Will Blockchain Revolutionize the Supply Chain?

Like wildflowers in spring, blockchain technology has burst forth as a topic in supply chain circles. Just three years ago the only real discussion of blockchain technology focused on Bitcoin. Today, the technology is a candidate to support all sorts of transactions in diverse economic sectors. Greg Kefer (@Gregkefer), Vice-president for marketing at Infor, writes, “Blockchain is arguably, one of the most hyped technologies around. Despite the fact that Gartner believes that 90% of pilots will fail over the next 18 to 24 months, there is huge, sustained interest and the business value-add of blockchain is expected to grow to more than $176 billion by 2025.”[1] Ranjit Notani (@ranjit_notani), CTO of One Network asks, “Can Blockchain revolutionize the Supply Chain? Our conclusion is that the answer is a qualified yes.”[2] Revolution is not a term one should use lightly. It means upending the current order of things. The technology is probably more transformational than revolutionary because its primary aim is to improve rather than replace current processes.

Blockchain and Supply Chain Visibility

If you are not familiar with the technology, Nathaniel Popper (@nathanielpopper) and Steve Lohr (@SteveLohr) explain, “At its heart, blockchain simply refers to a bookkeeping method that ‘chains’ together entries so that they are very difficult to modify later. It provides a way for large groups of unrelated companies to jointly keep a secure and reliable record of their transactions.”[3] One of the easiest blockchain use cases to understand involves Maersk, Alibaba, and IBM. Those companies have teamed to introduce the technology into the shipping pipeline.[4] Patrick Burnson explains how it works:

  • Each participant in a supply chain ecosystem can view the progress of goods through the supply chain, understanding where an in-transit container is located. They can also see the status of Customs documents or view bills of lading and other data.
  • Detailed visibility of the container’s progress through the supply chain is enhanced with the real-time exchange of original supply chain events and documents.
  • No one party can modify, delete or even append any record without the consensus from others on the network.
  • This level of transparency helps reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.
  • The solution enables the real-time exchange of original supply chain events and documents through a digital infrastructure, or data pipeline, that connects the participants in a supply chain ecosystem.

Tracking shipping containers is only one potential use of the technology. Kefer notes, “The distributed nature of the technology has led to a great deal of speculation of supply chain applications for blockchain. Asset tracking, payments and intelligent contracts have all been proposed as possible deployments.” Deloitte analysts add, “Using blockchain in the supply chain can help participants’ record price, date, location, quality, certification, and other relevant information to more effectively manage the supply chain.”[5]

Blockchain and Supply Chain Transformation

Today’s supply chains are much more complex than they were a few decades back. Dan Juliano (@Dan_Juliano), a financial technology expert, asserts, “During the last decades two transformations have swept through global supply chains. These new realities mean that the old ways of managing the supply chain simply can’t keep up. First, supply chains no longer just consist of networks of suppliers and manufacturers. But today, they compromise a wide ecosystem, with multiple parties and links involved in creating and distributing goods, from raw materials to finished product, interconnected with the financial supply chain. … Secondly, supply chains and operations have become increasingly dynamic. Product lifecycles have never been so short, and ramp-up periods are becoming more intense. This can have significant implications in terms of cost, speed, and efficiency requirements.”[6] Juliano believes blockchain technology can help deal with this complexity. He’s not alone. Martijn Lofvers (@lofvers) believes the technology can help solve the bullwhip effect.[7] He explains, “In an interview ten years ago, Professor Hau Lee from Stanford University drew my attention to the fact that the bullwhip effect — in which a small fluctuation in consumer demand can have a huge impact at the beginning of the chain — remains the ‘mother of all supply chain problems’. In theory, blockchain can at last integrate — and hence synchronize — the flows of goods, information and money. … This would significantly reduce the bullwhip effect while also eliminating cash-flow problems in the chain.”

Richard Howells (@howellsrichard), a Vice President at SAP, agrees there are areas of the supply chain which can benefit from blockchain technology.[7] Those areas include:

  • Logistics processes. “It has been estimated that 90 percent of global trade is carried out by ocean shipping industry, and the cost of trade-related documents and administration is estimated to represent up to 20 percent of the actual transportation cost.”
  • Track and trace and genealogy processes. “In many industries, we are continually pushing for improved traceability by both regulatory bodies, and consumers.”
  • Asset lifecycle management. “Many industries have capital-intensive, business-critical assets (think airplanes, mining equipment, trucks, tractors) that are expected to be in use for 10 or even 30 years. Over its lifespan, each asset will go through numerous upgrades, repairs, and refurbishments and may also go through numerous owners. This ensures that all the parts used to perform these activities are of high quality, from reliable, legitimate sources and are critical for end user or passenger safety and security.”

Howells concludes, “Blockchain, along with other technologies such as IoT, predictive analytics, and machine learning has the potential to manage assets from the design of the product, through manufacturing and throughout its active life and keep a secure, digital twin that can be tracked and analyzed for a complete history of that asset.” As Kefer noted, much of the discussion about blockchain currently falls in the realm of hype. It’s too early to conclude with any certainty that blockchain will solve all of the challenges for which it is now a candidate technology. Nevertheless, it looks promising.

Footnotes
[1] Greg Kefer, “The block chain supply chain. Will these chains meet ever meet?ComputerWeekly, 12 October 2017.
[2] Ranjit Notani, “Can Blockchain Revolutionize the Supply Chain?Supply Chain 24/7, 8 October 2017.
[3] Nathaniel Popper and Steve Lohr, “Blockchain: A Better Way to Track Pork Chops, Bonds, Bad Peanut Butter?The New York Times, 4 March 2017.
[4] Patrick Burnson, “Is Blockchain in the Supply Chain Coming of Age?Supply Chain 24/7, 30 September 2017.
[5] Staff, “Using blockchain to drive supply chain transparency,” Deloitte, 2017.
[6] Dan Juliano, “5 Ways Blockchain Revolution Supports Supply Chain Evolution,” EBN, 18 October 2017.
[7] Martijn Lofvers, “Blockchain unleashed,” Supply Chain Movement, 16 October 2017.
[8] Richard Howells, “Blockchain: Hit Or Miss For Supply Chain?D!gitalist, 17 October 2017.

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