Editor’s Note: Today’s blog is from Kevin Doubleday who discusses the importance of blockchain within the supply chain.
Current Supply Chains don’t operate at the cadence of business. Integrating Blockchain within the Supply Chain could change that.
When we are asked about “killer” use cases for blockchain within enterprise systems, Supply Chain is the usual suspect — and for good reason. Supply chain management — and where it’s headed — ticks off the blockchain use case checkboxes:
✅ multiple, non-linear relationships that must be managed within a vast, a-symmetrical, and complex ecosystem
✅ a critical need for truth and transparency between 3rd parties that can’t trust each other
✅ an industry move towards digitization
✅ a need for decentralization and democratization of data
✅ a need for a distributed, harmonized repository of data with real-time synchronization between all nodes (stakeholders)
✅ an opportunity to greatly reduce fraud/counterfeits as well as associated auditing costs.
[WHITE PAPER] The Top Supply Chain Trends that Will Impact Supply Chain Management in 2018
Before we get into blockchain’s potential entry points into the supply chain ecosystem, let’s take a look at the two current trends in SCM *(Supply Chain Management):
SCM has evolved to become a huge, global ecosystem. Multiple manufacturers, multiple relationships, multiple distribution models, multiple contracts. These complexities, layered with globalization, shorter product life cycles, and associated volatility in demand planning, has produced the most dynamic supply chain landscape we have ever experienced. In essence, the modern day supply chain is a complex system with non-linear, multi-tier relationships.
Supply Chain Management, like many other industries in the past decade, has iteratively undergone transformational periods of digitization — shifts to digital processes essential for remaining competitive and profitable in the global marketplace. Manifesting this trend is the terminology and concept of Digital Path to Purchase — the omni-channel, tech-focused approach to supporting and acting on a consumer’s purchase. Supporting an efficient digital path to purchase requires comprehensive digital collaboration.
Because of the many parties involved in a supply chain, digitization brings with it stakeholder integration issues, with data harmonization and permission models at the top of that list.
Entry points for Blockchain and Distributed Blockchain Technology
A compounding set of technological need is born out of the emerging trends in Supply Chain Management — with digital collaboration as the key theme. As the logistics industry remains fragmented, riddled with data silos, low-transparency, and archaic manual processes, blockchain within the supply chain can empower this revolution towards digital collaboration.
Blockchain within the supply chain provides stakeholders with a decentralized ledger that can store an entire history of transactions across a shared database — the perfect solution for multi-tier collaboration within the context of a dynamic and digital supply chain ecosystem. Here are just a few entry points:
Distributed and Decentralized Database
With a complex and dynamic supply chain management landscape, stakeholders need one harmonized data repository on which to rely for updated information. The distributed ledger component of blockchain provides an integrated digital platform for nodes in a supply chain system to share and query information as developments occur in real time. Instead of having to deal with an ineffective point-to-point communication system like EDI and the complexity of reconciling multiple data sources with multiple permission models, Distributed Ledger Technology (DLT) provides a singular mechanism to securely integrate, harmonize, and synchronize data for all participants. This distributed ledger provides grounds for better (and more) digital automation across the supply chain, as well as concurrent optimization.
Outcomes: A sped-up delivery process as the result of a streamlined, automated, and more error-free flow of goods.
Developments in the chain both upstream and downstream can play a critical role in process efficiencies and planning. DLT provides a dramatic decrease in data latency and an equally dramatic increase in data reliability. This newfound visibility allows participants in a supply chain to proactively optimize components of their processes (like inventory management, staffing decisions, and a thousand more) to support an efficient and agile product path. In other words, stakeholders in a supply chain can react quickly to event information and automate their responses.
Outcomes: less waste in time, energy, and money; preparedness for unexpected events (resistance to disruption in the chain); ability to identify issues quicker and with more accuracy; streamlined recalls.
Shorter product life cycles, unprecedented demand volatility, and ineffectiveness of traditional demand planning techniques are a few among the many reasons why decentralization of Real-Time Data is a necessary step forward for supply chains. Democratizing purchase orders or predictive analytical data such as Point of Sale information can dramatically improve demand visibility, while reducing the negative consequences of poor forecasting such as the Bullwhip Effect.
Outcomes: improved inventory management; More accurate determination of re-order points; Better on-shelf availability.
Decentralizing the Ledger for Transparency, Trust
The consensus, immutability, and finality provided by blockchain technology allow for a decentralized ecosystem — where no single party can control or alter the data, and no two parties can collude together to commit fraud. This ability for completely trusted peer-to-peer interaction allows for a facilitation of direct relationships between participants in a supply chain as well as the termination of reliance on third party intermediaries (insurance, brokers, normative compliance, settlements, etc.)
In addition, the distributed nature of the ledger as well as the blockchain hashing mechanism reduces potential for cyber attacks with no single point of failure.
Outcomes: a transparent and trustworthy supply chain, eliminating reliance on third parties to facilitate trust and reducing associated auditing and security costs.
A simple example is that of a cold chain using blockchain within the supply chain to hold a transport node accountable for mishandling:
Tracking provenance, traceability, and historical procurement for materials, assets, and products as they move downstream to retailer with blockchain finality.
Like in the example above, a supply chain infrastructure blockchain can interface with RFID tags, digital manufacturing equipment, sensors, drones, IoT, and other write-enabled technologies to provide real-time transactional value — which can be leveraged for a more efficient production schedule, better food safety, and stronger anti-counterfeit efforts. Tracking the lineage of a product — from parts manufacturing to lot codes and destination points along the chain — not only supports concurrent optimization, but also ensures the integrity of the product (fair labor, anti-counterfeit, and socially responsible.)
According to the ICC, counterfeiting and piracy are expected to drain $4.2T from the global economy by 2022. [Source] Blockchain can help mitigate these losses and their associated disputes.
Outcomes: increased reduction in fraud/counterfeits, resolution of disputes quicker, elimination of double spending, ensuring that CSR responsibilities are met, and other audit-related benefits.
Retailers can show consumers the historical lineage of the product’s path
Digitize and secure travel document workflows on the blockchain
Currently, an overwhelming amount of redundant paper-based documentation plagues importers, exporters, and intermediaries in the global transportation process. There lies an incredible friction in global chain processes — shipping leader Maersk stated in 2014: “a single, simple shipment of refrigerated goods from East Africa to Europe can come into contact with nearly 30 people and organizations, generating more than 200 different interactions and a four-inch stack of paper along the way.”
Blockchain within the supply chain provides the ability for compliance/legal/customs documents to be digitally signed or notarized at different stages of transport — all located on a central blockchain (stakeholders may include transportation providers, governments, customs, brokers, freights, importers, ocean carriers, ports, etc.)
Outcomes: reduction in delays/human error in paperwork, visibility into procurement, international compliance.