In this part of the blog, we look at the prospects of blockchain in supply chain. We hear experts say that blockchain isn’t bitcoin (another case of early adopter defining the technology). First, let’s consider some of the key aspects of blockchain and appropriate uses cases in supply chain. Next, let’s discuss the headwinds and tailwinds of the use cases and critical factors that determine success.
Some of the aspects of blockchain that are relevant to supply chain include:
Distributed ledger: At its core, blockchain is a distributed digital ledger that lives on the internet and records transactions and events. All participants maintain their own copy of the ledger, which is automatically synchronized with ledgers of other participants, thus ensuring that there is only one version of the “truth”. As opposed to an organization’s database which records events specific to the particular organization and provides complete privacy, these ledgers record transactions and events that are shared across a network of players.
Ability to record events, tamperproof and validated through consensus: Ledgers validate new entries to the chain through the use of a consensus protocol. Each transaction and event is timestamped and therefore tamperproof.
State of the art security technology: Blockchain uses state of the art digital signatures and public key cryptography to validate the players involved in a transaction and to make the records tamperproof.
Transforming linear network to a circular network fostering trusted peer to peer interaction: Unlike a traditional linear network, blockchain provides end to end visibility to each participant in the network.
This enables transparency, faster dissemination of information, and ability to react faster to changes in the business environment.
One or more of the above aspects, in combination, help solve some of the pain points of traditional supply chain. Listed below are a few interesting uses cases gathered from papers and webinars on blockchain. Some of these could be early adopters of the technology and could very well catapult blockchain past the take off point. Also important to consider, are the headwinds facing the use cases.
Traceability & Compliance solutions
Traceability has become an important requirement for Food and Pharmaceutical industries. The pharmaceutical industry is plagued by the menace of counterfeit drugs while regulatory requirements like Food Safety Modernization Act (FSMA), 2011 are necessitating traceability of food components.
End to end visibility and immutability of records afforded by a blockchain network enables the monitoring of drugs from raw materials to end users. It enables one to trace origin of products, monitor its condition during each stage including transportation, and automatically forecast demand based on sales and expiry dates. Likewise in the food industry, customers can readily trace origin of components in a product. Regulatory authorities being part of the network could easily get the audit trail of products.
While blockchain appears to be a tailor made solution for this use case, practical implementation has some significant headwinds. Collecting data at various stages of a product’s journey from raw material to the end user would require considerable effort. This warrants help from other technologies like IoT / sensors. Also, the amount of data collected would require significant data storage (keep in mind that the ledgers are replicated). Blockchain envisages a fairly automated system and to that extent mechanism for accountability and conflict resolutions in case of compliance, safety or quality issues, still need to be worked out. Despite the headwinds, this solution appears to be the most promising use case to date for blockchain.
Recall & after sales support
Traditional supply chain networks provide limited visibility to OEMs beyond Tier 2 suppliers. On the outbound side, suppliers have no visibility on where the end products get shipped. Blockchain would provide visibility to OEMs and suppliers, help better forecasts through use of analytics, and enable smoother after sales operations. It would also help resolve recall issues faster through efficient dissemination of relevant information among participants in the network.
Naturally one would expect the automotive industry to benefit most from this use case. One of the biggest concerns with this use case would be sharing of company sensitive information with suppliers, especially when many of the suppliers are shared with the competition (as is the case with automotive manufacturers). For the use case to gain acceptance either the technology has to evolve to effectively abstract manufacturer sensitive data or they have to see enough value in the technology to overcome the drawbacks of transparency.
“Codifying” contracts & onboarding
Another use case being talked about is that of a relationship management system implemented by “codifying” or converting certain parts of a contract into business rules and applying them to participants within the blockchain network. For example, if the contract between a supplier and manufacturer has provision for penalty/bonus on the basis of timely delivery & quality, the same could be implemented as a business rule and automatically applied. It could also go into the record maintaining the reputation of a supplier. Such a system would bring in objectivity and transparency to the relationships. Manufacturers could also use the system to float new requirements and solicit bids. Evidently, for the use case to be truly beneficial, there has to be a large number of suppliers for the same product and suppliers should be replaceable. If a manufacturer has limited suppliers for a part, it would be foolhardy to try to manage the relationship based on automatic rule based systems. In other words, the use case is best suited for a large multinational retails like Walmart.
One could argue that this use case can be implemented independent of blockchain. So why is it not yet prevalent? Quite simply, relationships are more than simple quality numbers or black and white facts. Therefore, in order for the use case to be effective, it would require a push from AI. With rapid strides being made in AI, it is quite conceivable that in the not so distant future, companies would begin to implement automatic, system based contracts and blockchain is poised to be the platform of choice for such implementations.
It is important to note that from a timing perspective, blockchain is at the most appropriate situation. Benefits of traditional supply chain, namely, reduction in inventory costs, ability to look at the same data across departments, efficiencies from a linear supply chain network etc. have been realized. The industry today is looking at new ideas to drive operational efficiencies. History teaches us that “timing” is an important factor in success of a technology which is why today we dig up AI buried 20 years ago!
Meanwhile what should companies do with blockchain? If one were to trust Gartner, the smart thing to do would be to wait out the hype-disillusionment phase. But what if it charts a different path? What if your competitor reaps benefits while you stay with your waiting phase? Few things that companies can do are: