Blockchain – the future of supply chain management?
Transparency, traceability and sustainable trading are all gaining importance in customer decisions about their supply chain and logistics providers. The digital transformation underway in the sector is an obvious solution to helping support visibility of performance in these areas, however legacy systems and manual ways of working mean this is a complex journey. Historically, these are sectors that have struggled with integrating their networks and capturing clean data, both of which are essential when adopting a more tech-driven approach to business.
The need to process transactions quickly and verify the creation, transmission and receipt of a particular exchange of value is ever more critical to business success. To make a supply chains resilient, there must be transparency and integrity which is exactly what technology like blockchain can offer.
Blockchain, or distributed ledger technology, has been around for a while now, but as with many emerging technologies it’s taking time and exploration to understand how it can best be utilised. Despite this, it has only ever been a matter of time until it landed in the logistics mainstream. As a technology, it offers a unique ability to securely and permanently record transactions between parties, meaning that if the industry can clean up its data, a fundamentally new and more streamlined way of working exists.
Blockchain in action
Retail chain Walmart is using blockchain to focus on food safety, tracking and traceability. It is already carrying out tests using this technology to track food products like mangoes from Mexico and pork from China. The system uses sensors to record temperature in a blockchain system, allowing Walmart to assure quality and food condition during transit.
Unilever, Nestlé, and Dole are also using similar methods. Blockchain makes it much easier to track down problems; last year it took two months for experts to trace the source of a salmonella outbreak in Mexican papayas. Had a blockchain system been implemented at that time, it would have reduced such processes to seconds.
Meanwhile, the world’s largest retailer is also incorporating technologies based on the blockchain. Lynx, a subsidiary of Chinese e-commerce giant Alibaba, announced the successful integration of blockchain for its cross-border logistics operations. Their system is capable of keeping track of all the relevant data about an imported shipment such as the details about the production, transport method, customs, inspection and even third-party verification.
The start-ups creating waves in technology
Whilst brands like Amazon, Maersk and Microsoft are able to invest significant amounts in developing blockchain, there are a host of smaller tech companies that are dedicated to harnessing blockchain to its full potential. In many cases, it’s these smaller start-ups that are catching the eye of the larger companies who go on to adopt their technology. There is a lot to be learnt by looking globally.
In California, start-up Citizens Reserve announced the launch of the permission-based blockchain protocol Zerv Network which aimed to become an ‘operating system for the supply chain’. The network, enabled by an asset-based token, seeks to provide frictionless transactions between all key participants within the supply chain, including manufacturers, suppliers, distributors, retailers, and consumers.
The automation of commercial processes is also getting attention. Start-up company Libelli is developing a blockchain system to act as an escrow agent between buyers and sellers. This system creates a smart contract system which bypasses the need for other parties like banks and eliminates the traditional letter of credit paperwork. Most inefficiencies in logistics and supply chain, especially in product traceability, supplier payments, transportation and contract bids can now be unlocked by services like Libelli.
ShipChain is a start-up that set out to design a comprehensive blockchain-based tracking system. The system tracks products from the moment they leave a factory’s door to when they are delivered to the customer’s door.
Relevant information from all stages in the supply chain is recorded in a blockchain-based system. The system can then execute smart contracts once set conditions are met; for example, once a driver from a delivery firm has confirmed a successful delivery, the system can automatically mark the item as done and assign a new duty to the driver.
Continuing the transformation
One of the most significant areas in which blockchain can create transformational change is the physical product supply chain. By putting assets first, blockchain can enable an efficient flow of data and funds from each stakeholder at each step of the chain. This can deliver fundamentally new ways of working and brings a visibility and control on each supply chain which is simply not achievable in centralised configurations where data has to pass from one environment to the next.
However, transformation is never straightforward – particularly so in the context of increasingly complex supply chains with multiple manufacturers, processors and distributors along the way. It requires a collective engagement and industry-level initiatives to drive adoption and deliver benefits to the supply chain participants and end consumers.
The Government’s Office for Product Safety and Standards (OPSS) recently published a report on using distributed ledger technology for authenticating products in supply chains. It highlights the attractiveness of blockchain as a potential tool for overcoming supply chain management challenges by:
- Enabling more transparent and tamper-proof authentication of the provenance of consumer products
- Enhancing trust and security of information
- Generating efficiency and innovation gains through faster and lower cost transactions
The greatest potential appears to where blockchain is combined with IoT and other technology solutions such as electronic chips to establish a secure link between the physical product and its digital identity and reduce the risk of incorrect user input or the substitution of an authentic product with a fake. However, and it’s a big however, the OPSS tampers enthusiasm by noting there is a long way to go before the majority of industries can adopt blockchain as a tool for authenticating the provenance of goods in their supply chains.
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