When the average person thinks of supply chain and logistics, they think complex work flows of operations that propel a product or service from point A to point B. When the average person thinks of blockchain, well, they really have no clue what to think other than Bitcoin or Ethereum. Anyone who has even the slightest inclination of what these two entails will ask, “How does blockchain fit in the picture and how does it improve supply chain?”. Before we can dive into answering these questions, we will cover 1. What makes efficient supply chain management, and 2. Describing what blockchain is and it’s benefactors.
Supply-less Solutions Need Hero’s — Efficient Supply Chain Management.
Everything Matters, and that’s Important
Anyone involved in the management of supply chain will tell you this, “it’s important to monitor, manage and improve everything! Not just the sequential steps that are required for business operations”. This includes the inventory of materials, the maintenance or monitoring of tools and technologies, the delegation of talent or operators, the documentation and compliance of paper work, transactions between stakeholders, the utilization of platforms such as ERPs or CRMs, etc. There’s a reason why the loss of revenue can be attributed by poor supply chain management. Even something as simple as not upgrading office equipment can become a costly consequence. At least over time that is.
Take the Fax Machine, For Example
As new advancements in technologies are made, the reduction of discrepancies are attributed by replacing old methods or tools with new ones. An example of this is the Fax Machine. Whereas a fax machine requires paper consumption, ink cartridges, human involvement, and a “put in place” procedure or policy as a means to avoid error, an EDI on the other hand electronically communicates information in a industry standard format that would normally be delivered/received via paper traditionally. This allows for two parties to effectively make business transactions (of documents) without the utilization of traditional resources such as paper based purchase orders or invoices. The moral of the story? Tiny variables matter. They matter because the consumption of these resources eventually adds up as another expense or cost that is part of the process (in this case, communication between client and provider). As a result of EDI, we are now able to reduce paper and ink consumption while speeding up the process of business initiatives between two parties.
Although APIs can be considered an alternative, the concept of an EDI perfectly illustrates how the convergence of traditional machines (faxes) to newer technologies (EDI) can actually improve the delegation of business transactions while reducing financial resources and time. To conclude, anything that simplifies a process while reducing expenses is thought to be an exceptional goal in supply chain management.
Defining Superhero Abilities — Blockchain in a Nutshell.
2018’s most generic question — What is blockchain?
Here we go, again. Blockchain is an append only, decentralized way distributed ledger technology that is operated by a peer-to-peer network mechanism that records and validates data by retroactively referencing a list of previous records using hash functions. Slow it down, right? To simplify it into something a little more digestible, think of blockchain as a growing list of records (block) inside a database (ledger) were records are linked using cryptography and require the verification of participants. Much like science has a set of protocols (scientific | mathematical methodologies) to verify facts/theories, which then requires the peer review of other qualified scientist for approval, so does blockchain!
More Than Just Records
Although different blockchains have different methods of validation (through consensus mechanisms), the characteristics of blockchain entail a much wider list of uses other than the simple entry of data. Bitcoin, a by-product of blockchain, is the most commonly used reference point for demonstrating the facilitation of payment transactions. Ethereum, a framework that is considered the 2.0 of blockchain, is regularly leveraged for its ability to create smart contracts — a digital contract that’s highly programmable and self executes provided set terms and conditions have been met, thus resulting in a transaction. Besides blockchains ability to automate transactions and verify information we can safely define as valid (without the need for centralized approval), blockchain also has the ability to integrate into other technologies and software, which in my opinion, provides the biggest selling factor to its value.
The Bad Guy NEVER Gets Away — Why Blockchain Saves the Day, Not Re-Creates it.
Just like any superhero story, the damage can never be completely reversed. The villain manages to always cause some harm along the way despite a hero saving the day. However, just because we have all experienced an uncontrollable event that has caused us a pain, does not mean that we are bound to live the rest of our lives in misery. In the same way, supply chain processes can suffer from vulnerabilities that require a solution to ease the loss of revenue caused from a number of variables. Enterprises are mostly optimistic, and solutions are drastically capitalized on when research has been completed. Why turn to blockchain as an enterprise? Well for starters, it’s a turnkey solution as a service platform. Secondly, it easy to integrate into technologies and software, and yes, that includes old and outdated legacy systems. Without having to reconfigure entire systems or processes, which as a result would require the halt of operations, enterprises can slowly implement changes as needed for the convergence to blockchain. The question is, “where does blockchain fit into supply chain processes and how does it enhance operations?”. The answer relies on understanding two questions.
