Can blockchain bring the supply chain into the 21st century?
The supply chain has existed since the industrial revolution, and little has been done to streamline its processes, particularly in the last 50 years.
It has also become more than simply moving products from A to B. In today’s industry, supply chains are now more fragmented, complicated and in some cases geographically dispersed.
The 21st century has enabled more dynamic networks than ever before, with seasonal products facing a higher demand than ever, which are transported further than before. Because of this, the traditional supply chain has become outdated and can be difficult to manage. This is a problem for businesses of any size as their success will often correlate with the success of its supply chain.
So, how can blockchain change this?
Blockchain is everywhere. It was the buzzword of 2018, and so far, that doesn’t look set to change as we continue through 2019. However, there is still plenty of uncertainty over the technology and the benefits it can bring to different sectors and businesses, including the supply chain – a vital element for numerous organisations.
Originally developed to power bitcoin over 10 years ago, blockchain is a surprisingly straightforward concept. In a nutshell, it’s a system that records change and movement of transactions. It’s maintained across several systems that are linked to a peer-to-peer network. When it comes to the supply chain, blockchain acts as an immutable ledger within a decentralised location. Meaning that any changes in ownership or possession of goods, along with their movements from each end of the supply chain, can be recorded instantly for the greatest possible accuracy, which is essential for businesses. This increased transparency across the chain can allow for a clear understanding of the value of goods, as well as a more succinct idea of a fair and reasonable cost of each individual product. It also allows for more detailed traceability in goods from across the globe, which gives an insight into the environmental impact of products, as purchasers can follow the entire journey of their orders.
How can it reduce costs?
Many retail businesses are dependent on global supply chains for transporting their goods via the logistics industry. This market is controlled by freight brokers who can charge a huge mark-up for assisting in the transactions of loads through shippers.
Blockchain can be effective in resolving this issue through the use of smart contracts, which are automatically triggered when a specific action takes place, removing the use of intermediaries, therefore saving money across the chain.
As well as cutting out unnecessary and often expensive admin, the features of blockchain can help improve inventory management, reduce costly data errors and delays, and shorten resolution time when disputes occur. It also allows producers the ability to accurately track capacity and costs, estimate delivery times for multiple routes, and make smarter decisions.
How can it promote traceability?
Blockchain ensures that the data it records is permanent and easy to share, giving supply chain players more comprehensive track-and-trace capabilities than ever before. The public ledger means it is possible to trace each product to the very origin of the raw material used. Companies can use this information to provide proof of legitimacy and authenticity. It even allows people to see if their purchase has been ethically sourced and if it has been stored in the correct conditions.
By having a clear and concise understanding of exactly where a product has come from, businesses and their customers are able to have a better understanding of the routes taken and transport options used to deliver their goods. In a society that is becoming more environmentally aware, those who can show improvement or have a clear and transparent policy to their own emission production, may be looked on more favourably.
Blockchain has the potential to transform the supply chain and disrupt the way we produce, market, purchase and consume goods. The added transparency, traceability and security to the supply chain can go a long way toward making our economies safer and much more reliable, by promoting trust and honesty and preventing the implementation of questionable practices.
Businesses, especially those in retail or those who rely on supply chains, should consider the benefits of blockchain and not be afraid to step into a different world, which on the surface may appear complicated, but in reality, can offer measurable benefits.
By Richard Shakespeare, Retail Propositions & Performance Director, Opus Energy
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”