In an increasingly digitized world, emerging technologies, such as blockchain, afford organizations the opportunity to drive business value throughout their supply networks. Building supply chain capabilities with digital technologies can result in greater levels of performance. Blockchain is an enabling technology, which is most effective when coupled with other next generation technologies such as Internet of Things (IoT), robotic cognitive automation or smart devices, writes Sandeep Chatterjee, Senior Manager – Technology Consulting, Deloitte Touche Tohmatsu India LLP.
SUPPLY chains encompass the end-to-end flow of information, products and services, and money. The way these components are managed affects an organization’s competitive positioning in areas such as product cost, working capital requirements, speed-to-market, and service perception. Organizations are exploring innovative methods to streamline their supply chains to meet evolving consumer demands and optimise efficiencies. Technological advances are collapsing linear supply chains into dynamically connected and always-on digital supply networks (DSN), transforming how businesses exchange and share information and assets. Many believe that 40% of Fortune 500 companies will not exist in a decade as a result of these disruptions. These findings suggest that business leaders are under growing pressure to innovate and reconfigure their supply networks, maximizing value and efficiencies while reducing costs in an increasingly competitive world.
Despite DSN enhancements, paper based processes are still common, resulting in reduced transparency and collaboration across networks. Decision making amongst supply chain actors is further complicated by disparate systems which provide limited visibility of other functions. These initiatives have focused mainly on intra-organization collaboration to gain higher efficiency.
There are four key supply chain pain points, which are experienced worldwide:
1. Traceability: Capability to monitor events and meta data associated with a product
2. Compliance: Standards and controls to provide evidence that regulatory conditions are met
3. Flexibility: The ability to adapt rapidly to events or issues, run various scenarios, without significantly increasing operational costs
4. Stakeholder Management: Effective governance in place to enable communication, risk reduction and trust among the involved parties.
These issues are felt across industries and need to be addressed before organizations can unlock the hidden value in their supply chains. Traceability across supply chains is one of the most compelling use cases for blockchain technology. Blockchain could be the enabler to allow organisations to more effectively tackle these problems.
Blockchain has been described as an information game changer due to its unique capabilities and benefits to provide greater information transparency. At its core, blockchain is a distributed digital ledger that lives on the internet and records transactions and events. The technology relies on well-established cryptographic principles and operates as a repository for information, which is recorded and shared through a peer-to-peer community. Within the decentralized network, all participants maintain their own copy of the ledger, referred to as a node, where they validate new entries to the chain through the use of a consensus protocol.
While one of the primary uses of blockchain is record keeping, organizations should know that blockchain is much more than simply an enterprise database. While databases are suitable for recalling ad hoc queries of large volumes of structured and relational data that require complete privacy within a single organization’s parameter, blockchain is designed to record specific transactions and events that are shared across a network of parties where transparency and collaboration is required. In a supply chain, a private or permissioned blockchain may be implemented, dictating users’ ability to read and write to the blockchain.
The implementation of blockchain technology can remediate the aforementioned supply chain pain points including traceability, compliance, flexibility, and stakeholder management.
BENEFITS OF BLOCKCHAIN IN SUPPLY CHAIN
Businesses can improve their supply chain management through more transparent and accurate end-to-end tracking. Over 90% of consumers surveyed list food product transparency as a critical factor impacting their purchase and expect manufacturers to provide the necessary information. An estimated 55% or more of consumers will pay a premium for services from companies promoting social responsibility. With blockchain, it is possible to digitize physical assets and create a decentralized, immutable record of all transactions, making it possible to track the asset from production to delivery or use by the end user and provide greater product history and transparency. This provides more visibility to both businesses and consumers into the products they consume.
Blockchain’s transparency may also help reduce fraud for high-value goods such as diamonds and pharmaceutical drugs. According to the Organisation for Economic Co-operation and Development (OECD), counterfeit goods account for over $450 billion in trade annually. Furthermore, an estimated 10–30% of medicines sold in developing economies are counterfeits, leading to hundreds of thousands of deaths and billions of dollars in revenue losses globally. Blockchain could help companies understand how ingredients and finished goods are passed through each subcontractor and reduce losses from counterfeit and grey market trading, as well as increase confidence for end-market users by reducing or eliminating the impact of counterfeit products.