- What inefficiencies do supply chain processes currently have?
- Which blockchain characteristics act as a “fill-in-the-void” solution to these inefficiencies?
4 Supply Chain Goals and Their Existing Inefficiencies
To simplify and avoid the vast generalizations of supply chain goals, we will be illustrating objectives from the perspective of a product and customer based supply chain system, which generally requires the collaborations between stakeholders like vendors, buyers, retailers, etc. These goals can be applied to other industries with different business relationships that entail serviced-based processes, but for the sake of this article, we will focus on collaborative interactions as they relate to most enterprise scenarios.
- Efficiency in Sharing or Managing Data: Management of assets such as inventory or transportation of resources require efficiency through collaborative effort, generally a delegation that is ongoing between parties in a supply chain system. Sharing data efficiently between these parties can make the difference between getting goods to the right place at the right time to minimize cost and meet customer demands, or the complete opposite — chaos. How information is shared and processed is important to maintaining efficiencies in all operations.
- Optimized Transportation and Logistics: Addressing transportation and logistics is a key variable to efficient supply chain management. Each stakeholders involvement in the transportation, ordering, and shipment of goods rely on the optimization of activities that prevent high costs and poor timing. Automated transactions between entities generally help for clear communication. However, some human involvement is needed to facilitate these automated interactions for proper delegations. Such methods are not impervious to errors.
- Feedback for Quality Improvement: In a collaborative supply chain system, feedback for improving the quality of business transactions are vital. Knowing where to address issues or deficiencies allow stakeholders to focus on refined improvement that avoid repeatable setbacks. The issue lies on reliable information that pinpoints the vulnerabilities or mistakes made along the way. Without definitive proof or key signs that uncovers where or what parts of the process failed, unwanted disputes can remain unresolved. This falls back on the principle that monitoring everything is essential for improving logistics within a supply chain process.
- Building Long-Term Stability: forming trust between stakeholders in a supply chain system can build stability within your operations and strengthen collaborative planning, coordination and distribution of common business initiatives. Optimizing supply chain systems as technologies improve, business models changes, and communication methods advance will all contribute to meeting shared interests in business objectives. Without constant refinements, setbacks are rampant, stakeholders lose trust, and opportunities are lost as a result of shared bad experiences.
Blockchain Features that Enhance Supply Chain Goals
Let’s take look at some highlight points that make blockchain such a valuable candidate for enterprise solutions, manly in regards to supply chain management.
- Immutable & Secure — Because blockchain is append only, this means data recorded on a ledger cannot be erased, changed or falsified once it’s entered. This prevents unresolved disputes between trust-less parties and makes data secure so that it cannot be easily tampered with.
- Live Tracking & Provenience of Assets — Improve product tractability & provenance throughout the extended supply chain with Blockchain, information from blockchain based supply chain is secure, reliable and inclusive. A survey conducted by Chain Business Insights of global supply chain professionals (published May 2017) finds that 43% intend to introduce blockchain/DLT into their supply chains over the coming year, and another 20% within the next two years.
- Decentralized — blockchain platforms are decentralized! This means that it is self regulated and doesn’t rely on a central point of governance. Enterprises can rely on trust-less interactions knowing validation is required before finalizing various business transactions. Note: Some would disagree with private blockchains being completely decentralized, but this isn’t necessarily true in a tokenized platform. Once participants have joined the network, a consensus mechanism is still required to validate transactions, which is still a completely self regulated process that doesn’t rely on a central point of governance to approve transactions. Network starters may define the rules on private blockchains, but the rules (protocols) define the process of validation, which make transactions happen in a decentralized manner.
- Automated — Because consensus mechanisms are self governed, and smart contracts follow the same principle, blockchain itself is capable of automating transactions that take place within supply chain processes.
- Easy Integration with other Technologies — Another notable feature of blockchain that appeals to supply chain enterprise systems is the ability to integrate into existing technologies. Blockchain as a working pair with technologies such as AI, Big Data, IoT devices, etc. can be enhanced which optimizes the operations require to complete processes through automation and securely storing retrievable data.