Where is Blockchain Headed? Follow the Money
Co-written by Inma Borrella and ken cottrill.
Countless proof-of-concept and pilot projects have provided compelling information on the potential worth of blockchain solutions in supply chain management, but the technology has to start delivering concrete ROIs soon if the industry is to take it seriously.
This was a recurrent theme at the Blockchain Applications In Supply Chain Management Roundtable, October 9 to 10, 2018, organized by the MIT Center for Transportation & Logistics. More than 25 enterprises from a wide range of industries attended the event to discuss the current state of blockchain technology and its prospects from a supply chain perspective.
A blockchain can store data in a permanent, transparent and shared way. It promises to solve trust issues, streamline transactions through the elimination of intermediaries and automate processes. However, several factors hinder the technology’s wide implementation.
First, a clear business case must be built around blockchain applications. Virtually, any process can be streamlined and improved, but are the benefits greater than the costs? And if so, who in the supply chain should bear this cost? Often, the technology requires enterprises to drastically change their operations and systems, and the cost of these changes and the IT resources they consume are difficult to quantify.
Another concern voiced by several attendees is the need to collaborate. Collaboration is key to implementing a technology that will increase trust and visibility in a multi-party industry ecosystem. However, collaborating and sharing data with fierce competitors is counterintuitive. Moreover, there is a need to develop standards and reach consensus on the terminology and data to be used. In the words of one attendee: “Blockchain is a team sport.”
On the plus side, there are signs that blockchain can change the competitive environment. An attendee from a leading logistics company noted that the enterprise is actively working with an arch-rival to develop blockchain solutions in transportation.
Also, some applications are gaining momentum. One that has attracted considerable attention is using the technology to streamline unwieldy, error-prone shipping documentation. Shippers and carriers at the roundtable affirmed the need for automation in this area. But as one shipper pointed out, while eliminating the knee-high piles of paperwork that clog its supply chains is a laudable goal, solutions providers must “show me the value” before the company devotes resources to blockchain technology.
The complexity of ocean transportation ecosystems is a key barrier that has to be overcome before blockchain’s value can be realized, suggested a carrier. Another carrier indicated that the ocean freight industry is very slow to adopt technology. And it is unclear who should facilitate blockchain in the industry, especially in an environment where “start-ups and IT companies just want to sell you something.”
Another promising application is the use of blockchain to securely track chain of custody. Increasing government regulation and consumers’ interest in product provenance are strong motivators for creating more reliable traceability systems. A few roundtable participants are already tracing products (in the food, mining and aerospace industries) by combining blockchain technology and IoT. All of them recognized that data validation is a challenge, as well as finding the appropriate economic incentives. Automatic payments and tokens were some of the ideas being tested.
Attendees highlighted applications that address unresolved issues and identify a clear value for participants as being especially promising. An example described by a manufacturer would deploy blockchain as a solution to the difficult problem of compliance with Dodd-Frank conflict minerals provisions.
The company uses chemical catalysts in its processes, which contain materials such as tin that come under the Dodd-Frank microscope. There are third-party services that scan supply chains to ensure that products such as catalysts comply with conflict minerals rules. However, the company is not confident that these services do a good job, and they are relatively expensive. A blockchain that traces the origins of sensitive materials could be much more reliable and cost-effective, suggested the manufacturer. And other links in the supply chain such as suppliers of the specialist chemicals would benefit too.
Other high-potential blockchain applications mentioned by participants were product compliance trade documentation and demurrage dispute resolution.
Several attendees at the roundtable still see the technology as a hammer in search of a nail, but there are nails out there that could be tackled with this innovative tool. To find them, companies need to pinpoint applications that yield value.
This post was written by Inma Borrella, Postdoctoral Associate, MIT CTL (inma@mit.edu), and Ken Cottrill, Global Communications Consultant, MIT CTL (kencott@aol.com). The authors are members of the MIT CTL Blockchain Research Team.
