The Rise of Blockchain in the Supply Chain

Stephen DeAngelis

October 04, 2018

New technologies vary in how quickly they penetrate the economy. For a long time, blockchain technology was confined to the cryptocurrency arena. Recently, however, blockchain has made rapid inroads into other areas including the supply chain. The primary reasons blockchain has been touted as a great supply chain tool involve improved visibility and traceability. Patrick Thibodeau (@DCgov) notes, “Businesses and platforms that will make supply chain blockchain possible are emerging, and investment is soaring. Businesses that may have a major impact on supply chain blockchain adoption, such as Walmart, are moving quickly.”[1] Many observers have been surprised at how quickly blockchain technology became a topic of interest. Abhishek Hansrajani, a self-proclaimed tech guru, explains, “From conducting payment and audits to tracking inventory and assets, blockchain technology will enable greater supply chain efficiency than ever before.”[2]

Beyond the hype

Like many new technologies, blockchain has received a lot of hype. Teppo Felin (@teppofelin), a professor of strategy at the University of Oxford’s Saïd Business School, and Karim Lakhani (@klakhani), the Charles E. Wilson Professor of Business Administration at Harvard Business School, suggest decision-makers coolly consider how blockchain fits in with their overall business strategy before leaping on the bandwagon. They explain, “Distributed ledger technologies — collectively known as blockchain — have burst onto the business scene, accompanied by a significant amount of hype. They are widely expected to disrupt existing industries and lead to the creation of new types of companies. Some of the excitement may indeed be warranted, but only if organizations focus on how these technologies can be used to support their strategy. Without that lens, companies risk making large investments in initiatives that don’t create meaningful value.”[3] Before an assessment can be made about how blockchain might be used, decision-makers need to understand its strengths. Felin and Lakhani write:

“What makes blockchains so powerful is the fact that they are distributed and digital. Rather than having to physically record transactions in one place, any authorized party can be given access to either the entire ledger or specified portions. As transactions take place between parties, the distributed digital copies of the ledger are instantly and simultaneously updated, and the record of each transaction is indelibly recorded through advanced computational algorithms and cryptographic locks. Depending upon the rules of the particular blockchain, participating parties can be either identified or anonymous. The decentralized nature of the ledger means that parties can more easily interact with each other — and have confidence that the record of the interactions will be fully memorialized.”

If having a transactional record (i.e., keeping a ledger) is important, then blockchain probably has a use. In the following chart, Felin and Lakhani some of the ways blockchain can be leveraged.

Blockchain in the supply chain

According to Vikrant Viniak (@VViniak), managing director for communications, media & technology at Accenture Strategy, “Blockchain technology is increasingly demonstrating value within the supply chain industry. This is why as of 2018, 69% of supply chain organizations noted they are investigating in further exploring the technology.”[4] One reason for all this interest is the fact supply chains can be extremely complex. Hansrajani explains, “Depending on the product, the supply chain can span over hundreds of stages, multiple geographical locations, a multitude of invoices and payments, have several individuals and entities involved, and extend over months of time.” Blockchain can help keep track of all that complexity. Zoran Spirkovski (@SpirkovskiZoran), a self-proclaimed blockchain enthusiast, explains, “From supply to the consumer, the entire process can be tracked and recorded on a blockchain.”[5] He notes blockchain technology can be especially useful in the food supply chain to help uncover sources of contaminated food and, when necessary, reduce the size of recalls. As a result, blockchain traceability can save lives, time, and money.

Another area where blockchain holds great potential is logistics. Adam Robinson, a marketing strategist for Cerasis, explains, “The value in blockchain for logistics is about more than just retaining information. Blockchain technology builds value in the supply chain through better transparency and process standardization, but it holds additional value through new logistics services and business models. For instance, blockchain enhances freight auditing and invoice management, as well as cybersecurity.”[6] Viniak agrees blockchain can be very useful in the area of logistics. For example, in the area of asset utilization, Viniak writes, “By tagging devices with unique identifiers, and logging each handoff, carriers create exceptional supply chain visibility. … Blockchain thus solves issues that currently incur high costs for carriers while also eliminating time and spend on reconciliation and administrative tasks across the partner network. Insights enabled by superior data then improve business investments and enhance the end customer experience.”

One further area being explored is blockchain-enabled smart contracts. Hansrajani explains, “Beyond tracking, blockchain could also help in increasing trust between stakeholders and reduce financial risk in a supply chain with the application of smart contracts. The former are digital contracts (basically computer codes) that have their algorithm executing contracts without any human intervention. … The contract, being digital, automatically validates terms and condition of completion.” As companies gain experience with blockchain, new and novel uses for the technology will follow.

Summary

Thibodeau notes, “Blockchain won’t fix many of the problems that trouble supply chains today, such as copycat products and theft. … Nonetheless, businesses and platforms that will make supply chain blockchain possible are emerging, and investment is soaring.” Finding blockchain use cases can be difficult because the technology, aside from cryptocurrencies, is so new. Felin and Lakhani warn, however, that waiting to get involved might not be a good idea. They explain, “Companies … need to understand how to configure, design, and use blockchain technologies in unique ways. Some may be tempted to adopt a wait-and-see attitude regarding blockchain and become late adopters. Understandably, many managers will worry that large investments in the technologies will outpace the gains. That’s a valid concern. But blockchains promise to be as fundamental as the internet in shaping how future business will be conducted. Therefore, a wait-and-see attitude could be costly.” Blockchain is not a simple technology to implement because all stakeholders must agree to standards being used. Despite the challenges, blockchain is poised to make a significant impact in the business world.

Footnotes
[1] Patrick Thibodeau, “Supply chain blockchain is quickly taking hold,” TechTarget, August 2018.
[2] Abhishek Hansrajani, “How Blockchain will Transform the Supply Chain Industry,” BBN Times, 26 August 2018.
[3] Teppo Felin and Karim Lakhani, “What Problems Will You Solve With Blockchain?MIT Sloan Management Review, 11 September 2018.
[4] Vikrant Viniak, “NextGen Supply Chain: Blockchain as a Business Solution,” Supply Chain Management Review, 6 September 2018.
[5] Zoran Spirkovski, “Blockchains Being Implemented in Supply Chain Management,” CryptoNews, 24 August 2018.
[6] Adam Robinson, “Unlocking the Value in Blockchain for Logistics,” Cerasis, 13 August 2018.