Supply chain: the low hanging fruit of blockchain adoption

When we think about blockchain adoption, one of the first things that springs to mind is supply chain. According to Drew Volpe, Managing Partner at First Star Ventures, supply chain is “a natural place to apply blockchain technologies.”

Given the keen interest of some of the world’s biggest distributors and retailers, we decided to look at the blockchain startups that are driving this adoption. Below the table, we dive into the use cases these companies are tackling.

Research from McKinsey suggests that there are three main areas where blockchain technology can add value for supply chains:

• Replacing slow, manual processes that rely on paper and are still common in the shipping industry (such as letters of credit or bills of lading). We looked into this in more detail in our piece on blockchain in trade finance.
• Enhancing traceability, a need driven by both consumer demand and regulatory requirement. Blockchains can be particularly useful when goods or materials are coming from a large number of upstream suppliers, such as with fresh food.
• Reducing transaction costs and improving turnaround time for payment.

A particularly useful feature of blockchain technology being used in supply chains are smart contracts. These are basically pieces of code that execute the terms of a contract based on agreed-upon pre-conditions. Smart contracts are appealing because, in the words of Nick Szabo (who invented the term), they “have the potential to greatly reduce the fraud and enforcement costs of many commercial transactions.”

Companies such as Modum, Ambrosus, and Chronicled are combining smart contracts with IoT (Internet of Things) to enhance traceability. For example, sensors that monitor the temperature of food in transit can record this data to the blockchain and trigger a smart contract that executes a payment to the supplier.

San Francisco-based Chronicled, which has raised $28 million so far, launched a consortium called MediLedger in 2017. MediLedger brings together some of the biggest producers and distributors of pharmaceuticals on an industry-owned permissioned blockchain. Members include Pfizer, Genentech, Gilead, and Walmart. They are publishing regular updates to the pilot project, which also includes Fedex, Walgreens, and Novartis.

Food for thought

Walmart, America’s largest employer, is also using IBM’s Food Trust to track leafy greens from all suppliers on the IBM blockchain. This implementation has reportedly cut the tracing time for food sources from 7 days to 2.2 seconds. This ability is particularly useful in the case of product recalls due to food contamination. If a customer gets sick from some contaminated salad, Walmart can now immediately trace the source and remove any potentially affected products from its shelves. And given that people can die from exposure to bacteria like E. coli, it would not be hyperbolic to claim that blockchain can save lives.

Kroger, the largest supermarket chain in the US with 3,000 stores, is also using Food Trust to enhance traceability. Steve O’Nan, who is in charge of compliance and supplier integrity, says that in the event of a product recall, “we end up pulling a lot of products off our shelves that we may not need to.” The unique advantage of using blockchain for these traceability efforts is that it allows Kroger to access supply chain data long before products hit their distribution centers.

Besides food and medicine, blockchain is being used to track other types of supply chains. Tradewind Markets, a company based in New York, have built a platform that brings together a number of players in the precious metals market. These include producers, refiners, depositories, brokers, and more in an effort to making the trading, investment, and settlement of previous metals a more efficient process. Everledger, which started out with tracking diamond production, has now branched out into tracing the provenance of other minerals, wine, art, luxury goods, and much more.

What’s next?

Given the big names already implementing blockchain, it is just a matter of time before more companies are using these platforms to improve their supply chain processes. Blockchain adoption is clearly happening, and we expect the pace to only quicken over the next year.

If you’re interested in learning more about the industries that are being most affected by blockchain, you can sign up for our insights or book a demo for our data product.