Supply chains are complex and the more extended they become the more complex they get. Mark van Rijmenam (@VanRijmenam), founder of Datafloq, explains, “Global supply chains are complex processes. Different companies, with distinctive objectives, are working together to achieve a common goal; to bring something from A to B. For a supply chain to work, partners have to trust each other. To do so, there are multiple checks-and-balances, extensive documents and different checkpoints all interacting in a web of bureaucratic processes. Knowing the amount of paperwork required to send a product from farm to plate, it is remarkable that we have managed to develop global supply chains.”[1] Blockchain (aka distributed ledger) is an emerging technology pundits predict will help deal with supply chain complexity and, thus, they predict it has a bright future. As Susan Stokes (@SusieMStokes) explains, “Blockchain is a new(ish) technology with the potential to create a new internet of value and underpin a significant amount of future global commerce and trade.”[1] In the decades to come, van Rijmenam believes distributed ledger technology will become a gold standard of supply chain operations. “Blockchain technology,” he writes, “enables organizations to develop new applications that can significantly improve the supply chain. All of a sudden, transparency, the provenance of data and products, and seamless trust are achievable, resulting in reduced costs, more effective supply chains and happier customers.”

Blockchain’s potential

Blockchain, despite an established history in the field of cryptocurrencies, is a relatively new technology. That’s why most pundits generally talk about its potential (rather than proven) benefits. Because each blockchain system has its own standards, some companies are already finding they are likely to end up having to use several different blockchain solutions in order to achieve better visibility. That can be both costly and ineffective. Working groups have been established to propose global standards; but, owners of proprietary systems aren’t likely to change willingly. With so much hassle involved, one might ask why there is so much blockchain hype. Stephen J. Obie (@StephenObie1), a partner at Jones Day, explains, “In the realms of social and corporate governance, two of the most powerful applications of blockchain are those of supply chain management and so-called smart contracts. As the technology evolves, it can become a kind of digital duct tape — binding organizational records into an extraordinarily secure, precise, and effective vehicle of system protection and stakeholder transparency.”[3]

Blockchain expert Ray Battrick writes, “When looking at the potential of blockchain in supply chain, the decentralized nature of the technology makes it appealing to help improve transparency, increase efficiency, and reduce paperwork. For supply chain, this could mean better visibility and greater transparency across all levels in the logistics network.”[4] Despite challenges still facing blockchain implementation, the upside benefits are so great analysts insist every supply chain will eventually implement a distributed ledger solution. Analysts from ShipChain write, “The use of blockchain and supply chain management (SCM) platforms can reshape how shippers approach everyone from consumers to carriers. A platform that combines blockchain and SCM has the potential to eliminate many of the laborious manual processes involved in tracking shipments and preparing them for transit. Instead of trying to answer the question, ‘Does our supply chain need blockchain,’ ask yourself, ‘What benefits can we reap from integrating blockchain into our supply chain?'”[5]

The blockchain/supply chain future

First and foremost, blockchain holds the potential to help enterprises deal with complexity. Like most economic activities, supply chain operations are becoming ever more digitized and blockchain can leverage digitization to deal with complexity. Sunil Thomas, the Chief Operations Officer at Selerant, observes, “The supply chain is only getting more complex. With increasing globalization, manufacturers already struggle to manage working with vendors in different time zones, speaking different languages and dealing with different global regulations. As manufacturers increasingly rely on digitization and automation, we’re certain to see the combination of blockchain and smart contracts playing a significant role in protecting trade secrets and ensuring quality and uniformity throughout the entire ecosystem.”[6] Analysts from Omnitude add, “Supply Chains have grown in scope and scale alongside the globalization of marketplaces. The manufacture, assembly and shipping of goods and raw materials are now complex operations that span continents. … The modern-day supply chain is a vast ecosystem with many product variants and contract manufacturers cutting through a supplier network and diverging to different distribution models — traditional retail and online consignment. … The technology powering supply chain management is due for an update. The good news is that supply chains are one of the key areas where blockchain comes into its own. Blockchain technology ensures provenance, offers visibility across the full supply chain, boosts safety, and provides a holistic view of the value chain.”[7] They go on to list some of the advantages blockchain solutions can provide. They include:

• Decentralization: “All the information in the block is copied to every node and there is no single point of storage.”
• Data integrity: “As records are cryptographically secured, data is immutable and its integrity is therefore maintained.”
• Security: “Encryption, decryption and permissions for participants ensure robust security.”
• Permissioned and private: “Strong permissions to participants and third-parties can be created as required for the application.”
• Scalability: “Blockchain can scale to billions of transactions a second and does not require synchronized networks.”

Stokes concludes, “The potential benefits of blockchain in global trade are numerous and could significantly transform international trade. This includes trade finance, transportation and logistics, customs and certification processes, intellectual property (IP), insurance and government procurement. Blockchain technology will help enhance the efficiency of a number of processes and cut costs in those areas. The new technology will also help global trade move closer to a paperless solution that’s more secure.”

Concluding thoughts

Thomas notes, “The best predictor of where new technology will be deployed is where there is friction. Anywhere time is lost, energy is wasted and resources are spoiled is ripe for innovative disruption.” There is lots of friction in global supply chains. Abhishek Hansrajani, a self-proclaimed tech guru, explains, “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.”[8] Blockchain can help keep track of all that complexity. As a result, Obie concludes, “On balance blockchain’s promise is almost blindingly bright.”

Footnotes
[1] Mark van Rijmenam, “Why Blockchain is Quickly Becoming the Gold Standard for Supply Chains,” Datafloq, 22 November 2018.
[2] Susan Stokes, “Will Blockchain Underpin the Future Global Commerce and Trade?” Business Blockchain HQ, 8 January 2019.
[3] Stephen J. Obie, “Of Blockchains and Supply Chains,” Jones Day, December 2018.
[4] Ray Battrick, “Key Benefits of Blockchain in Supply Chain,” Business Blockchain HQ, 20 December 2018.
[5] Staff, “Does Your Supply Chain Need Blockchain?” ShipChain, 29 November 2018.
[6] Sunil Thomas, “How Blockchain Could Ensure Supply Chain Consistency,” Forbes, 9 November 2018.
[7] Staff, “How will Blockchain technology transform the Supply Chain?” Omnitude, 2018.
[8] Abhishek Hansrajani, “How Blockchain will Transform the Supply Chain Industry,” BBN Times, 26 August 2018.