Furthermore, businesses can maintain more control over outsourced contract manufacturing. Blockchain provides all parties within a respective supply chain with access to the same information, potentially reducing communication or transfer data errors. Less time can be spent validating data and more can be spent on delivering goods and services—either improving quality, reducing cost, or both. Finally, blockchain can streamline administrative processes and reduce costs by enabling an effective audit of supply chain data. Processes involving manual checks for compliance or credit purposes that may currently take weeks can be accelerated through a distributed ledger of all relevant information.
In today’s social media landscape, a single post regarding labor issues in the manufacturing process or unapproved subcontracting (i.e., subcontract manufacturer outsourcing the job to another factory without notifying the brand) could result in a public relations disaster. Proactively managing the supply chain and getting ahead of the curve in traceability can help build a reputation as a leader in responsible manufacturing. Presenting data verified by a blockchain can contribute to improved public trust in the supply chain data. Transparency can give more weight to quality checks and build authenticity for data shared between the supply chain partners.
Implementing blockchain solutions in the supply chain requires cooperation from all stakeholders. This could be presented as an opportunity to rethink stakeholder relationships and create more collaborative ecosystems.
Blockchain in shipping logistics
A shipping company used blockchain to manage freight tracking, providing buyers, sellers, and officials with a mechanism to track goods shipped around the world. Products travelling across borders may require review and approvals from up to 30 parties before arrival, creating a large amount of paperwork and creating opportunities for fraud at multiple points in the process—leading to billions of dollars in maritime fraud each year. Through collaboration with customs authorities, the shipping company streamlined the approvals process by creating a secure record of transactions and approvals and reduced the time needed to transport goods. Similar use cases illustrate blockchain has the potential to reduce administrative and logistics timelines in shipping by more than 85%—from more than one week to less than one day.
Blockchain in food production
A startup is using blockchain as part of an effort to increase supply chain transparency in the second-largest traded commodity in the world—coffee beans. The company is using a distributed, decentralized protocol for real-time mobile transactions, recording data about the transactions and allowing all involved parties to access the record of payments at any time. The system increases transparency as the coffee beans progress through the supply chain and helps to ensure farmers receive proper fair-trade payments.
Blockchain in luxury manufacturing
A logistics company has introduced a cloud-based blockchain solution to digitally certify diamonds and protect against unauthorized tampering with supply chain records. Diamonds are held to strict certification requirements to ensure they are sourced ethically, but fraudulent certificate reports and insurance claims can disrupt the safeguards set in place. To combat this, the company uses over 40 diamond characteristics including colour and clarity to create unique diamond IDs. The blockchain solution allows for immutability and security for the supply chain data and provides the necessary transparency between diamond certification houses and global diamond suppliers for the certification process. So far, the company has digitized more than one million diamonds.
Blockchain in pharmaceuticals
Another promising area for blockchain solutions is provenance (tracking of assets across a supply chain) within the pharmaceutical industry. Tracking active pharmaceutical ingredients during the manufacturing process is difficult and faces increased challenges from the widespread and lucrative counterfeit drug operations around the globe. Blockchain’s immutability provides a basis for traceability of drugs from manufacture to end consumer,
identifying where the supply chain breaks down. There is potential not only to reduce the $200 billion in losses each year but also to increase public safety and prevent some of the estimated one million deaths per year from counterfeit medicine.
DRIVERS OF BLOCKCHAIN
The following are the drivers of blockchain technology:
Lower costs of bandwidth, data storage and computing: Like other technologies, blockchain also benefits from declining costs and rising capabilities in computing, storage, and bandwidth.
More efficient way to maintain trust: With increased globalization and digitization of businesses, maintaining trust can become expensive, time consuming and inefficient. Blockchain’s immutability would increase the reliability of data and counter parties with reduced chances of fraud, thereby, increasing trust.
Prevalence of decentralized business models: Decentralized business models are becoming more common in a world of the shared economy. However these models still have large aggregators that control the information and system, implying unequal redistribution of value among all contributors. Blockchain can democratize the value exchange in sharing-economy businesses by removing the need for centralized aggregators.
ROADBLOCKS TO BLOCKCHAIN
However, there are some challenges which act as a deterrent to its success, namely-
Low awareness and understanding: There is a still low awareness and a lack of understanding about blockchain.
Lack of standards and best practices: There is a lack of uniform standards on blockchain technology even as new blockchain-based solutions are being developed.
Regulatory and legal uncertainty: The regulations have not kept pace with advances in technology.
It would take a while before we see wide commercialization of Blockchain platforms and application. While many challenges may remain, it is important to assess the suitability before jumping into the bandwagon. What works well for someone may not work for another!