Blockchain and Supply Chain: what matters

Supply chain is a giant field, backbone of many industries, where there are rooms of consistent improvements. Blockchain, by design, reflects the infrastructure that suits supply chain dynamics and processes. Combined with other technologies like IoT, BigData, RIFD, blockchain promises network participants unprecedented visibility leading towards a transformative impact in the next years.

Fig 1: Blockchain use cases in supply chain

About

  1. What is Supply Chain
  2. How Blockchain capabilities can fix Supply Chain
  3. Use cases: Manufacture, Aviation, Consumer Goods and Retail

1. What’s Supply Chain

Supply chain management is the backbone of any industrial sector, to name a few: Aviation, Manufacturing, Consumer Goods, Retail, Logistics.

Supply-chain management (SCM) [2], enables enterprises to source the materials necessary to create a product or service and deliver that product or service to customers. Different industrial organizations distributed globally and specialized in manufacturing of particular types of products are operated as segments, which would be required by another manufacturer to produce another product or part of a final product. Before reaching the final product, individual parts of the product go through a series of supply chains called multi-tier supply chain that is a supply chain with multiple supplier-buyer-relations, within one supply chain.

Supply chain management affects product and service: quality, delivery, costs, the customer experience and ultimately, profitability [3].

The areas from where SCM [1] practice draws heavily are industrial engineering, systems engineering, operations management, logistics, procurement, information technology, and marketing

Fig.2 Process for tracking products using blockchain

According to CIO website (cio.com) there are six components of traditional supply chain management [2][3]:

Planning

· design the supply chain

· plan and manage all resources required to meet customer demand

· define the metrics to ensure the supply chain is efficient, effective, delivers value to customers, and meets enterprise goals

Sourcing

· choosing suppliers, monitor, and manage supplier relationships

· ordering, receiving, managing inventory, and authorizing supplier payments

· procurement is one component of the broader concept of sourcing and acquisition [4]

Making

· coordinate the activities required to accept raw materials, manufacture the product, test for quality, package for shipping, and schedule for delivery

· measure quality, production output, and worker productivity to ensure the enterprise creates products that meet quality standards

Delivering

· coordinating customer orders, scheduling delivery, dispatching loads, invoicing customers, and receiving payments

· the delivery process is frequently outsourced to specialist organizations, particularly if the product requires special handling, or is to be delivered to a consumer’s home

Returning

· the supplier needs a responsive and flexible network to take back defective, excess, or unwanted products. If the product is defective it needs to be reworked or scrapped. If the product is simply unwanted or excess it needs to be returned to the warehouse for sale

Enabling

· to operate efficiently, the supply chain requires a number of support processes to monitor information throughout the supply chain and assure compliance with all regulations

· enabling processes include finance, HR, IT, facilities, portfolio management, product design, sales, and quality assurance

Traditional methods for managing shared processes, such as manual inspections, audits, and record reconciliation, are expensive, time-consuming, and error-prone. Modern supply chains demand a better solution because the quantity of data generated is cumbersome and services and products should be bundled with them into solutions. The usage of new technologies (Blockchain, Big Data, Internet of Things (IoT)) allows the creation of complex supply chain models, or systems, using a data-driven approach making services and products faster with improved reliabilities. Future supply chains combined with the Enterprise Resource Planning (ERP) systems will focus on optimizing the usefulness of this data, analysing it almost in real time with the help of data scientists.

2. How Blockchain capabilities can fix Supply Chain

Supply chain is one of the fields where blockchain can express its capabilities at best. One of the aspects of blockchain that best suits supply chain is that it enables more secure, transparent monitoring of transactions. Supply chains are basically a series of transaction nodes that link to move products from point A to the point-of-sale or final deployment. With blockchain, as products change hands across a supply chain from manufacture to sale, the transactions can be written in a shared temper proof decentralized ledger reducing time delays, added costs, and human errors. Blockchain is inherently capable of providing significant advantages of almost real time, improving efficiency and transparency to the supply chain systems in the same way it has been proven for the value-adding processes in financial/banking systems.

