabs’ CTO Neeraj Srivastava is a member of the IBM Blockchain Advisory Board, and DLT Labs hasextensively contributed to the development of the open-source Fabric blockchain itself. Srivastava said,“Walmart Canada ultimately deployed a DLT Labs-modified Fabric, which benefitted both from the topflight governance of Linux Foundation, and the expertise of DLT Labs.”Fabric’s ledger is structured as a chain of blocks and has two subsystems: “the world state” and the“transaction log” of all the transactions that led up to the current world state. Hyperledger Fabric usesthe concept of channels within the blockchain network so that all information remains private. Onlyauthorized individuals within authorized channels have read and write access to the data.Fabric also has a smart contracting feature called Chaincode, which is used to automate transactions andto connect outside applications to the world state ledger. Chaincode creates a generic framework,enabling any platform to configure and store virtually unlimited master data, workflows, and businessrules and calculations. Sergei Beliaev explained, “There is a fair amount of ‘smart contract’ code in DLFreight, in the form of Hyperledger Fabric Chaincode. But it is far abstracted from individual invoices– or individualanything, really – making it universally applicable. Those rules then govern subsequentcalculations with virtually the same surety as if they were hardcoded in the Chaincode itself, thanks toa security-isolated, business rule-calculation engine built into every endorsing peer. This abstraction isa unique advantage to DL Freight technology and why the platform can be configured so quickly fordifferent industry-use cases, much faster than its competitors.”Because Hyperledger Fabric is an open-source project, DLT Labs was able to modify the code base tomeetrequirements for throughput. Beliaev said, “There is no inherent technical limit in the number oftransactions DL Freight can process. It can scale vertically, as well as horizontally, to increasethroughput.” DLT Labs also builds a single integration hub and supply chain gateway to easeonboarding. Supply chain partners plug into the platform with minimal changes to their back-officesystems.21As of November 2020, DL Freight had 17 nodes across the network, including nodes operated by DLTLabs, Walmart Canada, and the large-sized carriers. Node operators upload data from their internalsystems of record to DL Freight using application programming interfaces (APIs), a piece of softwarethat connects two software applications so that they can message each other. For the smaller-sizedcarriers, DLT Labs operates a node on their behalf, using a SaaS model. These carriers access a portalto enter data into the system. 22DL Freight can run on any cloud platform. DLT Labs purposefully dispersed the geographic location ofits nodes to prevent electricity outages in a single region from making the blockchain networkunavailable. DLT Labs runs the platform on more than 600 virtual machines to secure and protect thedata. The entire network runs without direct access to the Internet. Instead, users have to go through a seriesof microservices and firewalls to connect. DLT Labs also adopted OIDC protocol for authentication andauthorization for every member of DL Freight. Finally, on the platform, all data at rest or in motion areCopyright 2021 Mary Lacity and Remko Van Hoek All rights reserved11
encrypted, and connections throughout the network are secured using encryption.”23Figure 7 shows the DL Freight solution from a data processing perspective. Walmart Canada’sTransportation Management System (TMS) serves as the source of truth on the tender and contractingdata. Once Walmart Canada’s TMS uploads the shipment tender (using EDI 204 data standard) to theplatform,DL Freight sends Walmart Canada’s TMS a tender-acceptance notification (using EDI 990data standard).Carriers interact with DL Freight – either directly through APIs or through the portal – fortender approvals, as well as invoicing status and approvals. Partners also connect their IoT devicesystems to DL Freight so that transaction approvals can be automated using smart contracts. Forexample, Walmart Canada uses FourKites, a system that collects and consolidates data from GPS andIoT Devices from their network of carriers. Some smaller carriers without sophisticated IoT devicesystems enter their data manually onto the platform. Each of Walmart Canada’s Distribution Centers isconnected to the platform to verify receipt of goods via proof of delivery (POD); its ERP system isconnected and also serves as the source of truth on carrier payment status and actual payment of theinvoice. 2Figure 7: Connecting Partners’ Systems of Record to DL FreightSource: with permission from DLT LabsCopyright 2021 Mary Lacity and Remko Van Hoek All rights reserved12
GovernanceGovernance defines the decision-making rights pertaining to a blockchain-enabled solution. The scopeof decision-making rights is complex, spanning decisions about platform oversight, software updatecontrol, data policies, rights of participation, rights of validation, overrides, ownership, and compliance.Below, we explain the purpose of each aspect of blockchain governance in general, then discuss DLFreight’s governance mechanisms.Platform oversight: Public blockchain platforms are overseen by nonprofits or communities ofvolunteers; private blockchains are governed by a single organization or by founding members. Manyprivate blockchains also use a steering committee or an advisory committee. These committees typicallydo not have decision-making rights but are nonetheless influential in guiding, recommending, andproviding expertise on the development of the platform.For the DL Freight solution, Walmart Canada controls the majority of decisions regarding upgrades andmodifications to the core system. However, it has collaborative relationships with their carriers and hasregular dialogues with carriers about improvements.Software update control: With a blockchain solution, software changes must be coordinated across adistributed network of nodes. Whether it’s an emergency patch for a newly discovered softwarevulnerability, or a planned software release, the majority of validator nodes must choose to update thesoftware for it to take effect.For the DL Freight solution, Chaincode is the core software. Any update can only be successfullydeployed when its definition is approved by enough organizations to satisfy the channel’s LifecycleEndorsement Policy (a majority, by default). Subsequently, any software changes cannot be rolled outwithout having the consensus of
Transportation for Walmart Canada, explained that Walmart Canada set three objectives: resolve carrier payment issues, improve the efficiency of how Walmart works with carriers, and create visibility to establish trust with carriers.10 The business case estimated a substantial one-year financial return on investment.11
