2020 Expectations: Supply Chain Use Cases on Blockchain

This week, auto manufacturers are suspending product lines because they can’t get parts due to coronavirus-caused factory shutdowns in China. Complex global supply chains are the norm in 2020. And the resulting coordination problems have made headlines in every industry. Projects built on blockchain platforms like Corda are reimagining global supply chains in ways that address their most fundamental challenges.

In 2019, online fashion company Rent the Runway lost inventory visibility due to a software glitch and had to cancel shipments. And perhaps more memorably to British readers, in 2018 KFC ran out of chicken in its UK stores when they switched their freight operator to DHL.

These two examples underscore every supply chain manager’s single fundamental challenge — coordination. In the case of Rent the Runway, the issue was who owned the software linking two different systems of record. For KFC, it was a new node in the supply chain that was unfamiliar with the rest of the process.

So what’s all this have to do with blockchain?

Every participant in a global value chain is a node on a network. But imagine this — documents are not exchanged, rather, they are visible to (only) the entities that need them in a peer-to-peer exchange. Bridges between databases are not needed because the underlying blockchain pulls data directly from ERP systems like Netsuite. You’ll get your chicken sandwich because onboarding new nodes is simple and easily scalable.

This is how Corda works. Corda has a unique set of features that enable a wide range of supply chain use cases. For example:

• Confidential data stays confidential. Peer-to-peer reporting means that each entity only sees the part of the transaction that they participate in.
• No more reconciliation or rickety bridges between databases. Blockchain architecture reduces the need for reconciliation. No document is committed to Corda unless all involved parties agree it is correct.
• Immutable origin simplifies reporting for certificates of origin, preferential tariffs, social or product certification, and SPS-related issues.
• Recall and exceptions processing can be automated and targeted. Complete visibility into the supplier network enables the buyer to target a specific faulty supplier immediately.

Two secrets about the 2019 blockchain journey

In 2019, supply chain managers were trying out blockchain. On Corda we saw buyers tracking everything from gold to beets. These projects are all live and growing, and have helped us identify how blockchain projects are maturing into a standard part of the business process. In this journey, we’ve learned a lot. Here’s two lessons that you probably won’t read about in the press.

First, even though many supply chains are international, the initial live stages of deployments have largely been internal or domestic. Even though the use case may include the global supply chain, first instances focus on the easier case of just one jurisdiction or entity. This is a smart first step.

Second, many initial deployments focused narrowly on replacing existing processes with blockchain. They didn’t do anything radically different, just changed the technology to do the same thing. This is not a critique, in fact in complex supply chains this kind of stage approach is critical for success. It allows stakeholders to learn and become comfortable with a new technology before expanding and scaling the ecosystem.

What we can expect to see in 2020

There are two trends you can expect to see on Corda in 2020. They are common across supply chain applications and portend some exciting changes for how business transact.

New instruments and marketplaces

We will start to see projects move beyond digitizing existing business flows and begin to create new instruments. Marco Polo, for example, will release their Payment Commitment, which is a financial instrument without any arbitration history. Additionally, Tradewind’s Origins links detailed information about the provenance of precious metals to to digital records of ownership.

Consortium support

A second trend is projects will begin to harden their governance structures. The success of blockchain projects is not just about good technology. Its also about creating a consortium infrastructure that will be able to withstand the inevitable challenges of frontier applications of new software. Decisions will have to be made about enterprise integration, privacy, identity and more.

We saw this happen explicitly with Contour. It began as an 8-bank consortium project several years ago. In 2020, it is a fully functioning joint venture with a CEO, board and a clear set of priorities and upgrades in the pipeline. This progression is critical for today’s projects to continue into the future.

We believe that this governance piece is so critical that R3 has begun regularly helping our partners build consortia that are resilient, representative and sustainable.

A final thought

If 2019 was the year that supply chain adopted Corda, 2020 will be the year that it deploys at scale. Last year, there were a relatively small number of marquis projects that everyone was talking about, like Insurwave. This allowed these large scale projects to take on a broad ecosystem and cut a path for the smaller start-ups that are now following.

This new path opens the door for projects that address secondary, but lingering problems for supply chain — from the complexity of supplier management, to onboarding, to procurement. 2020 should see a wide variety of applications being developed and deployed in supply chain.

For more market insights, see R3’s new report: “Blockchain: 2020 Vision”