At this point, it is clear enough that Blockchain offers the opportunity to tackle some of the perennial issues that compromise supply chain effectiveness through its immutability, security and data integrity, but let’s see for each challenge the corresponding blockchain capability:

1. TRACEABILITY

o Tracking goods, raw material, and its authenticity, are critical aspects of supply chain difficult to achieve with the current set up. Organizations seek updated information so they can make proactive decisions and share data with other users/systems that can do the same.

o Blockchain overcomes the lack of traceability writing the transactions into a shared immutable ledger instead of having them in siloed systems.

2. TRANSPARENCY

o The authenticity of the data is pivotal for decision making. As data passes through multiple stakeholders and various systems, there are chances for it to be misinterpreted altered or tampered with or without the owner’s knowledge or consent. This causes turmoil in a global supply chain.

o Blockchain act as a shared data layer to enable multiple parties to track the status of an asset as it moves across the chain and shares information on its provenance and handling in a secure and transparent way.

3. EFFECTIVE

o The traditional supply chain suffers from complex data flow and lack of responsiveness due to several platforms transmitting data to each other with latency. This cause scarce efficiency.

o Blockchain brings trust to the entire eco-system and data efficiency because data is stored in a single trusted source decentralized, simplify integration, shared data and transactions near real-time.

4. HUMAN ERRORS

o The current supply chain is largely manual processing. Where there is data flow reconciliation there is human error.

o Blockchain relay on cryptography which means that the transaction data are verified. Data integrity combined with security and ledger immutability set human errors down to zero.

5. REGULATORY COMPLIANCE

o Supply chain operates globally so regulations compliance is paramount.

o Since blockchain is a shared tamper-proof ledger between parties that belong to the network it is fundamentally easier and cheaper auditing verification.

6. RECONCILIATION

o Payments between banks done by SWIFT’s international transfers take around 48 hours.

o Blockchain boosts a faster payment mechanism. End to end, a payment done through blockchain is way much faster and cheaper than the current one between international banks.

7. DISPUTE RESOLUTION

o In a complex supply chain, things inevitably won’t always go as planned, but when supply chain disputes do occur, it’s critical to resolve them quickly and transparently. When a member of the supply chain fails to deliver assets on-time and in full, or if the quality of assets has been compromised, they will likely have to deal with fines and look-back auditing in order to identify the fault. This process is both error-prone and costly.

o Blockchain provides attestable audits of activity that can be used to inform decisions such as billing, contract fulfilment, licensing, fines, or recalls. Furthermore, blockchain automates payments through smart contracts where there’s no room for misinterpretation and payment delays.

8. COSTUMERS CENTRIC DESIGN

o Retailers and manufacturers place a great deal of trust in their upstream suppliers, distributors, and transportation providers. The quality of their end-customer experiences depends on other organizations’ ability to transfer the right assets, to the right place, at the right time, in the right manner. If anything goes wrong en route, they must quickly ascertain both the potential end-customer exposure and the fault point in their supply chain.

o Blockchain prevents or reduces faults because provide the tools to monitor remotely what is happening along the way to the destination from the source, tracing into the shared ledger all the transitions node of the supply chain.

3. Supply chain use cases

  1. USE CASE: MANUFACTURING

Manufacturing engineering or manufacturing process are the steps through which raw materials are transformed into a final product. The manufacturing process begins with the product design and materials specification from which the product is made. These materials are then modified through manufacturing processes to become the required part. Such finished goods may be sold to other manufacturers for the production of other, more complex products, such as aircraft, household appliances, furniture, sports equipment or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users and consumers.

Wholesaling, jobbing, or distributing is the sale of goods or merchandise to retailers. In general, it is the sale of goods to anyone other than a standard consumer [11].

The issue that affects large organizations in manufacturing, is that due to dealing with multiple suppliers, they face great inefficiencies. The introduction of smart contracts can eliminate inefficiencies associated with regular contracts. Smart contracts are programs that execute themselves when a certain event happens. They can be used to automate and improve the speed of transaction and support faster dispute resolution. More in details they can help in manufacturing:

· Procurement inefficiencies. Traditional contract management involves a long process, authoring, execution, payment, and renewal. These activities need to be coordinated across multiple organizations and multiple departments within those organizations making the entire management process cumbersome. Smart contracts improve the speed of execution and a faster payment mechanism for the suppliers involved.

