Unfolding supply chains with interoperability and decentralisation
Thanks to authors:
Ken Lyon, Global expert on logistics and transportation and Trace Labs advisor,
Jurij Skornik, Trace Labs’ General Manager
Well-oiled supply chains have always been the key enabler of successful international trade. We have seen a notable rise in their prominence and importance in the last few years, driven by a significant increase in consumer demand and events that exposed how fragile these business networks are, such as the Evergreen blockage of the Suez canal. Understanding the ins and outs of supply chains is critical to tackling such challenges through successful deployment of innovative technology, improving not only business outcomes, but also the sustainability of supply chains in the broadest sense. In this article we deep dive into the complexities of global supply chains, look at how state of the art technology such as OriginTrail can be a driver of change, and examine an industry example of a tech-driven initiative that recently closed down, TradeLens.
Supply chains as networks
Supply chains are, by definition, interconnected groups of organisations that have agreed to perform a series of tasks which usually results in the delivery of a product (or service) to a customer.
Over time supply chains have become extended, often span the globe, operate to a much faster tempo and are also significantly more fragile. The principal causes have been the growing consumer demand in industrialised nations and advances in technologies such as computers, communications and manufacturing. In response, many organisations, particularly logistics service providers, have transformed the scope and scale of their operations, such that the largest of them have established physical global networks operating continuously to collect and deliver “almost everything to pretty much anywhere”.
Supply chains are really networks rather than linear ‘chains’. As these complex webs of connectivity extend, some of the links become very fragile and prone to unexpected failures or disconnects. Because they are usually physical channels, the ‘unexpected’ will include weather events, political or social upheaval, or just basic equipment failures.
Establishing many of these networks has in some cases taken years of effort to establish the necessary levels of trust. But this approach conflicts with the demands for the agile and adaptable supply chains that can respond to unexpected events or challenges. It is true that the Internet has made it much easier to exchange data and collaborate with partners, but the necessary levels of trust are still reinforced through either personal relationships or third party services that struggle to operate at scale.
Global networks, global complexities
As an example, a small jewellery manufacturer will probably buy materials from companies they have known for a while. They will sell to customers either in a physical store, where the customer will pay for the products directly, or through an online platform where a third party payment system supported by a bank will confirm the transaction. This arrangement will continue to work well, providing there is not a significant step change in demand. In short, if the jeweller usually sells 50 items a week, and demand for a popular item suddenly jumps to 4,000 a week, it becomes impossible to fulfil within a reasonable timeframe without drastic changes in the process.
In contrast, a major automotive manufacturer has several supply chains that will operate across multiple geographies, with thousands of suppliers, including a handful of global component manufacturers, who each have their own constellations of suppliers and subcontractors, with some common to both. Like the previous example of the jeweller, the major relationships have been established over long periods of time and the value exchanges of information, money and material, are usually significant. There will also be a degree of churn and change at the edges as small suppliers fail, or stop providing the products required. These changes are usually handled within the existing (established) processes that are defined by the need to ‘trust’ any new party entering the network.
These processes are often cumbersome, inflexible and may not reveal any inherent weakness that could compromise the entire network in the future. They rely on a third party somewhere in the chain of command, to validate any new entrants before they can perform the services they are required to deliver. In a high velocity supply chain this can introduce problems further along the chain. In short, it is inefficient.
This requirement for validation by third parties can be a significant weak spot in diverse and extended supply chains. In 2011, extensive rainfall across south east Asia led to massive floods in Thailand. This stopped operations at a significant number of the worlds contract manufacturing plants specialising in disc drive production who were clustered in that area. Computer manufacturers scrambled to find alternative suppliers, but due to the requirement to validate new suppliers, it was easier to work with existing suppliers and have them boost output in other locations. This proved challenging, as it required the suppliers with functioning plants elsewhere to prioritise customers. Some 14,000 manufacturers were impacted and it took months to resolve, impacting delivery schedules, and forcing some out of business.
Furthermore, switching production to other locations required the establishment of new logistics pathways and working with new subcontractors, all of whom had to be validated and approved.
The issue wasn’t that the organisations involved did not have the capabilities to perform what was required. It was that they needed to be ‘validated’ so that they could be trusted by their partners in the network. This is where decentralised trust mechanisms, such as those illustrated by blockchains, are very valuable to extended supply chains with huge numbers of participant organisations. These decentralised networks use a consensus network of thousands of independent systems to ensure immutability and verifiable integrity of identities, transactions and computation. They can support massive scale and are robust and extremely difficult to compromise.
OriginTrail and knowledge assets
The OriginTrail Decentralised Knowledge Graph (DKG) was designed to exploit and advance these technologies to support the necessary flexibility and adaptability of critical global supply chains. It achieves that by bringing the complex, fragmented processes in global supply chains to a common denominator using a simple yet powerful building block — a knowledge asset. With the endless variety of possible scenarios in global supply chains, a knowledge asset is there to represent any single (small or large) part of it, whether that’s raw material, finished product, professional service, factory building, compliance certificate, quality claim or anything else you can think of. But even though they can be so incredibly diverse, they all share the same core characteristics:
- unique identity which can be pointed to using a Unique Asset Locator (UAL is derived the same way how URLs are created in the world wide web),
- verifiable ownership ensuring chain of custody can be followed throughout the asset lifecycle,
- knowledge asset graph of data combining all relevant claims about an asset with precise data permissioning capabilities from fully private claims, limited access or fully public claims.
