When people hear about Blockchain technology, they immediately think of “Bitcoin” and because of this dark and nefarious association, the underlying Blockchain technology has been always been viewed suspiciously due its rather radical approach to data sharing on an open platform using cryptography. However, the application of the Blockchain technology itself is not just limited to digital currency as the technology can be used for open collaboration for any information across almost any industry. Through this article, Sanjeev Kumar Roy, Chief Procurement Supply Chain Therapist, introduces the concept of Blockchain technology and discusses its application in revolutionizing the traditional supply chain processes, which are often based on “multiple bilateral links joined together to form a chain” as opposed to the Blockchain, which is based on the “formation of an open ecosystem for collaboration”.
The biggest problem in the transitional supply chain is the lack of open and trustworthy information availability across the supply chain caused by multiple issues – trust, technology and legacy practices being the top ones. A typical supply chain is a series of bilateral contractual links that are put next to each other to form a supply chain and every link in the supply chain is a bottleneck for information flow, trust erosion and technology gaps.
Sanjeev Kumar Roy
The gaps prolong the supply chain management cycle, increase the extended supply chain process cost due to assumed risk in every link and result in an overall disconnected supply chain from an end-user’s perspective. The Blockchain technology has the potential to tackle these key gaps through the use of the open permissioned ledger system, which creates an ecosystem where information flows openly albeit in a permissioned manner, reduces the assumed risk in the supply chain and hence reduces the total cost of the supply chain while making the supply chain more agile and adaptive.
Difference between a traditional supply chain and the one structured on Blockchain technology
The key difference between the traditional SCM and a Blockchain enabled SCM is the positioning of the SCM links. Whereas in the traditional SCM, the SCM links are generally enabled in the form of a connected network where every party is connected to the network as an equal player.
What does Disintermediation mean? Will intermediaries like banks disappear in the new scheme of things?
No, not at all. Intermediaries like the banks will play a very involved role in the supply chain of the future except that the role and the positioning may be different from the ones they have played over the past 1000 years where they have basically dealt with parties on a bilateral basis. In this case, the banks (and other intermediaries like shippers, inspection agencies, customs brokers and distributors) will be part of the ecosystem and they will all have the same level of information as the other players in the ecosystem. E.g. when a raw material supplier is ready to ship the goods, the notification is received by the inspection agency, shipping agency and the bank alike and the inspection agency has inspected and passed/failed the goods, then, the same information will be available to the entire supply chain; thus, enabling a “dis-intermediated flow of information”. The shipper will know exactly when to pick-up the goods and if the smart contract allows the producer to be paid upon successful inspection and shipment of the goods, then the payment will be released at that stage and all these transactions will be visible to the entire eco-system, albeit, on a controlled basis.
NOTARIZATION: Every transaction happens on a distributed ledger and hence, there is a perfect notarization of every transaction across the system. The whole eco-system knows exactly what the source of the information was and the technology enables the authentication, thus, removing the need to verify the information again through the use of test certificates, bill of lading or letters of credit as an example. These commercial tools/documents, actually, all reside inside the Blockchain system.
TITLE TRANSFER: It allows easy title transfer for any property whose ownership is controlled by the Blockchain, but these may not just be limited to digital property like software/music, but could also include physical property like raw materials, goods, house, cars, etc.
PROVENANCE (CHAIN OF POSSESSION): Since every transaction is visible in the ecosystem, the system of records of where each product originated, from a compliance or QA perspective, can be traced backwards with authenticity. This is of particular importance ininternational trade as concerns around origin, labor practices, and denied party is gaining importance.
IRREVOCABILITY OF TRANSACTIONS: Every transaction that has ever taken place is shared with the whole ecosystem, thus, the histories of the transactions are always available; thereby, eliminating the chances of information being hacked/manipulated/ distorted to suit one party.
SMART-CONTRACTING: The most powerful feature of Blockchain 2.0 is smart contracts which basically means that the smart contracts are not just available but always have to be complied with. One cannot bypass smart contracts, thus eliminating the need to “check the checkers” and enabling more focus on partnership and less on compliance.
Busines Case for Blockchain technology in Supply Chain
The business case for Blockchain technology is based on the following key business value:
Reduced Total Cost of Ownership: Blockchain technology offers a viable alternative to traditional supply chain solutions at a fraction of the total cost of ownership.
