Blockchain Technology Still on Course to Improve Supply Chains

Stephen DeAngelis

October 26, 2020

Supply chain professionals know how complex today’s supply chains can be. Erminio Di Paola, Vice President at HERE Technologies, explains, “Getting an item as common as a pencil into the hands of a consumer can require a process involving hundreds or even thousands of people, from material procurement to manufacturing to distribution. If something goes wrong, be it misplaced stock or erroneous paperwork, it can be onerous and potentially too costly to determine where the fault occurred.”[1] Abhishek Hansrajani, a self-proclaimed tech guru, adds, “Depending on the product, the supply chain can span over hundreds of stages, multiple geographical locations, a multitude of invoices and payments, have several individuals and entities involved, and extend over months of time.”[2] All that complexity demonstrates just how competent supply chain professionals are in making everything work. Even the best professional, however, dreams of the day when they can obtain greater visibility and traceability in their supply chain. Many of them are placing their hope in blockchain (aka distributed ledger) technology.

 

Blockchain’s potential in the supply chain

 

Di Paola notes, “Companies around the world are finding ways to improve transparency at all stages of their supply chain. Through a combination of blockchain and real-time location intelligence, businesses can make the movement of goods more accountable, with the location and state of all items constantly verified with all stakeholders, consequently improving consumer confidence and brand reputation.” If you are unfamiliar with how blockchain works, Di Paola explains, “Blockchain is a distributed ledger. It can be best thought of as a continuously growing list of records, which are the blocks. Each one of these records, or blocks, are duplicated and redistributed to multiple different locations — all of them linked together with cryptographic technology. The links are subsequently the chains. With so many points in space, and all points connected to each other via heavily encrypted chains, each addition is made from a validated source that is a trusted part of the network. Then, via a secured process, the update is spread to all the other blocks. This makes the information within the blockchain system inherently secure. It’s extremely difficult to make an invalid entry and, if you were able to make one, this would then be detected by all of the other blocks.”

 

Journalist Sean Galea-Pace (@JournoSeanGP) writes, “The introduction of blockchain has brought new opportunities into the supply chain. … 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.”[3] He goes on to highlight three ways blockchain technology can benefit supply chains. They are:

 

Provenance tracking. “Large organizations 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 organizations 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.”

 

The last point — establishing trust — is particularly important in the food supply chain. Nestlé, the biggest food manufacturer in the world, is one of the pioneers in utilizing blockchain technology. Journalist Mark Jones (@MJ_TechHQ) reports, “Nestlé has made considerable progress in unearthing blockchain’s potential. The group is a founding member of the IBM Food Trust — a SaaS solution that provides users with immediate access to actionable food supply chain data. That includes the complete history and current location of any individual food item, as well as accompanying information such as certifications, test data and temperature data, which can all be readily available in seconds once uploaded onto the blockchain. Last year [2019], Nestlé ‘broke ground’ in supply chain transparency through a collaboration with blockchain platform OpenSC — becoming the first major food and beverage company to announce that it will pilot open blockchain technology.”[4]

 

Blockchain still has challenges

 

Although the benefits of implementing blockchain solutions in the supply chain are numerous, challenges remain. Those challenges include:

 

Confidentiality. Analysts from Elementum explain, “Theoretically, for a supply chain that adopts blockchain the first thing to go is confidentiality. Blockchain systems promise incorruptibility at the expense of centralized control over potentially sensitive information. As one expert put it, ‘You don’t put plain-text data on a blockchain unless you’re happy for your competitors to see what it reveals about your market position.’”[5]

 

Standardization. In order for a blockchain system to work, everyone connected to the system must abide by identical protocols. It makes sense, therefore, for some organization or consortium emerge to ensure a set of standards is adopted. As sensible as this may seem, Alisa DiCaprio (@AlisaDiCap) and Jacqueline Yang, researchers at R3, explain this could lead to problems. They write, “Unfortunately, consortia can also raise antitrust concerns.”[6]

 

Other concerns. Mark van Rijmenam (@VanRijmenam), founder of Datafloq, points out seven issues he believes are preventing blockchain technologies from moving forward. They are: scalability; transaction speed; decentralization; lack of talent; lack of an overarching ecosystem; energy consumption; and, resilience.[7] Nevertheless, Van Rijmenam concludes, “Blockchain is a promising technology. Blockchain, particularly when used in concert with other technologies, offers organizations an opportunity to re-think their internal and external processes, remove inefficiencies, improve transparency and provenance and build a better organization overall. However, it faces numerous challenges that could affect its adoption across organizations.”

 

Concluding thoughts

 

Di Paola concludes, “At the moment, blockchain is used primarily in the large-scale movement of goods, and in financial transactions like cryptocurrencies. But in the future, demand for the security that blockchain provides may rise exponentially, putting responsibility on infrastructures to develop secure and compliant solutions which can be used by anyone.” Michael Lierow (@MichaelLierow), Cornelius Herzog, and Philipp Oest, analysts at Oliver Wyman, add, “Supply chains today are inherently complex, encompassing many players from around the world. Many supply chains face challenges that have significant implications in terms of cost, speed, and (product) quality. In our experience, the most critical supply chain challenges — despite years of efforts and often significant investments — are lack of transparency due to inconsistent or even unavailable data, high proportion of manual (paper) work, lack of interoperability, and limited information on the product’s lifecycle or transport history. In many cases, blockchain applications can counter these inefficiencies and add new value.”[8] So convinced are they of blockchain’s potential, they call it the backbone of the digital supply chain. “Blockchain is more than a pure electronic data interchange (EDI),” they write, “it is the backbone of digital supply chains, offering distinct advantages over today’s conventional supply chain IT infrastructure and analytics capabilities.”

 

Footnotes
[1] Erminio Di Paola, “Blockchain: En Route to the Global Supply Chain,” TechNative, 11 August 2020.
[2] Abhishek Hansrajani, “How Blockchain will Transform the Supply Chain Industry,” BBN Times, 26 August 2018.
[3] Sean Galea-Pace, “The introduction of blockchain in the supply chain,” Supply Chain Digital, 10 May 2020.
[4] Mark Jones, “Nestlé – why the world’s biggest food company uses blockchain,” T_HQ, 22 July 2020.
[5] Staff, “Can Blockchain Help With Supply Chain’s Biggest Dilemmas?,” Elementum, 7 June 2018.
[6] Alisa DiCaprio and Jacqueline Yang, “Blockchain Promised a Revolution. It’ll Have to Clear Three Governance Hurdles First,” Brink, 24 July 2019.
[7] Mark van Rijmenam, “7 Blockchain Challenges to be Solved before Large-Scale Deployment,” Medium, 25 September 2019.
[8] Michael Lierow, Cornelius Herzog, and Philipp Oest, “Blockchain: The Backbone Of Digital Supply Chains,” Oliver Wyman, 2017.