14 March 2019
Managing a supply chain and all its links involved in creating and distributing goods is an extremely complex process. Even by using costly software to track orders and shipments, most logistics companies still have only limited visibility and insight on where all their inventory is at any given moment due to analogue gaps that exist throughout the supply chain.
First, a bit of history: blockchain is the technology behind bitcoin and other cryptocurrencies. Blockchain is an incorruptible digital ledger which records all types of transactions – purchases, sales, contracts, money transfers, etc. – in a series of secure, permanently identifiable data files called blocks. Each new block of transactions is linked back to previous blocks, creating a tamperproof chronological leger hosted by millions of computers simultaneously. Because the blockchain database isn’t stored in any single location, the records it keeps are truly public and easily verifiable.
Erwin Matthijssen, Partner at M3 Consultancy, describes blockchain as a “smart spreadsheet” whose immutability, verifiability and disintermediation make it a perfect fit for the supply chain puzzle. The key difference between a blockchain and a spreadsheet is that information can only be added, not edited or deleted. Adds Matthijssen, “Any change is recorded as a visible addition to the datastore, making it immutable. Moreover, there are always multiple parties looking at the datastore. So, if you decide to alter data in a blockchain datastore, your change is visible to and checked by every other participant.”
Integrating blockchain into a supply chain
It’s important to understand that blockchain isn’t a piece of software but rather an integrative technology that plugs into and supplements existing supply chain management software. Users can still see their existing user interface and business process. But when they look at inventory, they see the inventories of everyone else alongside their own. And they see every single modification to that inventory in real time.
Applicature, a blockchain development agency working on projects in the blockchain and cryptocurrency industries, advises companies on how to integrate blockchain technology into the supply chain. They stress that to do so successfully, “companies must understand and evaluate all risks and weaknesses with which they are likely to be faced. It is essential to review the nature of these risks, and work out a map of weak points. Further, the company has to work out a plan of eliminating these points with the help of blockchain technology”.
It's best to start small, they say. Companies could try applying blockchain solutions to some of their weak points at first. Once everything is working well and progress is seen, blockchain can be applied all along the supply chain until all issues are resolved and solutions found. “Collaboration and scalability progress are essential in applying blockchain to supply-chain management.”
Although blockchain technology for supply chains is still young, many professional services firms and software companies have made significant investments in developing blockchain capabilities and resources, aiming to make the process as seamless as possible.
The benefits blockchain is bringing
Blockchain lets supply chain managers (and anyone else who has network authorisation) see the digital and physical products in their supply chains, along with fluctuations in quantities and prices constantly updated in real time. Because they can all be looking at the same information at the same time, steps in the shipping and payment reconciliation process can be cut. As a result, record keeping is improved, the payment process is accelerated, people get paid faster, track-and-trace capabilities improve – and fraud is reduced thanks to total transaction transparency and unalterable records.
Blockchain can also enable the creation of aggregated records between manufacturers or distributors, buyers, and financing partners, so that once all parties agree that goods have been delivered, payments on invoices can be released. Bill Fearnley, Jr., research director for IDC's Worldwide Blockchain Strategies, says "The sooner manufacturers and distributors can agree on shipments and receipts, the sooner manufacturers can be paid for their goods. Getting paid faster improves financial liquidity for members of the supply chain".
The implementation of blockchain in logistics could enable the verification, recording, and coordination of transactions autonomously without the need for third parties, essentially eliminating the need for intermediaries. As a result, blockchain-based supply chains could remove an entire layer of complexity from global supply chains.
Ian Khan, author and filmmaker of the documentary “Blockchain City”, concludes: “As revolutionary as it sounds, blockchain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or even an exchange that was not done with the consent of the parties involved. Above anything else, the most critical area where blockchain helps is to guarantee the validity of a transaction by recording it not only on a main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.”
At this stage, we clearly see the interest of distributed ledger technologies applied to supply chain sector, where an efficient collaboration between a large number of partners is a key factor of success, where connected stakeholders daily share confidential of certified information, replicate it, use it to triggers processes and payments, and monitor their activities. Now we need to go beyond proofs of concept and imagine the ecosystem, business case, technological option and organizational set up, that will allow to move to industrial scale.
Sales Director - Supply Chain 4PL/LLP Solutions