Speed and Reliability of transactions: Moving the transaction from a series of bilateral transactions to an ecosystem based clearing house allows the transaction to happen in a miniscule amount of time compared to traditional methods, and since the Blockchain technology operates in a secure environment, the transactions are a lot more reliable than the traditional ones.
Synchronized and consistent sources of truth: Unlike traditional systems which can have multiple source of truth that may not always be in sync, the Blockchain technology enables a single source of truth available to all players in the system; thus, preventing any attempts to manipulate the data to suit one party.
Self generating audit trail: Since every transaction in the Blockchain is recorded and is an integral part of the transaction process, there is an audit trail of each and every transaction in the ecosystem down to the point of discomfort. However, it is this level of detail that forms the foundation of the trust in the Blockchain ecosystem.
Application Areas
Some of these applications are already being used by Blockchain ecosystems around the world in their nascent form, although the possibilities are only limited by the imagination and collaboration in ecosystems. Some of the simple applications are:
Procure Materials: In a Blockchain enabled supply chain, the buyer places a PO in the smart contract ecosystem, the raw material supplier receives the information and sends the raw material to the producer who manufactures for the contract, the system then sends a notification to the inspection agency which records the details of the goods to be inspected. These records will be available (till eternity) to enable any audit on QA issues faced anywhere in the downstream supply chain. Once the inspection agency has issued the certificates in the smart contracts, the shippers can arrange to ship the goods and issue the Bill of lading in the system which, depending on the contract, might trigger the payment against the letter of credit (also captured in the ecosystem) and this information is also available to the downstream supply planners to enable the manufacturing. Since the smart contract information input is authenticated using the technology, the reliability of the information is significantly higher than the traditional. It also breaks down the siloed organizational behavior that can erode overall extended supply chain value.
Roche, a leading pharmaceutical company, has launched a groundbreaking blockchain-enabled procurement platform with the support of key partners such as Deutsche Bank and IBM. This innovative platform aims to transform procurement by leveraging blockchain technology. The value proposition of blockchain in supply chain management is profound. By utilizing blockchain's immutable ledger and decentralized architecture, Roche's platform ensures transparent and secure transactions throughout the procurement process. Thistransparency enablesreal-time trackingand traceability of products, from raw materials to finished goods, enhancing visibility and accountability across the supply chain.
Moreover, blockchain streamlines documentation and verification processes, reducing administrative burdens and operational costs. Smart contracts automate agreements and transactions, facilitating faster and more efficient procurement processes. Overall, Roche's blockchain-enabled procurement platform promises to revolutionize supply chain management by promoting transparency, efficiency, and trust among stakeholders. This initiative sets a precedent for leveraging blockchain technology to drive innovation and sustainability in global supply chains.
Manufacturing sector: Time and Quality sensitive manufacturing supply chains lose a lot of value due to discrete information gaps in the supply chain management. These information gaps can generally be traced to parochial behaviors from the discrete supply chain links in the ecosystem. For example, the manufacturing process of an airplane like A380 involves the physical and information coordination on approximately 4 million parts with 2.5-million-part numbers produced by 1,500 companies from 30 countries around the world. Extended supply chain traceability is a challenge as regulations require companies to have complete traceability on the parts used in the manufacturing process including details of the manufacturing process.
All these information availability is managed through brute force resulting in increased cost of production. A block chain technology will enable the ecosystem players to record the information only once and the same information will be made available to the all the players in the ecosystem. The use of Blockchain technology allows the manufacturing stakeholders to focus on manufacturing and not be held back due to information gaps, trust issues in the supply chain which are common in today’s manufacturing environment where suppliers often work in silos.
Boeing, a leading aerospace company, along with key partners such as Honeywell and Airbus, is pioneering the integration of blockchain technology to reshape aviation supply chains. Supported by technology firms like Microsoft and IBM, this initiative aims to enhance transparency, security, and efficiency in the aviation industry. Blockchain technology offers a transformative value proposition in supply chain management for Boeing and its collaborators. By leveraging blockchain's immutable ledger and decentralized architecture, the aviation industry can achieve real-time tracking and traceability of aircraft parts, ensuring authenticity and compliance throughout their lifecycle. Moreover, blockchain facilitates smart contracts, automating contractual agreements and procurement processes, thereby streamlining operations and reducing administrative overhead. By fostering collaboration and data sharing among stakeholders, blockchain promotes interoperability and trust in the aviation ecosystem. Overall, Boeing's adoption of blockchain technology signifies a significant step towards revolutionizing aviation supply chain management, driving innovation, and enhancing reliability in the industry.