· Freight administration costs. Smart contracts can help reduce suppliers’ working capital requirements. A proof of delivery from a supplier can trigger an automatic quality inspection of the materials. Whether the inspection is positive, a digital payment could be triggered.

· Production tracking manufacturers. SMC need instant information on the products completed by their EMS (electronic Manufacturing services) providers. Blockchain can help OEMs (original equipment manufacturer) to track and authenticate this in real time.

o Tracking asset maintenance. Blockchain, along with technologies such as IoT, helps in determining whether an asset has been maintained according to schedule, especially when multiple parties are involved.

o Tracking recalled products. Blockchain enables products or components tracking by recording a product’s entire manufacturing journey, from the origin of its components until the product reaches the consumer.

Fig.2 Smart container application in supply chain

2. USE CASE: AVIATION

The aviation industry deals with all-things aircraft-related including the design, manufacture and operation of many types of aircraft.[5] Supply chain management is a key factor for the major manufacturers in the industry due to the increased complexity of the networked supply chains for aircraft’s spare part purchase and delivery for aircraft’s maintenance and repair. Aircraft’s spare parts are shipped to single assembly hubs, located globally. All parts come with certain life expectancy, specific requirements and maintenance attributes. With thousands of spare parts, hundreds of parameters, and a number of manufactures distributed globally, SCM need to deal with a very large amount of data. Aviation industry represents a perfect example of how complex this process can be and how all this process works. Individual parts or aircraft body segments are imported, a proper inventory is maintained and then assembled domestically. The aircraft may overhaul to another region depending on the type of service required.

Traditional SCM models and approaches are useful when the amount of data to be processed is relatively small and the complexity of the problem is low. But when a lot more data are produced, like in case of the aircraft’s spare parts business, it requires new data-driven techniques, a combination of Big Data Blockchain and IoT.

Based on the business case Blockchain and Supply Chain Management: Aircrafts’ Parts’ [9], each transaction is monitored by individual tiers of this supply chain, later smart contracts platform between individual tiers can monitor quality and proper flow of products in this chain. Individual databases at an individual level will record and update all transactions that would be flowing along different tiers. This concept and technology merged into supply chain management can bring significant added value to the business processes through a smoother flow, higher reliability and better quality in aircrafts parts or segments. More in details blockchain can help in aviation:

· Counterfeit. Blockchain could enhance aircraft parts traceability and establishing the authenticity of spare parts. Blockchain should be able not only to trace aircraft parts but also to authenticate parts manufactured in a country and delivered to another, taking the information from sensors or RFID tags and records it into Blockchain in order to track the parts from factory to aircraft. With the availability of all the information on the transactions in the supply chain, anticipation for the reduction in counterfeit products would be achievable. Furthermore, the introduction of the smart contracts will minimize the possibility of corrupt practices as it eliminates the involvement of the third party and with the data information spread across, private buyers will be capable to purchase.

· Strategic procurement. Blockchain could also lower the cost of doing business in global aircraft parts supply chains, where it is common for a big company to buy spare parts from small manufacturers. This usually increases costs across the end-to-end supply chain. Potentially, the Blockchain technology could reduce the financial costs associated with procurement.

Where blockchain can improve:

o to assist in maintaining an inventory of the aircraft’s parts

o to monitor the performance, usage, etc.

o to achieve a transparent network of supply chain for aircraft’s parts and reduce the risk of availability of aircraft’s parts in the black market.

o to analyse the supply, demands, source of availability of spare parts and provide methods to procure them from the right sources.

A global survey of senior executives in North America, Europe and Asia Pacific has found that Blockchain technology is increasingly being used to extend the digital capacity of organisations across all industries [7], which could help to boost digital twin and thread procedures [10].

A digital thread describes the framework which connects data flows and produces a holistic view of an asset’s data across its product lifecycle. This framework addresses protocols, security, and standards[11]. Typically, the digital thread connects digital twins, digital models of physical assets, or groups of assets.

