Home Depot’s treasury puts suppliers on blockchain
In an attempt to end supplier disputes that lead to bloated inventory, Home Depot is putting its supplier transactions on a distributed ledger. Nicholas Dunbar reports.
US home improvement giant Home Depot has begun a pilot programme to track purchases from its suppliers using distributed ledger technology, also known as blockchain. The initiative in partnership with Google Cloud comes as US retailers battle to digitally transform their businesses in the face of competition from online retail giant Amazon.
For treasurers, one challenge has been to find ways of emulating the now legendary ways that Amazon uses to tightly manage inventory in its fulfilment centres. This keeps Amazon’s days inventory outstanding – a measure of inventory as a proportion of sales – much lower than competitors, and contributes to the Seattle giant’s negative working capital. That in turn allows Amazon to finance growth using customer cash.
Atlanta-based Home Depot, which lists over one million items on its website, has struggled to control inventory because it can’t agree with its myriad suppliers on the whereabouts of goods in the system. Speaking at a Goldman Sachs investor event on 5 September, Home Depot chief financial officer Carol Tomé said, “From time to time we have disputes with our suppliers. They say they ship a hundred and we say we only received 80 and then we negotiate it out”
A solution to the problem may now be in sight, using blockchain technology developed a decade ago to verify crytocurrency transactions such as Bitcoin. According to Tomé, “We have the first blockchain experiment in our company in finance, where we have a distributed ledger authorization between ourselves and one of our suppliers”.
Blockchain can be adapted to function as a decentralised record keeping system, verified using cryptography. That means Home Depot and its suppliers can agree on what has been ordered. As Tomé explains,“We are able to watch merchandise as it flows from the manufacturing plant all the way to the stores. In a distributed ledger environment there will be no disputes because we both are watching the flow of product”.
The initiative amounts to an important test for Google Cloud, which announced its partnership with Home Depot in March 2016. Google launched a series of blockchain initiatives in July this year aimed at enterprise clients and hosted on its cloud platform. According to a company presentation, Google is helping clients implement distributed ledger technology using the open-source platforms Ethereum and Hyperledger.
Some observers remain sceptical about the new technology and its claims of unbreakable security. For its part, Home Depot suffered a major cybersecurity breach in 2014 when details of 56 million payment cards were stolen by hackers. That resulted in Home Depot paying millions in legal settlements to banks and payment card providers.
Beyond Tomé’s remarks, Home Depot declined to comment further on the initiative. Google’s press office referred a request for comment back to Home Depot.
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