An Easy Guide to Understanding Blockchain and Supply Chain

Supply chain is an important part of our everyday lives. On the commercial side, one of the most important criteria deciding the faith of a company is indeed its supply chain — everything from engaging the product’s demand, to sourcing raw materials, to manufacturing, shipping, and customer service.

Now that we know how important supply chain is, let’s dive into the current supply chain risks:

1. Macro environment risk : Has an impact on any part of the chain, these risks include political instability, shortages of raw materials/resources, downturn of global economy, new regulatory requirements, etc.
2. Extended value chain risk : Focus is on problems with upstream and downstream supply chain partners — ranging from tier one and secondary suppliers to outsourcers and end consumer.
3. Internal operational risk: Situations that occur along the chain from product development and manufacturing to distribution.
4. Functional support risk : Impact on areas such as legal, finance, human resources and, especially, IT. Shortcomings in these functions can lead to anything from a lack of needed talent as well as regulatory compliance problems and interruptions to the vital flow of operational data.

Now that we have analyzed the underlying risks of supply chain, we will discuss the four key attributes to a resilient supply chain:

1. Flexibility: Being able to move fast and adapt to problems quickly, without significantly increasing operational costs as well as making rapid adjustments that limit the impact of disruptions.
2. Collaboration: Having trust-based relationships that allow companies to work closely with supply chain partners to identify risk and avoid disruptions.
3. Control: Having policies, monitoring capabilities, and control mechanisms that help ensure that procedures and processes are actually followed.
4. Visibility: The ability to monitor supply chain events and patterns as they emerge, which lets companies proactively and even preemptively address problems.

Blockchain to the Rescue

The term “Blockchain” has been tossed around in the media after various cryptocurrency prices have sky rocketed last year. For more information about the use cases of blockchain outside cryptocurrencies please click here.

In short, Blockchain, the broader term Distributed Ledger Technology (DLT), allows authenticated data communication between each player in the supply chain without the intermediation of a trusted central organization. By verifying and adding data in real time, blockchain can increase transparency across a supply chain.

“[Blockchain] is a technology that allows people who don’t know each other to trust a shared record of events.” — Bank of England

Blockchain can be summarized into 4 major points:

1. Transparency and auditability: All transactions are visible to authorized users to trace within the ledger.
2. Reliability: Transactions processed in the blockchain is immutable.
3. Low cost: Resources used to validate the blocks are mainly computing power which cost less than human labor. No reconciliation work is required.
4. Quick transaction settlements: Both sides of the transactions are executed simultaneously and updated to the block.

In supply chain, these functions will help reduce intermediaries which in turn increases efficiency and lowers cost. Also, the margin for error will be significantly lower as we require less intermediaries.

Current limitations and potential risks

Blockchain is still a nascent technology, thus its limitations and improvements are continuously being discovered and developed. Some limitations and potential risks today include:
1. Integration concerns: Blockchain solutions require significant changes to and/or complete replacement of existing systems. Potential mitigation: Develop a long-term plan to identify transition requirements for systems required to support blockchain adoption.

2. Linking digital to physical: Radio frequency identification (RFID), 2D barcode, and near field communication (NFC) are used today to link to physical products. However, to ensure flow of information, all steps of the supply chain and all products will have to be tagged digitally, requiring an overhaul in today’s supply chain practices. Potential mitigation: Start strategizing now on how to physically track objects, and add the digital tagging in existing supply chain to prepare for blockchain implementation.

3. Control, security, and privacy: While solutions exist, including private or permissioned blockchain and strong encryption, there are still cyber-security breach concerns that need to be addressed before the general public will entrust sensitive data on a blockchain solution. Potential mitigation: Choose a blockchain solution partner carefully, work together to ensure security and privacy needs are satisfied, and test thoroughly before pilot.

4. Cultural adoption: Blockchain represents a significant shift to a decentralized network, which requires the buy in of its users and operators. Potential mitigation: Socialize the idea of implementing blockchain in your company and collaborate with stakeholders prior to implementation to minimize excessive cost or adoption risk.

A Quick Summary:

Supply chain faces major challenges today as our global market grows. The demand for transparency and traceability is growing as both consumers and businesses are becoming more and more sophisticated. Today, blockchain technology is in constant evolution and needs to mature in order to be able to fully support the current challenges faced by supply chain. Nevertheless, a lot of players are actively contributing to the space and is not a matter of if but a matter of when supply chain will be transformed and optimized by blockchain technology.

Sources:
1. Forbes, Nasdaq Selects Bitcoin Startup Chain To Run Pilot In Private Market Arm
2. http://www.coindesk.com/visa-europe-announces-blockchain-remittance-proof-of-concept/
3. “RBS Trials Ripple as Part of £3.5 Billion Tech Revamp”, Grace Caffyn, CoinDesk, June 2015.
4. http://www.ibtimes.co.uk/cryptocurrency-round-blockchain-bug-commonwealth-bank-australia-embraces-Bitcoin-1503832
5. https://www.provenance.org/tracking_tuna_on_the_blockchain
6. http://www.prnewswire.com/news-releases/skuchain-developing-blockchain-solutions-for-18-trillion-trade-finance-market-with-funding-from-amino-dcg-and-fbs-capital-300214205.html
7.https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/technology/lu-blockchain-internet-things-supply-chain-traceability.pdf
8.https://www2.deloitte.com/us/en/pages/operations/articles/blockchain-supply-chain-innovation.html

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“David Braut is a serial entrepreneur and inventor in mobile, blockchain, digital marketing, AI and real estate related business.”