The introduction of blockchain in the supply chain
The introduction of blockchain has brought new opportunities into the supply chain, but what are they?
The age of the digital supply chain is here.
With new technologies such as AI, Big Data and blockchain at companies’ fingertips, there is an increasing importance to adopt new processes into operations to maintain a proactive supply chain approach. In this article, we define exactly what blockchain is and review the impact it has had in the supply chain space over the past few years.
What is blockchain?
Blockchain is essentially, as the name suggests, a chain of blocks. However, instead of a physical chain, there’s digital information (the block) stored in a public database (the chain). When a block stores new data, it is added to the blockchain. In order for this to be done successfully, four things must happen:
A transaction must occur - After making an online purchase, a block will group together thousands of transactions so that an individual’s purchase will be packaged in the block along with other users’ transaction information as well.
That transaction must be verified - Following a purchase, a network of computers checks over each transaction to ensure it happened in the way a customer said it did. The network confirms the purchase, including the time, amount and participants of a transaction in a matter of seconds.
That transaction must be stored in a block - Following verification, the transaction gets the go ahead. The transaction’s details are all stored in a block and will join thousands of similar transactions like it.
That block must be given a hash - Once all of the block’s transactions have been verified, it must be given a unique, identifying code called a hash. Once hashed, the block can be added to the blockchain.
How is blockchain influential in the supply chain?
There are several key ways in which blockchain is useful in the supply chain. These are:
Provenance tracking - Large organisations have complex supply chains. This means it is much harder to keep track of all records for multinational companies. This lack of transparency can affect organisations significantly. In a blockchain-based supply chain management, record keeping and provenance tracking is made easier as product information is accessed by embedding sensors and RFID tags.
Cost reduction - Real-time tracking of a product in the supply chain through the help of blockchain can reduce the overall cost of moving items in a supply chain. Following a survey of supply chain workers by the Digital Supply Chain Institute, over one third of people cited reduction of costs as the topmost benefit of application of blockchain in supply chain management.
Establishing trust - Developing trust in complex supply chains with large numbers of participants is key to smooth operations. For example, if a manufacturer shares its products with suppliers, the manufacturer should be able to depend on that supplier to follow factory safety standards.
In Capgemini’s report, ‘Does blockchain hold the key to a new age of supply chain transparency and trust?’, it was discovered that blockchain has created a plethora of new opportunities for the supply chain space.
For example, it can address a range of issues in the supply chain, namely traceability, which improves crisis handling. If a group of customers fall ill in the same area, the common products they bought and the retailers they bought from can be analysed to detect where the potential problems stem from. Blockchain can check the audit trail, which includes the origins of the ingredients, and find out which ingredient is causing the issue.
“Blockchain is seen as an invaluable asset in the supply chain process as it provides an essential layer of trust and transparency in today’s volatile environment,” says Jorg Junghanns, Vice President Europe, Digital Supply Chain at Capgemini. “Traceability and its authenticity are a critical aspect of the supply chain for an organisation and businesses need to look at new trust-based models that are only made possible by blockchain. By creating an immutable distributed database of transactions, along a product’s journey in the supply chain, blockchain can combine real-time data and tamper-proof the storage of that data. Implementing this into an organisation’s ecosystem enables them to tackle key supply chain issues like traceability, counterfeiting, costs and consumer trust – all of which are essential for any business to overcome when looking to edge ahead.”
In its report, ‘Blockchain: how this technology could impact the CFO’, EY examined how blockchain is transforming the CFO’s role. EY believes the expectations of the CFO position is changing. CFO’s traditionally have three key roles: execution, enablement and development. These consist of six segments: trusting the numbers, providing insight, getting your house in order, funding organisational strategy, development of business strategy and communication to the external marketplace.
In the latest ‘DNA of the CFO’ study, it was found that 58% of finance leaders identified digital as one of the four forces transforming the CFO role. Blockchain technology is considered a core component of the latest digital trends and is recognised as being one of the most impactful digital disruptions shaking up the finance function. One of the main challenges remains a lack of understanding about the evolving field of distributed shared ledgers. Among the finance leaders that EY surveyed, it was also revealed that 58% globally would “need to build their understanding of digital, smart technologies and sophisticated data analytics” in order to deliver against important strategic priorities.
Jolyon Austin, EY Partner, Supply Chain Transformation, believes Transport and Warehouse Management Systems (TMS and WMS) will further move to the cloud. “Blockchain is gaining significant traction in multi-party value chains where an immutable record is required. Where 3PLs are managing customer orders and billing, the application of Robotic Process Automation (RPA) eliminates error-prone repetitive tasks,” he says.
