Blockchain in Supply Chain Management and Logistics
Blockchain is a technology for decentralized storage of transactional data. It has been flourishing, in particular, in the finance sector for a while now and is often described as ‘disruptive’, ‘game changer’ or ‘revolutionary’. In September 2015, it was known to a large audience, and nine major financial companies, including Goldman Sachs, JP Morgan, Barclays, and others, joined forces to develop a new blockchain-based foundation for financial services. With over 2400 startup companies as per Angel.co, Blockchain has become the cultured hype with almost daily announcements of new projects. It took long till the supply chain management (SCM) and logistics community intercepted on and realized the impact blockchain could have on their industry. One major promise of the Blockchain technology is to create transparency –every member involved in the network has access to the same data, providing a ‘platform for truth’ as said by Tapscott in an interview with McKinsey’s Rik Kirkland.
Transparency is one of the most important and laborious element that is required for logistics and SCM. Being an integral part of the business, it decides the outcome of any business or product. Blockchain is the solution to the issues and shortcomings associated with transparency. It solves all the major issues, such as, lack of transparency, security, accountability, reliability etc.that can be easily tackled by investing in the this technology. Blockchain consultants believe that it is only via blockchain that a trust factor can be developed between the service provider and the user. Logistics expert, O’Marah views blockchain to offer “enormous potential“, while Dickson comments that “blockchain has the potential to transform the supply chain and disrupt the way we produce, market, purchase and consume our goods”. However, the hype around blockchain seems to be driven by technology providers, journalists and consultants. SCM and logistic operators of small and medium-sized companies show little knowledge about the impact of blockchain on their industry. Hence, there is a need for convincing use-cases and benefits of blockchain overcurrent IT solutions.
Blockchain’s Potential Opportunities in Logistics and SCM
Most of the businesses are now realizing the importance of this pioneering technology and the Logistics and Supply- Chain industry are gently and firmly catching up with this technology. It has now become a stairway to immense success. Blockchain consultants consider blockchain as the safest place to store data and companies often boast about the hassle-free access to the information.They do so because all the data is assembled and saved in a single ledger. This comes as a sign of relief, as the companies do not have to get into the complexities of multiple ledger systems. Awareness regarding the blockchain technology’s potential is a necessity, as only a few logistics experts are aware of the importance of integrating the Blockchain technology into their industry. The fundamental properties of the Blockchain technology- decentralized, verified and immutable, are shown in the infographic below:
- Decentralized– The Blockchain technology is decentralized as the network is run by the members involved, without any dependence on a central authority. Whenever a transaction is added to the ledger, there is a need to share the transaction on the peer-to-peer network, where all the members hold their own copies of the ledger.
- Verified– Before sharing the transaction on the network, it is signed by the members using a private-key cryptography and only the owner of the private key can initiate it. Hence, the transaction is verified.
- Immutable– Immutability of the blocks is one of the prominent features of the Blockchain. As the Blockchain technology is based on a consensus mechanism, the contents of the blocks cannot be tampered without prior agreement of the majority of nodes in the network.
Blockchain has promising applications in supply chain and logistics industry. Many companies have regarded blockchain as profitable and drove enough revenue by making it traceable and holding safe transaction. It allows one to track the ‘journey’ of data, including a valid timestamp. In combination with Smart Contracts, the potential is even larger. Smart Contracts are electronic contracts, based on automated actions that are triggered by predefined events. Understanding blockchain’s potential is vital and the following use-case exemplars convey its huge potential.
Facilitate Origin Tracking
If met with a foodborne disease crash, the company has a hard time figuring out the source of bad ingredients and to which stores were they delivered. It might take a week or more in figuring out the cause, but it takes a long time to restore the consumer’s faith in the product. In 2016, Walmart entered into a partnership agreement with IBM and applied Blockchain technology for food safety and traceability, in order to support offline and online customers in China. With a foodborne disease outbreak, the data derived with the help of blockchain, enabled Walmart to track down the origin of the disease in a matter of few seconds. Company giants like Walmart also believe that the Blockchain could also contribute towards reduction of food waste, if the available data on shelf life is used as a parameter for supply chain optimization.
Identifying Counterfeit Products
The origin of high-value items, often relies on paper certificates, which are prone to being lost or tampered with. The products in consideration could be expensive watches, handbags or diamonds. To hold a provenance of these high-value items and by using publicly available records on the blockchain,for instance, in case of a diamond, a potential buyer can clearly determine if the seller is the actual owner of the diamond. In the medical sector, for example, with anticancer drugs, counterfeit drugs are a known obstacle that can have fatal consequences if patients do not receive the treatment as directed. Blockchain could raise patient’s safety by establishing supply-chain transparency from manufacturers through wholesale and pharmacies to the individual patients. It also helps the supply chain members in gaining information regarding any malpractices such as thefts, until the drugs reaches its destination. Through the Auto-ID technology or barcodes, patients can be authorized to check whether they received the actual drugs. Blockchain is expected to make the tampering of products or to channel in products of illegal origin much more challenging.
Operate the Internet of Things
The Internet of Things means everyday objects- from those that are connected from plugs to devices- so as to enable data exchange over the internet. A Gartner report predicts there will be over 20 billion connected things by 2020, but the prevailing internet architecture with its server infrastructure might not be adequate to manage such an amount of data and devices. Single servers render a single point of failure that eventually raise data security concerns. The public blockchain ledger is recognized as a solution to connect and operate IoT devices reliably. If provided with a large amount of possible IoT objects, say shipments or vehicles, logistics might be one of the most promising applications for blockchain and IoT.
Where can we see blockchain technology use-cases in future SCM and logistics?
Creation of a platform for uniform traceability of goods will outlast a major objective for future supply chains. To obtain reliable and transparent documentation of all transactions, end-to-end communication in supply chains must be taken to a new level of maturity. In existence, most networks already fail at the creation of communication or data exchange between the members.
Discovery is one such company that is based on the Blockchain technology and has developed a prototype on backscatter technology that aids in connecting devices with embedded sensors. It is set to revolutionize the supply-chain management process by adopting the core technology-edge computing and IoT. Based on the use case, every product can be affixed with the Cliot tag which will convey all the quality related data (e.g. temperature, pressure, vibrations) to an integrated IoT-Platform. The data is visible in real-time to all members of the supply-chain. This enables companies to minimize the response time. Sensors aid the company to take real-time decision, say, quality affecting temperature decreases below a given point during transit, then a shipment of replacement product can be triggered real-time, or an additional quality check can be assigned at the destination. Discovery is a startup company whose solution will soon be adopted by the supply chain and logistics industries, to avoid issues like stock-outs and stock obsolescence.
With an increasingly competitive market, enterprises need to look for ways to gain a competitive edge. Gone are the days where enterprises could maintain their revenue flow, by only taking into account services they offer, rather, the time has come where every aspect of business needs to be efficiently managed so as to stay relevant in the market. While there are many aspects in a business to be managed, arguably, supply-chain and logistics form a significant part of the business strategy, hence, streamlining this component can bring enormous benefits to enterprises. With decentralization and immutability forming its core feature, Blockchain therefore comes as an innovative solution,where the traditional supply-chain and logistics can be completely revamped.