Tackling Conflict Minerals Supply Chain
Provenance is the biggest issue in the $75 Billion diamond industry and needless to emphasize, quite opaque in terms of transparency and conflict/synthetic minerals might be contributing to a growing portion of the problem facing the industry. Conflict minerals (or Blood diamonds) are not just the biggest parallel source of black money flow but also a social problem in some of the developing countries. Kimberley Process (KP) is a multi-government initiative which is working together to enable the certification and authentication of the diamonds as they pass through the various aspects of the supply chain. Everledger and IBM have been piloting a new Blockchain-based technology that allows every diamond in the rough and polished stages to be fingerprinted in the Blockchain ecosystem, thus, enabling a very open information on the source of the diamonds that will be passing through the various aspects of the supply chain.
Thus, cutting down on counterfeiting which was nurtured in the physical supply chain through counterfeiting of physical documentation. The principles of how the diamond industry has been able to tackle a growing social and commercial problem can be extended to other forms of supply chain like Crude Oil and Luxury goods too as these industries also suffer from source of origin issues and as a result lose a lot of value.
Streamlining Documentation and Efficiency
Based in Australia, BHP is a multinational mining and natural gas petroleum company. Collaborating with Minehub, a registered trademark of Minehub Technologies, BHP endeavors to digitize its supply chain operations for mineral concentrates. Minehub facilitates the secure and immutable recording of crucial data points at every step of the mineral concentrate's lifecycle, from extraction to transportation.
The transparency provided by Minehub serves to mitigate fraud, minimize disputes, and ensure adherence to responsible sourcing standards. Through its platform, Minehub automates diverse supply chain procedures, including trade documentation, approvals, and payments. This automation not only streamlines operations but also reduces paperwork, fostering enhanced overall efficiency in BHP's supply chain processes.
International Trade Documentation
Trust and proven documentation have been the biggest barrier in international trade since time immemorial – Shipping line Maersk in collaboration with IBM launched TradeLens, a blockchain platform for facilitating international trade. The platform streamlines and enhances the documentation workflow thus improving transparency in the international trade. This particular product ran into commercial issues where Maersk and IBM scaled back its investment in early 2023 citing “commercial viability”. However, the seeds of an open ledger concept have already been sowed and it is just a matter of time when the commercial barrier is broken again.
Tackling Ethical Sourcing of Cobalt for Use in Automotive Industry
Ford Motor Company, in collaboration with IBM, has launched a blockchain pilot program to ensure the ethical sourcing of cobalt, a critical material used in lithiumion batteries. The initiative involves key stakeholders such as Huayou Cobalt, LG Chem, and RCS Global, aiming to enhance transparency and accountability in the cobalt supply chain. The value proposition of Ford's blockchain initiative lies in its ability to provide immutable and transparent records of cobalt production and supply chain transactions. By leveraging blockchain technology, Ford ensures that cobalt is ethically sourced, thereby mitigating the risk of human rights violations and environmental exploitation associated with mining operations.
Through real-time tracking and traceability, Ford's blockchain pilot enables stakeholders to verify the origin of cobalt, ensuring compliance with responsible sourcing practices. This not only strengthens trust among participants but also drives sustainable practices and ethical standards across the supply chain. Overall, Ford's blockchain initiative sets a precedent for enhancing transparency and integrity in global supply chains.
Automotive Supply Chain Collaboration
The Mobility Open Blockchain Initiative (MOBI) boasts a formidable lineup of key sponsor companies, including BMW, Ford, General Motors, and Renault, among others. These industry giants have come together to revolutionize Supply Chain Management (SCM) through blockchain technology. MOBI's value proposition in SCM lies in its ability to enhance transparency, traceability, and efficiency across the supply chain. By leveraging blockchain's immutable ledger and decentralized architecture, MOBI enables secure and real-time data sharing among stakeholders, ensuring visibility of products from source to destination.
Through smart contracts, MOBI automates SCM processes, such as order tracking, inventory management, and payment settlements, reducing manual errors and fraud risks. Additionally, MOBI fosters collaboration and standardization within the industry, promoting interoperability and innovation in SCM practices. Overall, MOBI's initiative in SCM promises to drive transformative change, optimize processes, and create a more resilient and sustainable supply chain ecosystem for the automotive and mobility industries.
End-To-End Visibility in Logistics
American logistics giant UPS partnered with Inxeption, an e-commerce platform, to introduce Inxeption Zippy, a Blockchain-based solution. Inxeption Zippy is designed to optimize and fortify the supply chain procedures for B2B transactions. By harnessing Blockchain technology, the platform ensures comprehensive oversight and validation of product movements throughout the supply chain.