Each of these characteristics ensures a powerful building block which we can use, almost like lego blocks, to recreate the fragmented reality that are modern supply chains. The most important part, however, is that all these assets aren’t created in data silos but rather issued on a global DKG where they are organised in a way that they can be discovered, verified and used. Because the DKG is not owned, controlled or run by any single entity (it is a permission-less network), it provides the ideal, neutral, common ground where each participant can own and control their assets and important business information while still be able to share it with anyone they wish to share it with. It is perhaps one of the most critical innovations for supply chain, as for once, interoperability of systems based on global standards is the fundamental starting point rather than an after-thought or even seen as something that is not desirable when service providers are pursuing vendor lock-ins.
De-siloing data for frictionless international trade
The enormous potential of OriginTrail’s DKG is that it can also address many of the challenges embedded within the regulatory structures that underpin the global trading system. Much of the inherent inertia that permeates global supply chains is due to the bureaucracy required to validate and authorise parties and contracts.
Governments and trade organisations are constantly trying to harmonise regulations and agree on common standards, but technology may now be able to reframe the essence of the debate with the advent of the DKG. With the collaboration of the BSI and others, OriginTrail has been able to demonstrate how the DKG can serve as a universal and immutable system of record for licences and credentials. These digital ‘assets’ of the organisation can now be referenced from anywhere by any relevant authority, thus avoiding unnecessary duplications of certifications, authorizations, inspection and audit reports.
This has huge implications as there is an enormous amount of cost and operational overheads in the duplication, sharing and managing the documentation necessary for legislative compliance across global supply chain operations. The Supplier Compliance Audit Network (SCAN) is a clear example of how this can work in practice. There are currently 52 SCAN members that have audited some 22,000 factories across 80 countries for security and social responsibility compliance. This collaboration of SCAN members and a small number of audit firms now enables supplier audit reports to be shared with SCAN members removing the necessity for them to conduct their own audits.
The key element of this is that the approach ensures anonymity and confidentiality, so members do not see proprietary sourcing information, only the information confirming that the audit report confirmed compliance with the agreed standards. This avoids duplication of effort and cost and saves huge amounts of time when establishing new trading partner networks.
This initiative is growing and is helping the US CBP, CTPAT, and other Authorised Economic Operators (AEO) establish common security standards that can easily be referenced and checked in a secure manner. As more organisations are accredited with AEO status, the ability to record this accreditation on a secure, immutable platform such as the DKG will be immensely beneficial. It is this evolution of a recognized credential into a digital asset, immutably owned by the accredited party and capable of being instantly referenced from anywhere that is transformational.
As the SCAN example has shown, being able to reference existing accreditations in a fast, trusted and secure manner saves time and also reduces the operational costs when setting up new trading relationships.
But the real advantages of the DKG will be realised within organisations that are able to record their physical inventories as immutable digital assets on the DKG. Being able to trust inventory data across the supply chain is essential. Inaccurate and unverified inventory results in duplications, excess cost and often disappointed customers due to stock shortages.
As an example, when inventory items are moved, they may be recorded in a number of different systems. These systems frequently assign different identifiers to the inventory items, without corresponding links back to the original reference. This disconnect makes it harder to identify missing items or duplications. This can be expensive if the supply chains involve pharmaceuticals, or semiconductors.
For decades there has been a demand for a ‘Single version of the Truth’ when considering visibility systems. The track and trace systems of the global integrated carriers were the first to provide some kind of end to end view of a shipments progress. But as soon as it left their information domain (e.g. passed to another carrier), the information flow either broke down or was delayed. Across a global supply chain comprising multiple partners and a myriad of systems, these data update delays and disconnects illustrate that ensuring referential integrity is very difficult.
The advent of the DKG provides the opportunity to rethink supply chain visibility. If inventory items are represented as digital assets on the DKG there should be no need to keep recording them in different systems, merely refer back to the original digital asset and its attributes. As it physically moves through the supply chain as an order or shipment, each stage of the journey should reflect the ownership, status and chain of custody as a cluster of digital assets, immutably recorded on the DKG.
This is a very seductive and powerful proposition, as it implies a huge improvement in efficiency and reduction in errors and exceptions. This is because every participant will have access to the same information, certain in the knowledge that all of the participants are looking at the same data, albeit in their specific context.
Clearly, it will take time to achieve this as it is not a trivial exercise to transform existing stores of inventory data into digital assets. The performance of the underlying technology will also have to improve, but initiatives such as Version 6 of the DKG, the Network Operating System (nOS) enabler for enterprises, and Project Magnify are accelerating things.
