Blockchain has Potential

Stephen DeAngelis

July 25, 2019

The word “potential” is often viewed as a positive characteristic. The dictionary defines potential this way: “having or showing the capacity to become or develop into something in the future.” What often goes unspoken is the fact that something having potential means there may not be much to crow about at the present. Potential refers to a future state rather than the present state. Most discussions about blockchain technology focus on its potential rather than its current capabilities. For example, Hailey Lynne McKeefry (@HaileyMcK) writes, “Supply chain professionals are talking a lot about blockchain, and how it can be applied to address the increasingly global and complex nature of the supply chain. However, we are still in early days, with only about three in ten companies actively implementing the technology.”[1] McKeefry goes on to note some of the areas where blockchain shows promise. They are:

  • Tracking products moving through the supply chain
  • Sharing information with suppliers
  • Tracking payment information, such as purchase orders
  • Sharing information with customers
  • Managing trade documentation
  • Verifying and monitoring suppliers
  • Managing supply chain risk
  • Managing demand and supply planning
  • Managing inventory
  • Managing freight transportation
  • Managing product returns

McKeefry’s list demonstrates why so many analysts believe blockchain technology has great potential. Ken Cottrill, co-founder and research principal at Chain Business Insights, told McKeefry, “Blockchain’s ability to maintain a tamper-proof, timely record of product movements and related transactions is of huge interest to supply chain practitioners. It comes at a time when the industry is under intense pressure to deliver improvements in these areas.” But, as McKeefry notes, “As real as the promise of blockchain, stumbling blocks including a lack of standards and interoperability as well as low awareness remain.”

Blockchain’s potential for supply chain management

Despite current shortcomings, pundits remain hopeful blockchain technology can make a big impact in supply chain operations. Michael Lierow (@MichaelLierow), Cornelius Herzog, and Philipp Oest, analysts at Oliver Wyman, explain, “Supply chains today are inherently complex, encompassing many players from around the world. Many supply chains face challenges that have significant implications in terms of cost, speed, and (product) quality. In our experience, the most critical supply chain challenges — despite years of efforts and often significant investments — are lack of transparency due to inconsistent or even unavailable data, high proportion of manual (paper) work, lack of interoperability, and limited information on the product’s lifecycle or transport history. In many cases, blockchain applications can counter these inefficiencies and add new value.”[2] So convinced are they of blockchain’s potential, they call it the backbone of the digital supply chain. “Blockchain is more than a pure electronic data interchange (EDI),” they write, “it is the backbone of digital supply chains, offering distinct advantages over today’s conventional supply chain IT infrastructure and analytics capabilities.”

When something, like blockchain, has “potential,” it can be difficult to find actual use cases demonstrating that potential. Luzi Ann Javier believes the food industry is one area where the potential for blockchain technology is obvious. She writes, “In most food-supply chains it might take weeks to figure out where it went from source to destination, and in some cases, the source may not be known, but on a blockchain, it takes just seconds.”[3] Traceability is critical in cases of contaminated food recalls. Being able to trace contaminated food to its source can limit the amount of food needing to be recalled and it can help health and safety professionals focus where their attention is needed most. Ron Crabtree, Chief Executive Officer of MetaOps, explains how a blockchain provides traceability. He writes, “A blockchain consists of three components: a transaction, a transaction record and a system that verifies and stores the record. Once information is stored, it is very difficult to change or delete because altering a record retroactively will affect all subsequent blocks in the network. For instance, if someone were to introduce or create a forged transaction, remove a transaction, or duplicate a transaction, all of the other users (who have copies of the ledger) would notice a mathematical irregularity and reject the new piece of data. Interestingly, the blockchain requires no trust from its users, yet it delivers trusted transactional data.”[4]

Challenges to overcome

Analysts at Elementum don’t dismiss blockchain’s potential; however, they do note that potential won’t be achieved unless current challenges are solved. They explain, “Theoretically, for a supply chain that adopts blockchain the first thing to go is confidentiality. Blockchain systems promise incorruptibility at the expense of centralized control over potentially sensitive information. As one expert put it, ‘You don’t put plain-text data on a blockchain unless you’re happy for your competitors to see what it reveals about your market position.’ While research into resolving that issue is underway, another one presents itself: how do you develop and govern technology across international boundaries? With no guarantees of interoperability or a shared protocol, systems engineering with blockchain could turn into a trek across no man’s land. A third, and even more pressing challenge, is the law. As they put it in the Harvard Business review, ‘…regulations, maritime law, and commercial codes govern rights of ownership and possession along the world’s shipping routes and their multiple jurisdictions. Marrying that old-world body of law, and the human-led institutions that manage it, with the digitally defined, dematerialized, automated and denationalized nature of blockchains and smart contracts will be difficult.'”[5]

Concluding thoughts

Kasey Panetta (@kcpanetta), a Brand Content Manager at Gartner, predicts, “Blockchain could have a transformative impact across supply chains in five to seven years, and has the potential to transform and disrupt supply chain.”[6] She continues, “The increasing complexity of supply chain makes blockchain a good potential solution for three supply chain issues: Counterfeit, visibility/traceability, and efficiency play. Raw materials and products in supply chains increasingly travel through multiple suppliers, manufacturers, geographical locations and stakeholders. This means that organizations handling the product or materials and other enterprises in the supply chain might not even be aware of possible issues. Theoretically, enterprises should know every partner in the supply chain, but that may not be realistic in today’s world.” Blockchain brings the possibility of knowing every partner in the supply chain closer to reality. Panetta concludes, “Though adoption at scale is likely at least 10 years away or more, CSCOs should start to consider the potential application of blockchain within the enterprise, albeit with a heavy amount of skepticism.” Conceptually, “potential” bridges the gap between reality and aspiration. Today, the reality is that blockchain remains in its infancy; nevertheless, it does have potential to impact the supply chain in significant ways.

Footnotes
[1] Hailey Lynne McKeefry, “Blockchain & Supply Chain: Early But Promising,” EBN, 29 May 2017.
[2] Michael Lierow, Cornelius Herzog, and Philipp Oest, “Blockchain: The Backbone Of Digital Supply Chains,” Oliver Wyman, 2017.
[3] Luzi Ann Javier, “Blockchain Points Way to `Massive Change’ for Commodity Supply Chain,” Material Handling & Logistics, 14 December 2017.
[4] Ron Crabtree, “Blockchain in Logistics, Transportation and Distribution,” SCM Now Magazine, 2018.
[5] Staff, “Can Blockchain Help With Supply Chain’s Biggest Dilemmas?,” Elementum, 7 June 2018.
[6] Kasey Panetta, “Why Blockchain Matters to Supply Chain Executives,” Smarter with Gartner, 9 July 2018.