Through automation, Inxeption Zippy facilitates multiple supply chain functions such as order processing, inventory monitoring, and payment reconciliation. The platform guarantees the secure recording, authentication, and validation of transactions, mitigating the risk of fraudulent activities and fostering trust among stakeholders. Inxeption Zippy empowers businesses to efficiently manage their supply chains, monitor shipments, and access real-time insights and analytics. This heightened transparency and operational efficiency contribute to enhanced inventory control, cost reduction, and accelerated order processing.
Provenance in Food Supply Chain
Founded in 1962 by Sam Walton and James Walton, Walmart, a prominent American Multinational Retail Corporation, has teamed up with IBM to enhance the transparency and traceability of its food supply chain. Following the collaboration with IBM to develop a traceability system using Hyperledger Fabric, Walmart achieved the remarkable feat of tracing mangoes stored in its US stores within a mere 2.2 seconds. Moreover, Walmart has significantly bolstered food safety and quality by swiftly pinpointing the source of contamination. Suppliers affiliated with Walmart diligently documented every stage of their mangoes' journey through the supply chain, from farm practices to storage conditions to transportation. The success of this initiative has motivated Walmart to extend its Blockchain integration to other products, including leafy greens and pork, reflecting the company's commitment to ensuring the utmost transparency and reliability throughout its supply chain network.
Tackling Counterfeiting in Pharma Industry
Established in 1849 by German entrepreneurs Charles Pfizer and Charles F. Erhart, Pfizer, a renowned US-based pharmaceutical company, has partnered with Chronicled, a Blockchain-driven supply chain solution, to enhance the security and traceability of pharmaceutical goods.
The collaboration with Chronicled aims to tackle issues related to supply chain inefficiencies, counterfeit medications, and regulatory compliance. Pfizer has implemented an immutable ledger system for each pharmaceutical product, recording essential data such as batch numbers, location information, and expiration dates. Furthermore, Pfizer and Chronicled have taken significant strides to enhance the integrity, transparency, and security of pharmaceutical products. These efforts ensure that patients receive authentic and safe medications while minimizing the prevalence of counterfeit drugs in the market.
Challenges in Implementing Blockchain Technology in Supply Chain
Implementation of a Blockchain Technology based solution is not easy as it poses a lot of challenges – the key ones being:
Lack of awareness and understanding: Blockchain is still an enigmatic black box to most nontechnology people and its association with Bitcoin does not help the situation either. Blockchain technology’s radical approach with a permissioned distributed ledger challenges the core of the business practices for the last many centuries where every business entity has maintained their own ledger. This is by far the biggest challenge for non-IT professionals.
Industry Maturity and trust level in the ecosystem: Industry maturity and a certain level of trust is prerequisite for the conception of any Blockchain technology enabled supply chain solution. Unless the industry is screaming/rallying to solve an industry-wide issue this will be a non-starter.
Cost of technology and positioning conflict with internal ERP systems: Most of the companies already have multiple ERP Systems, which companies have incurred heavy investment over the last 5-10 years. A Blockchain technology solution, in its most ideal form, competes with and replaces a significant role played by these ERP systems. This is not going to be an easy battle both within and outside the company. The TradeLens platform was impacted by the cost of the technology.
What does all these hype mean for supply chain management professionals?
Blockchain technology is no doubt a disruptive innovation that has the potential to rewrite the books of supply chain management as we have known it, but like all technology hype, it is important that supply chain professionals don’t consider this as a panacea for all their supply chain problems. Blockchain technology has a place in complex supply chains, but the ecosystem maturity is a pre-requisite for any investment in the technology, and the success of the solution will heavily depend on the problem faced by the whole ecosystem rather than one player (conflict diamonds is a great example to quote). It is important that the players in the ecosystem align on the problem to be solved to ensure that there is focus on the solution that emerges. Needless to say, the investment in these ecosystems is the most readily accepted if they come from a neutral party rather than one involved in the supply chain and this is where the governments, economic development boards and banking groups can play a role. Leading experts are predicting the Blockchain technology adoption to be in the following chases – early experiments during 2020-2025; Growth during 2025-2030; and Maturity from 2030 and beyond. It is important for leading supply chain strategists to form a POV on the applicability of the Blockchain technology to their own supply chain from a strategy perspective.
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