Innovative companies and curious staff members in the horizon scanning and scenario planning functions of major corporations should explore what the OriginTrail and the Trace Alliance have been doing. As the world evolves from Web2 to a Web3 landscape, those organisations that understand and appreciate the power of Decentralised Knowledge Graphs will have the advantage.
TradeLens takeaways: Not less, but more decentralisation and interoperability
The importance of having a common infrastructure rooted in decentralisation, neutrality, and interoperability can be reinforced by examining one of the high-profile industry initiatives that has recently announced it is closing down, TradeLens. TradeLens was a joint effort of Maersk and IBM established in 2018 and was considered by many as one of the most promising ventures deploying blockchain technology in the shipping industry. But if that was the case, why did it fail, and how does OriginTrail DKG address the shortcomings that were the root causes of this failure?
There are a plethora of reasons that led to TradeLens’ demise, but below are some of the ones we consider the most important.
Low level of digitalization in the shipping industry. In a report from October this year, McKinsey estimated that only around 1% of all Bill of Ladings (BLs) are digital today. Such low levels of digitalization present a significant barrier to industry-wide initiatives such as TradeLens. To help overcome that barrier, the Network Operating System (nOS) offers multiple avenues to help organisations create assets on OriginTrail DKG. This ranges from as easy as providing inputs via e-mail to more automated API data ingestion capabilities. Interoperability among multiple inputs is achieved thanks to supporting global data standards such as GS1 EPCIS and DSCA’s Electronic Bill of Lading (eBL), ensuring all created assets are interoperable. And there is a lot of potential in the digitalization of the shipping industry. In the same report mentioned above, McKinsey estimates that 100% adoption of the eBL would have an annual impact of around USD 50bn in the ocean trade ecosystem alone.
Lack of willingness to share data. It’s no surprise that industry players are reluctant to share sensitive business data, as questions around data privacy and ownership inevitably pop up. This is especially true when the underlying infrastructure is provided by a competitor, as was the case with TradeLens — Maersk being the largest shipping company globally. OriginTrail provides industry players with a way to transform their existing data into assets that are discoverable and verifiable on the DKG, but remain fully within their control and can be shared as needed, for example with customs authorities or other government agencies. This is important as assets (and data) need to be discoverable to be useful, but that should never happen at the expense of data privacy.
Level of decentralisation and neutrality. Closely tied to the previous point, the level of decentralisation and neutrality of TradeLens’ infrastructure was not sufficient to facilitate an industry-wide adoption. If any industry-wide initiative is to succeed, the infrastructure needs to ensure that all participants are on an equal footing and minimise the potential for vendor lock-ins. OriginTrail DKG provides this neutral, common ground as a permissionless, open-source infrastructure that is not owned, controlled, or run by any single entity.
Interoperability of data and infrastructures. Interoperability is crucial to successful industry-wide initiatives. And there are two facets of interoperability, the first being interoperability of data and the second being interoperability of infrastructure. The TradeLens experiment made it clear that more focus needs to be put on both facets, and that industry-wide permissioned blockchains don’t deliver the expected business value. OriginTrail tackles this interoperability challenge from both angles. Data interoperability is achieved by assets on OriginTrail utilising global data standards such as GS1 EPCIS and DSCA’s Electronic Bill of Lading (eBL). From an infrastructure point of view, OriginTrail is multichain by design, meaning a global graph backed by multiple permissionless blockchains (currently Polkadot, Ethereum, Gnosis, and Polygon), giving organisations full flexibility in terms of what infrastructure they want to use.
While we still have a long way to go, the digitalisation of global supply chains continues, and TradeLens provided valuable insights, as well as highlighted some of the core issues that need to be addressed moving forward. With the paradigm-changing shift from data to assets, OriginTrail can serve as one of the components that will help address those issues and facilitate the successful digital transformation of international trade.
👇 More about OriginTrail 👇
OriginTrail is an ecosystem dedicated to making the global economy work sustainably by organizing humanity’s most important knowledge assets. It leverages the open source Decentralized Knowledge Graph that connects the physical world (art, healthcare, fashion, education, supply chains, …) and the digital world (blockchain, smart contracts, Metaverse & NFTs, …) in a single connected reality driving transparency and trust.
Advanced knowledge graph technology currently powers trillion-dollar companies like Google and Facebook. By reshaping it for Web3, the OriginTrail Decentralized Knowledge Graph provides a crucial fabric to link, verify, and value data on both physical and digital assets.
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👇 More about Trace Labs👇
Trace Labs is the core developer of OriginTrail — the open source Decentralized Knowledge Graph. Based on blockchain, OriginTrail connects the physical world and the digital world in a single connected reality by making all different knowledge assets discoverable, verifiable and valuable. Trace Labs’ technology is being used by global enterprises (e.g. over 40% of US imports including Walmart, Costco, Home Depot are exchanging security audits with OriginTrail DKG) in multiple industries, such as pharmaceutical industry, international trade, decentralized applications and more.