Increasingly, aerospace and automobile players are using IoT applications to track the condition of critical and high-value parts during operations. This has led to a proliferation of data across multiple partners, which creates greater complexity in terms of data exceptions, auditing costs, and security. Blockchain could boost Aerospace and automobile digital thread performance adding trust between the multiple partners that belong to the network.

3. USE CASE: CONSUMER GOODS

[13] Currently supply chains have opened up a world of connected commerce far beyond what previous generations imagined possible. But with this comes unprecedented complexity as multiple parties must cooperate to move goods around the globe. They face new challenges of maintaining visibility into origin, authenticity, and asset handling as they cross organizational boundaries. Consumer goods companies are relying on blockchain to ensure product safety and authenticity of certain consumer goods, such as infant food, pharmaceuticals, dairy, and premium-cut meats. The combination of real-time data about container conditions and tamper-proof storage of that data on a blockchain is delivering unprecedented levels of transparency within the supply chain processes involved. More in details blockchain can help in consumer goods:

· Provenance. Blockchain allows businesses and consumers to trace a product’s origin, attributes, and any change of ownership. This has applications across numerous fields, from luxury goods to pharmaceuticals, from art to agriculture. [13 ]An estimated €966 billion opportunity exists for brands that make their sustainability credentials clear. “Research confirms that sustainability isn’t a nice-to-have for businesses. In fact, it has become imperative to prove their social and environmental credentials and show e-commerce, social commerce, and consumer-to-consumer platforms haven’t been plagued with counterfeits. Permission ledgers, like Hyperledger, offer a solution to the counterfeiting problem because only granted parties that belong to the network can transact. The DLT (distributed ledger technology) maintains a time-stamped log of each transaction, i.e. movement, in the supply chain. Such a solution reassures the brand’s owners, its logistics partners, and consumers. This creates trust and allows consumers to track the authenticity of the product through a mobile app.

· Food supply chain. It’s key to maintain transparency and efficiency among numerous farmers, manufacturers, retailers, transporters, and more. And at the end of the supply chain, customers want assurance that their food will be consistent, high-quality, and is legitimately sourced from providers they want to buy from (such as organic or fair trade farmers).

o Provenance: use case fish. There is an increasing focus on sustainable fishing and the sustainability of fish such as tuna. [12] A London based NGO has developed a system to track skipjack and yellowfin tuna, creating “catch-to-consumer” transparency. The fishing crew attach an RFID tag to the fish that are caught and scan and upload the information to the cloud using handheld devices. This data is added to the blockchain ledger, creating a tamper-proof trail. This helps in tracking the product as it passes from catch, to canner, and on to the consumer. Blockchain-based platform that uses a combination of RFID tags and QR codes that consumers can trust.

Fig.3 Tuna supply chain

· Tracking critical parameters

For products that are sensitive to storage conditions, blockchain coupled with IoT, can help companies to track the conditions of assets in remote locations, such as temperature during transit.

· Regulatory compliance

A blockchain can maintain a product’s entire history and allows regulators to determine whether that product has been manufactured and handled in a compliant manner.

· Providing warranties

Blockchain helps to establish the proof of ownership of a product. This allows organizations to extend warranties to customers with genuine products and avoid losses in warranty fraud.

4. USE CASE: RETAIL

From the perspective of a supplier, blockchain provides real-time visibility into product handling and, thanks to smart contracts, conditions to be fulfilled. From a retailer standpoint, blockchain guaranteed a stronger consumer and brand protection through a more efficient process for finding fault points and enforcing contractual penalties. The customer gains an increased safety and quality of goods.

Retailers are focused on digital marketplaces, Walmart, Starbucks, Carrefour, JD.com, and Amazon are among the big retail players to have started blockchain trials. Preventing counterfeit products with the ability of blockchain to track the origin of each part of a final product, it is possible thanks to an audit trail that is visible to all relevant parties. This ensures the authenticity of goods and reduces counterfeiting. More in details blockchain can help in retail:

· Provenance: Use case e-Commerce Today, there is added emphasis given high levels of counterfeiting, especially in e-commerce. Blockchain helps consumers confirm that the product they buy is indeed manufactured by the brand. Chinese e-commerce giant JD.com has used Hyperledger Fabric, an open-source blockchain platform, to build a similar solution for combatting counterfeit products.

