‘Blockchain’ in Supply Chains – Solution trying to find a Problem ?

SupplyShift Staff

July 22, 2017

Many of our customers and many of the tenders we participate in are asking about SupplyShift’s existing and future positioning around ‘Blockchain’. Since our key value proposition is performance and risk assessment of complex supply chains across all tiers, Blockchain is of high interest in our roadmap.

Blockchain technology will enable transparent exchange to empower conscious consumers and authentic brands to change the way the global economy works is one example of recent headlines in news and conferences. The concept has been generating buzz in the technology sector for some time, but for many, the question still lingers: what is Blockchain all about?

To start with, it’s the architecture separated from the original Bitcoin application.

Blockchain technology, the core system that underpins Bitcoin, has computers of separately owned entities follow a ‘…cryptographic protocol to constantly validate updates to a commonly shared ledger.'(1)

The term ledger comes from financial accounting practices and represents the ‘…principal book or computer file for recording and totaling economic transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account’.(2)

In other words, Blockchain can be interpreted as a multi-party public ledger solving trust problems because it represents a distributed database across multiple entities where updates only happen if all entities agree. Since no single entity (=organization) has control, its promise is to resolve problems of disclosure and accountability between individuals and institutions whose interests aren’t necessarily aligned.

In short, it could be interpreted as a global system for mediating trust and selective transparency because of its unprecedented level of certainty over the accuracy of the information. Once information is recorded in a ‘block’, the data in any given block cannot be tampered with without the alteration of all subsequent blocks and the agreement of the entire network.

But is it a solution trying to find a problem? And how is this related to supply chains?

And what could be the supply chain ‘killer app’? Can Blockchain enable innovative and/or more efficient supply chain business processes because of its distributed trust and transparency?

Supply chains today still suffer from inefficiencies, fraud, and lack of transparency. Where is my product coming from and how can I make sure its ingredients are safe? How can I be guaranteed that no laws have been violated in the production and transportation process, and no social and/or environmental damage has been done as part of it?

Surely my Tier 1 suppliers assure me that nobody has been harmed in the process, but can Blockchain really help establish any certainty?

There is clearly promise that Blockchain can be especially powerful when non-transactional information is added to the ledger information; from compliance information and labor policies to water and energy consumption. Blockchain technology promises to greatly improve a company’s ability to track a product’s entire lifecycle, verifying sources more explicitly and easily than is possible with most of the methods used currently.

Transactions of almost any type can be recorded, based on conditions agreed upon by all participants.

But there are still challenges to overcome before Blockchain can become mainstream.

For example:

Adoption
‘Buy-in’ is required — enterprises are not exactly used to exposing information of that kind in any distributed fashion.
Regulators in all industries have to understand the technology and the intent — and support it, too.
Governance
Development and governance of the technology must function properly within the existing regulatory apparatus.
Even before governments can be convinced to support this effort (in a globally coordinated way, at that), industries must agree on best practices and standards across borders and jurisdictions.
Security
Cyber security concerns need to be addressed.
Change Management
Blockchain applications offer solutions that require significant changes to (or complete replacement of) existing systems while transitioning to a new decentralized network approach.
Still, there is a strong argument for Blockchain.

Assuming it’s simply a matter of time until we overcome these challenges, technology can reveal hidden information and allow users to attach information (‘tokens’ in Blockchain speak) to intermediate materials and goods as they progress along the extraction, production, shipping, delivery and use phases of the supply chain.

That can greatly simplify:

Tracking purchase orders, change orders, receipts, shipment notifications, or other trade-related documents as well as linking and tagging goods and services.
Assigning or verifying certifications or certain properties of physical products.
Sharing information about the manufacturing process, assembly, delivery, maintenance of products with suppliers and vendors, and conditions that might pose risks and issues further down the chain.
Those with ‘Blockchain fever’ believe this platform could become nothing short of revolutionary; that once it’s widely adopted, it could upend the very way we do businesses. They go so far as calling it a new ‘universal supply chain operating system’.(3)

Walmart is already is already testing Blockchain in the context of food safety. Maersk started tracking its containers using the technology mining giant, BHP Billiton Ltd. They began the tracking of rock and fluid samples. Toyota started looking into Blockchain solutions for their core parts supply chain operations, as well.

Blockchain could indeed make it easier to automate supply-chain certification processes with uninterrupted chain-of-custody, demonstrating the radical transparency the industry has been talking about for quite some time. In the same context, Blockchain could help prevent the social, environmental, and health/safety problems currently rampant in the industry — all of this without even mentioning the losses and inefficiencies resulting from risk, fraud, or anachronistic manual paperwork delays.

If Blockchain data is as complete, consistent, timely, accurate, trustworthy, and widely available as the technology promises, we might just see this ‘revolution’ forecasted by its strongest supporters after all.

SupplyShift Staff

July 22, 2017