“Increasing levels of capability mean bots can automatically capture order reference and tracking numbers, and update delivery status and proof of delivery through regular queries to carrier tracking systems. As orders are filled, clients receive notifications with order details and a link for tracking the order, tracking inventory, checking stock levels and notifying customers about issues. Visibility and reporting platforms enable more real time connectivity. 3PL providers invest to be able to give clients end-to-end visibility and traceability across the supply chain (track and trace of shipments or warehouse movements). With more data flowing through the supply chain, the opportunities for improvement and gains within analytics are significant; increasing use of artificial intelligence and machine learning on top of Big Data provides their clients with more value-added information and insight. Predictive AI enables logistics operations to become more proactive and less reactive (e.g. AI in last mile delivery for calculating optimised routes).”
In Avetta’s white paper, ‘Transforming the supply chain into an Opportunity Centre’, blockchain is one of its ways to transform the supply chain amidst digital transformation. Avetta believes that one of the greatest benefits is that a “blockchain-driven supply chain ecosystem allows all stakeholders to securely save information relating to product price, location, quality and certification.”
Avetta’s research shows that procurement leaders face three fundamental challenges in their supply chain transformation journey: budget, lack of organisational urgency and the implementation of new technology into legacy systems. The introduction of AI, cloud computing, and data analytics has accelerated innovation in the supply chain space, while blockchain has allowed for greater real-time visibility into the supply chain. With an enhanced visibility of goods, the entire supply chain can reduce waste with just-in-time planning and accurate inventory management.
The company is a leader in Enterprise Information Management and operates one of the world’s leading business networks. OpenText partnered with BlockEx, a leading provider of blockchain digital asset exchange services, to jointly explore how global supply chains can leverage blockchain technology. At the time, Adam Leonard, CEO of BlockEx, commented: “BlockEx is pleased to partner with OpenText. Teaming up with OpenText to develop a blockchain-based trade finance marketplace is truly exciting. Our partnership allows some of the world’s largest supply chains connected to OpenText Business Network to simply opt-in to blockchain-based trade finance.”
In OpenText’s white paper, ‘The supply chain gets smarter’ the organisation believes there are two key ways that blockchain can generate value into operations. Blockchain can provide:
The ability to execute code autonomously, across a distributed application that resides on a blockchain smart contract platform and not under any single entity’s control. This is primarily in ecosystem environments where multiple parties have the determination to interoperate without recourse to a potentially more expensive intermediary.
The irrefutable provenance that comes with an immutable ledger. This means that the data that is used in establishing an audit trail of shipment conditions, or alternatively introduced into analytics and AI services can be trusted to enable decisions to be made with confidence.
In IBM’s report, ‘Building your blockchain advantage: Fresh insights on how to create value, scale fast and open new markets’, the tech giant conducted a survey of more than 1,600 executives across eight industries.
It was found that:
Over 60% of early adopter organisations surveyed anticipate to have a blockchain network in production by the end of 2020.
Over half 50% of surveyed C-suite respondents expect the sharing economy to reshape their business models.
Around 33% of organisations are reallocating considerable amounts of capital - an estimated US$1.2trn - to introduce new platform business models.
As organisations continue to define their blockchain strategies, IBM recommends that companies pursue five key steps:
Scan for opportunities - consider all opportunities to not just expand the options, but also find a way for one use case to evolve into another.
Measure ecosystem viability - for each use case, identify the network members required to measure the solutions on the blockchain. Decide the benefits that each could achieve and ensure those benefits could be distributed across members.
Calculate the network equation - the cost of developing and operating a blockchain platform, in addition to governing it, should be essential to the monetisation strategy. It could potentially include the network raising fees and royalties from its members, charging for access to data or by the volume of transactions.
Future proof your network - organisations should consider the tipping point to recognise network effects of its first objective. To scale, consider and decide what new members could be added to attract others to the network.
Keep your options open - all organisations must determine and decide whether it is best to create a blockchain network on its own, work with others to form a new network or participate in another’s blockchain platform.
Open is better - blockchain networks should harvest diverse communities of open source contributors and organisations. This will allow for open innovation as well as strengthen the overall quality of code.
Permissioned doesn’t mean private - blockchains should be designed around the principle of permissioned and trusted access. Permissioned blockchains have an access control layer to allow certain actions to be performed only by certain identifiable participants. Most organisations require the necessity to know exactly what business they’re conducting business with as well as ensuring no illegal activity is being transacted over the network.
Governance is a team sport - enterprise blockchains should embrace distributed and transparent governance to enable networks to serve the requirements of participants and prevent undue concentrations of influence.
Common standards are common sense - enterprise blockchains should be centred around common standards with interoperability in mind. This will enable “future-proof” networks, prevent vendor lock-in and encourage a robust ecosystem of innovators.
Privacy is paramount - participants on an enterprise blockchain must be able to control who can access data and under what circumstances. This is vital on a platform that distributes data widely across multiple nodes. Despite no single participant owning a blockchain network, the rights to the data that resides on it should always belong to the creator.