· Blockchain Marketplaces An example of a free open decentralized marketplace is OpenBazaar. In blockchain marketplaces, the verification is undertaken at minimal cost, even at scale since it is from peers, with no centralized authority taking their fee. Marketplaces are using blockchain when trust in the intermediary (marketplace) is replaced with trust in the underlying code and consensus rules.

· Inventory and pilferage tracking End-to-end visibility from suppliers to retailers ensure transparency and authenticity where multiple suppliers are involved. Blockchain systems help retailers ensure returned goods are tracked back to their suppliers, along with contracts to better manage returns.

· Loyalty program management A blockchain-enabled loyalty program can be used to create a single wallet for loyalty rewards, providing convenience to customers and improving trust when multiple businesses are involved in the same program.

· Food supply chain provenance The benefit suppliers can get from blockchain is the recognition and market advantage for certifiable ethical sourcing practices. Instead, the retailer benefit is the decreased risk of counterfeit products and increased brand loyalty from consumers due to the ability to accurately attest asset provenance. For the customers, this leans towards increased confidence in products and the ability to discern between brands based on alignment with values.

o Europe’s largest retailer, Carrefour, is also using blockchain technology to trace the production of free-range chicken in the Auvergne region of central France: “Consumers can use smartphone to scan a code on the package to obtain information for each stage of production, including where and how the chickens were raised and what they were fed as well as where the meat was processed”.

o Walmart’s blockchain pilot in China enabled them to trace a package of mangoes from store to farm in a few seconds. Previously, this would have taken days or weeks. “Blockchain technology enables a new era of end-to-end transparency in the global food system. It allows all participants to share information rapidly and with confidence across a strong trusted network.

SUMMARY

Using blockchain to record asset provenance, environmental conditions, and transfers in real-time, removes ambiguity and increases accountability. Faster and more transparent record-keeping means that disputes can be resolved in a fraction of the time. Furthermore, smart contracts will automatically trigger compensation or fines in compliance with agreed terms, making dispute resolution a complex thing of the past. As technology grows and matures, blockchain will be used to open new doors for cross-organizational collaboration and enable new business models along the supply chain.

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REFERENCES

[1] https://en.wikipedia.org/wiki/Supply-chain_management

[2] https://www.cio.com/article/2439493/supply-chain-management/supply-chain-management-supply-chain-management-definition-and-solutions.html

[3] https://www.ibm.com/topics/supply-chain-management

[4] https://en.wikipedia.org/wiki/Procurement

[5] https://go.galegroup.com/ps/i.do?p=AONE&sw=w&u=googlescholar&v=2.1&it=r&id=GALE%7CA559830385&sid=classroomWidget&asid=d3432b49

[6] https://gpdisonline.com/wp-content/uploads/2017/09/Anark-Collins-Enabling_Digital_Thread-ET-Open-19Sept2017.pdf

[7] https://www.consultancy.uk/news/18014/blockchain-could-boost-aerospace-and-defence-digital-thread-performance

[8] https://coincentral.com/blockchain-marketplace/

[9]http://www.daaam.info/Downloads/Pdfs/proceedings/proceedings_2017/146.pdf

[10] https://www.adandp.media/articles/what-are-digital-twins-and-digital-threads

[11] https://en.wikipedia.org/wiki/Wholesaling

[12 ]https://www.capgemini.com/wp-content/uploads/2018/10/Digital-Blockchain-in-Supply-Chain-Report.pdf

[13]https://azurecomcdn.azureedge.net/mediahandler/files/resourcefiles/how-blockchain-will-transform-modern-supply-chain/how-blockchain-will-transform-modern-supply-chain.pdf

[14]https://www.mckinsey.com/~/media/mckinsey/business%20functions/mckinsey%20digital/our%20insights/the%20internet%20of%20things%20the%20value%20of%20digitizing%20the%20physical%20world/the-internet-of-things-mapping-the-value-beyond-the-hype.ashx

[15] https://www.unilever.com/news/press-releases/2017/report-shows-a-third-of-consumers-prefer-sustainable-brands.html