Supply Chain on the Blockchain

The technology on which blockchain is based is very promising, yet many of us do not know exactly what it really is. Hence, incorporating it in business becomes all the more difficult. Distributed Ledger Technology (DLT) has immense potential to disrupt each and every industry in the world. The paradigm shift from centralised to decentralised, from national to sovereign, from coordinated to collaborative, from regulated to self-enforcing, from opaque to transparent will truly change the landscape of the way we deal with day to day transactions. That being said, the stage for digital transformation for oil and gas industry is all set.

In principle, blockchain-based technology has brought about an evolution which abolishes concentration of control: blockchain is decentralised in nature. It annihilates central control and divides power democratically so that every stakeholder taking part in the supply chain process is considered equal. Moreover, from security and privacy point of view, centralisation is a negative architecture principle because it exposes a single point of failure, making the system more prone to exploitation. This may lead to costs running into millions of dollars for the company, along with dented PR.

The crux lies in analysis of the business use case for managing oil and gas supply chains using blockchain. A good place to start would be to raise several questions such as:

• Would deployment of DLT directly relate to generating higher revenue?
• Is DLT capable of managing intra workforce communication?
• Can we expect greater transparency and accountability?
• Is it possible to streamline the supply chain?

These are pivotal questions to be pondered upon by Chief Information Officers. As a matter of fact, the pantheon of the oil and gas industry requires a highly demonstrative proof of concept to analyse the pros and cons of DLT for their business.

As an example, Fujairah Oil Terminals have deployed blockchain to track consignments, storage quantities and implement a record-keeping system. Deployment of blockchain means a reduction in the scope of human error, an enhancement in operational efficiency and a strengthening of data management security. The technology promises to show results under a secure and no risk milieu. Security and being risk-free is one of the prime concerns in the oil and gas industry. Apart from this, blockchain has instant transaction verification capabilities without any reliance on a central authority.

Major problems which plague the oil and gas industry are volatile price swings and tracking production. These issues need to be tackled, and this is completely possible with advent of distributed ledger technology.

To tackle such issues, Apla, for example, has developed a blockchain application that allows organisations to operate smart and transparent supply chain. It makes use of geolocation and digital signatures to carry out transactions, automated using smart contracts. This application monitors the consignments and production from genesis till the end consumer, whilst keeping sensitive information secure. All the transactions are recorded on the immutable blockchain ledger, guaranteeing 100% transparency for all parties that have access to this single data system. This will bring more data integrity and operational efficiency, that is optimised since there is less manual checking, resulting in a saving of time and resources for carrying out basic transactions.

Such working blockchain solutions have following features:

• Falsification of consignments is impossible as each consignment would carry QR code which would all the data about the consignment.
• Installation of multiple IoT sensors to continuously update with fresh data.
• A continuous and comprehensive monitoring of all activities being carried out in the supply chain at every stage.
• Record keeping of cargo when goods change hands only when contractors are in the same geographical location at the same time.
• All participating stakeholders are able to see a consistent record of the consignment thereby creating no confusion with bookkeeping.
• The nature of blockchain is such that it minimises cyber threat and bolsters security.
• Smart contracts help in tackling with volatility of commodity prices and other changeable factors. They calculate all numbers on the go in a fair manner, which automates the most part of record keeping.
• What used to take days would happen in minutes because of blockchain-based smart contracts. This leads us to believe that operational efficiency would sky-rocket, thereby helping companies generate more revenue in less time.

Management of supply chains is a daunting task whether it is done manually or with the help of technology because multiple parties take part together simultaneously. However, implementing a single ecosystem involving numerous organisations means a robust and secure solution that functions in tandem with the IT systems of different organisations, while maintaining speed.

That being said, here are the key features which a blockchain-based solution would offer:

1. Transparent view of all transactions
2. Automation using smart contracts
3. Efficient communication with other IT systems
4. Real time occurrence of transactions
5. Consistent and visible data
6. Scalablilty
7. Ability to accommodate multiple parties
8. Provenance of product

There is also the possibility to add be other minutiae features which or modified existing ones.

With time, supply chains mature and grow, bringing about more byzantine complexities which may involve participants with different roles and inter-relationships. Effectively, DLT solutions tackle the lack of transparency and traceability, thereby providing the most viable solution. The technology’s implementation in supply chains gives the oil and gas industry numerous advantages: it reduces time delays, additional costs, and human error factors that are so prevalent today. In order to increase profits and strengthen your company’s position in the global market, it is crucial to be innovative and take advantage of blockchain’s potential.

As published for Oil & Gas Middle East magazine

Muhammed is a blockchain solutions expert and certified blockchain business analyst with over 10 years’ experience working with diverse verticals, industries and international markets.

Blockchain Business Review from Apla provides high-quality educational material from the world of blockchain to inform the business community of the competitive advantage that can be gained by integrating distributed ledger data storage within organizations. Our mission is to promote knowledge about blockchain and its uses in both the private and public sector and demonstrate the value of blockchain integration.