Jun 11, 2018
FAB Use Cases: Supply Chain Management
In this series, we tackle different potential use cases of Fast Access Blockchain and how we can build a better world through our solutions.
New Applications, New Business Models, New Possibilities
Applications which are an ideal fit for blockchain technology have the following characteristics:
- Involve multiple organizations
- Where trust is key, or trust is presently severely eroded
- Proof is key
- Involve exchange/transfer of assets or value
- Involve data sharing or presently suffers from silo’d data
- Benefit from micro transactions/streaming
- Have opportunities for new business models, products or services
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Fast Access Blockchain is built specifically to handle the needs of supply chain management. The founder of FAB Foundation, Paul Liu, left a long career in development and supply chain processes to create a public blockchain with specific tools to aid the supply chain process. FAB is scalable, interoperable and exactly what is needed for the industry. In the process, FAB has created a decentralized application platform suitable for any enterprise need and better for everyday users.
As Paul says, “Three years ago [in 2014], we started developing decentralized supply-chain management systems based on Bitcoin blockchain. However, we met serious problems: the first is Bitcoin is not efficient, it can only process 4 to 5 transactions per second. The second is very high transaction fees, usually the cost was $6 to $10 per transaction, sometimes it could be $15. That is not acceptable for enterprise use.”
With FAB, the goal is to create a public environment that is scalable for businesses to use, cost effective, interoperable with different programs and easy to implement through pre-built applications.
Supply chain management is an excellent application for blockchain because it involves the transfer of assets, value and information between multiple organizations, and has high requirements for trust and proof.
The path of goods is generally a complex one, involving multiple modes of transport (truck, rail, ship, air, etc.), approvals & handoffs involving multiple parties (sellers, shippers, ports, customs, customs brokers, warehousers, buyers) and accompanying documentation. The cost of processing the documentation can often cost more than the physical transportation of the goods. For example, Accenture has estimated that “in the consumer goods industry, savings of over $26 billion can be realized through reduced operating costs and efficiencies from improving supply chain transparency and product traceability”.
With blockchain technology, the documentation associated with a shipment (e.g. commercial invoice, packing list, certificate of origin, export approvals, dangerous goods certificate, insurance certificate, bill of lading etc.) can be signed with unforgeable digital signatures and time-stamped and stored on the blockchain. As the goods pass from one party to the next, additional documentation may be added and signed then similarly stored on the blockchain.
If multiple parties are required at any approval step, this is fully supported by blockchain multi-signature capabilities. The documentation can be made visible to all parties who require access, or could benefit from access to it. RFID tag, barcode or QR code scanning can be used to automate goods tracking, so that the location or carrier of the goods can tracked by all parties. This data can also be used to improve forecasting, and reduce over-inventory and stock shortages.
In the case of perishable or fragile goods, RFID enabled sensors for temperature, shock, vibration etc, can be attached to the goods and record these parameters continuously. If contractual terms are violated, a smart contract condition can be triggered for cancellation of the contract, or immediate payout of insurance or penalties. Smart contracts that specify payment terms (for example, immediately upon arrival) or apply a penalty for late delivery can also automate and enforce payment (to the supplier and the shipper) according to the contract terms without human intervention.
Payment of shipping costs and duties can be similarly automated. Smart contracts can also be used to automatically kick in volume discount pricing, automate returns processing, restocking charges, and claims processing. Shippers can also leverage historical performance data (which is based on past transaction data signed by customers or external parties) to prove their past performance in marketing to new clients.
Counterfeiting
With all documentation on the blockchain network, fictitious pickups and drop-offs where a shipper arrives unannounced and presents forged documents to pick up goods or deliver goods that were not ordered, can be eliminated. Cases of missing or lost documentation which cause delays can also be eliminated.
With fully electronic documentation, and unforgeable digital signatures that can be checked independently and by software agents, this can speed up customs clearance and similar checkpoints. Electronic documentation on the blockchain also can provide complete, accurate, auditable data for trade statistics, regulatory or law enforcement purposes. Through electronic tracking of materials and components down to the granularity of batch or lot numbers, in situations of recalls of defective product, their location and propagation through the supply and distribution chain can be more easily traced.
A good example of the opportunities of blockchain technology in supply chain management is the intersection with the oil and gas industry.
Shared ledgers for gas volume management can automate reconciliation and enable immediate settlement. Currently around 9% of crude oil transactions are disputed. Blockchain use can greatly reduce that number.
Pipeline IoT sensors can provide real-time measurements of volume, flow pressure on a pipeline and send this data into a ledger; or tire camera monitors can measure pressure and tread and send this data to the ledger. Inputs that are outside of an acceptable range would trigger a smart contract dispatch to a service provider and create a service request and invoice.
In summary, blockchain technology can provide end-to-end transparency and tracking, reduce shipping costs and time, automate and accelerate payments and claims, eliminate or reduce the need for letters of credit and intermediaries, virtually eliminate fraud, and reduce cost of regulatory enforcement.
Written By:
Eugene Cofie
Product Manager, FAB Foundation
